FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7159
FLORIDA ROCK INDUSTRIES, INC.
(exact name of registrant as specified in its charter)
Florida 59-0573002
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
155 East 21st Street, Jacksonville, Florida 32206
(Address of principal executive offices)
(Zip Code)
904/355-1781
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of The Exchange Act). Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of April 26, 2004: 43,250,360 shares of
$.10 par value common stock.
FLORIDA ROCK INDUSTRIES, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2004
CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Item 4. Controls and Procedures 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 4. Submission of Matters to a Vote of Stockholders 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
Exhibit 11. Computation of Earnings Per Common Share 23
Exhibit 31(a)Certification of John D. Baker, II 24
Exhibit 31(b)Certification of John D. Milton, Jr. 25
Exhibit 31(c)Certification of Wallace A. Patzke, Jr. 26
Exhibit 32. Certification under Section 906 of Sarbanes-Oxley Act 27
of 2002
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLORIDA ROCK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, September 30,
2004 2003
ASSETS
Current assets:
Cash and cash equivalents $ 42,527 38,135
Accounts receivable, less allowance
for doubtful accounts of $3,094
($3,419 at September 30, 2003) 117,760 106,954
Inventories 34,710 37,079
Current deferred income taxes 3,890 2,530
Prepaid expenses and other 6,332 5,396
Total current assets 205,219 190,094
Other assets 66,448 57,709
Goodwill 148,391 148,573
Property, plant and equipment, at cost:
Depletable land 126,559 128,715
Other land 59,704 52,074
Plant and equipment 796,366 784,367
Construction in process 16,497 7,276
999,126 972,432
Less accumulated depreciation,
depletion and amortization 501,749 482,654
Net property, plant and equipment 497,377 489,778
$ 917,435 886,154
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term notes payable to banks $ 12,000 -
Accounts payable 49,124 46,557
Dividends payable 7,210 7,187
Federal and state income taxes - 3,600
Accrued payroll and benefits 19,291 21,131
Accrued insurance reserve 8,858 4,924
Accrued liabilities, other 9,300 11,806
Long-term debt due within one year 766 518
Total current liabilities 106,549 95,723
Long-term debt 83,566 118,964
Deferred income taxes 73,316 65,907
Accrued employee benefits 17,985 17,661
Long-term accrued insurance reserves 10,081 8,281
Other accrued liabilities 5,363 5,196
Total liabilities 296,860 311,732
Shareholders' equity:
Preferred stock, no par value; 10,000,000
shares authorized, none issued - -
Common stock, $.10 par value; 50,000,000
shares authorized, 43,250,360 shares issued
(43,078,102 shares at September 30, 2003) 4,325 4,308
Capital in excess of par value 21,950 18,078
Retained earnings 594,300 552,036
Total shareholders' equity 620,575 574,422
$ 917,435 866,154
See accompanying notes.
FLORIDA ROCK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
2004 2003 2004 2003
Net sales $223,775 160,367 444,083 321,108
Freight revenues 4,827 3,248 9,911 6,753
Total sales 228,602 163,615 453,994 327,861
Cost of sales 163,272 118,734 324,793 243,442
Freight expense 4,830 3,244 9,898 6,762
Total cost of sales 168,102 121,978 334,691 250,204
Gross profit 60,500 41,637 119,303 77,657
Selling, general and administrative 21,944 19,194 44,162 36,571
Gain on sale of real estate (5) (2,448) (12,937) (2,448)
Operating profit 38,561 24,891 88,078 43,534
Interest expense (554) (443) (1,181) (912)
Interest income 216 524 504 1,053
Other income (expense), net 333 185 1,354 608
Income before income taxes 38,556 25,157 88,755 44,283
Provision for income taxes 14,059 8,857 32,130 15,587
Income before cumulative effect of
accounting change 24,497 16,300 56,625 28,696
Cumulative effect of accounting
change, net of income taxes of $181 - - - 333
Net income $ 24,497 16,300 56,625 29,029
Earnings per share:
Basic
Income before cumulative effect
of accounting change $ .57 .38 1.31 .67
Cumulative effect of accounting
change - - - .01
Net income $ .57 .38 1.31 .68
Diluted
Income before cumulative effect of
accounting change $ .56 .37 1.29 .66
Cumulative effect of accounting
change - - - .01
Net income $ .56 .37 1.29 .67
Cash dividends per common share $.167 .067 .333 .133
Weighted average shares used
in computing earnings per share:
Basic 43,176 42,908 43,132 42,892
Diluted 44,042 43,508 44,002 43,544
See accompanying notes.
FLORIDA ROCK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2004 AND 2003
(In thousands)
(Unaudited)
2004 2003
Cash flows from operating activities:
Net income $56,625 29,029
Cumulative effect of accounting change - (333)
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation, depletion and amortization 31,367 32,157
Deferred income tax provision (benefit) 6,048 (731)
Provision for doubtful accounts 369 -
Gain on disposition of property, plant and
equipment (13,594) (3,091)
Net changes in operating assets and
liabilities:
Accounts receivable (11,160) 273
Inventories 2,368 (3,209)
Prepaid expenses and other (936) (2,343)
Accounts payable and accrued liabilities 924 (10,059)
Other, net (393) 842
Net cash provided by operating activities 71,618 42,535
Cash flows from investing activities:
Purchases of property, plant and equipment (44,970) (26,693)
Proceeds from the sale of property, plant and
equipment 20,630 4,054
Additions to other assets (9,320) (5,774)
Collections of notes receivable 32 503
Net cash used in investing activities (33,628) (27,910)
Cash flows from financing activities:
Proceeds from long-term debt - 722
Increase (decrease)in short-term debt 12,000 (3,400)
Repayment of long-term debt (35,149) (144)
Exercise of employee stock options 3,894 674
Repurchase of common stock (5) -
Payment of dividends (14,338) (5,724)
Net cash used in financing activities (33,598) (7,872)
Net increase in cash and cash equivalents 4,392 6,753
Cash and cash equivalents at beginning of year 38,135 3,845
Cash and cash equivalents at end of period $42,527 $10,598
See accompanying notes.
FLORIDA ROCK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying condensed consolidated financial statements
include the accounts of Florida Rock Industries, Inc. and its
more than 50% owned subsidiaries (collectively, the
"Company"). These statements have been prepared in accordance
with accounting principles generally accepted in the United
States of America for interim financial information and the
instructions to Form 10-Q and do not include all the
information and footnotes required by accounting principles
generally accepted in the United States of America for
complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the results
for the interim periods have been included. Operating results
for the three and six months ended March 31, 2004, are not
necessarily indicative of the results that may be expected for
the fiscal year ended September 30, 2004. The accompanying
condensed consolidated financial statements and the
information included under the heading "Management's
Discussion and Analysis" should be read in conjunction with
the consolidated financial statements and related notes of
Florida Rock Industries, Inc. included in the Form 10-K for
the year ended September 30, 2003.
(2) Stock Option Plan
The Company accounts for stock options under the intrinsic
value method of APB Opinion No. 25. The Company has not
incurred any compensation cost using the intrinsic value
method for employee stock options. If the fair value based
method had been used the following table summarizes the
proforma effect:
Three Months Ended Six Months Ended
March 31, March 31,
2004 2003 2004 2003
Reported net income $ 24,497 16,300 56,625 29,029
Compensation cost
determined under fair
value based method, net
of income taxes (523) (419) (958) (749)
Proforma net income $23,974 15,881 55,667 28,280
Basic earnings per share:
Reported net income $ .57 .38 1.31 .68
Compensation cost, net
of income taxes (.01) (.01) (.02) (.02)
Proforma $ .56 .37 1.29 .66
Diluted earnings per share:
Reported net income $ .56 .37 1.29 .67
Compensation cost, net
of income taxes (.02) (.01) (.02) (.02)
Proforma $ .54 .36 1.27 .65
(3) Common Stock Split
On December 3, 2003, the Board of Directors approved a 3 for 2
common stock split. Shareholders of record as of January 2,
2004, received one additional share for each two shares held.
The stock split was effected in the form of a stock dividend
on January 16, 2004. All share and per share amounts for all
prior periods have been restated to reflect the stock split.
For the three years ended September 30, 2003, the following is
the effect on earnings per share:
2003 2002 2001
Basic earnings per share
as reported $ 2.65 2.42 2.47
After giving effect to the
stock split 1.77 1.62 1.65
Diluted earnings per share
as reported 2.61 2.38 2.42
After giving effect to the
stock split 1.74 1.59 1.61
(4) Change in Accounting Principle
Effective October 1, 2002, the Company adopted SFAS No. 143,
"Accounting for Asset Retirement Obligations." The statement
applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition,
construction, development and (or) normal use of the asset.
Statement No. 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period
in which it is incurred if a reasonable estimate of fair value
can be made. The fair value of the liability is added to the
carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset.
The liability is accreted at the end of each period through
charges to operating expenses. If the obligation is settled
for other than the carrying amount of the liability, a gain or
loss will be recognized on settlement.
All legal obligations for asset retirement obligations were
identified and the fair value of these obligations were
determined as of October 1, 2002. Previously, the Company
accrued for such costs on the units of production basis over
the estimated reserves. Upon the adoption of the new
standard, the Company recorded the current fair value of its
expected cost of reclamation. The cumulative effect of the
change on prior years resulted in income recognized in the
first quarter and first six months of fiscal 2003 of $514,000
before income taxes and $333,000 after income taxes.
The Company cannot reasonably estimate the fair value of the
asset retirement obligation related to substantially all of
its concrete products segment and all of the cement segment
since the Company is unable to estimate the date the
obligation would be incurred or the cost of the obligation.
For the aggregates segment, an asset retirement obligation was
provided where the Company has a legal obligation to reclaim
the mining site.
The analysis of asset retirement obligation for the six months
ended March 31, 2004 and 2003 is as follows (in thousands):
2004 2003
Balance at beginning of period $8,649 $ -
Initial liability on adoption of
the new standard - 8,385
Additional liabilities 96 150
Accretion of expenses 180 172
Payment of obligations (36) (378)
Balance at end of period $8,889 8,329
(5) New Accounting Pronouncements
In December of 2003, the FASB revised Statement No. 132
"Employers' Disclosures about Pensions and Other
Postretirement Benefits." This Statement retains the
disclosure requirements of the original Statement, which it
replaces, and requires additional disclosures about the
assets, obligations, cash flows and net periodic benefit cost
of defined benefit pension plans and other defined benefit
postretirement plans. The annual financial statement
disclosures are effective for the Company for the fiscal year
ended September 30, 2004. For the three and six months ended
March 31, 2004 and 2003, no pension income or expense was
recorded. Based on current estimates, there is no requirement
to make cash contributions for fiscal 2004.
(6) Acquisition
On August 12, 2003, the Company completed the acquisition of
Lafarge Florida, Inc., which imports cement and slag into
Tampa, Florida. Some of the cement is sold and the balance
is either blended or bagged and then sold. The slag is
ground and sold. Clinker is imported into Port Manatee
Florida and is ground into cement and sold. The purchase
price was $124,545,000 in cash including acquisition costs of
$594,000. A portion of the cash purchase price was borrowed
under the Company's existing revolving credit agreements.
The purchase price has been allocated to assets and
liabilities acquired. During the quarter ended March 31,
2004, the Company completed its determination of the fair
value of assets acquired and liabilities assumed and recorded
a decrease in goodwill of $182,000.
All assets acquired including goodwill are attributable to the
Cement and Calcium segment. All of the goodwill is expected
to be amortized for income tax purposes.
The following unaudited pro forma financial information
presents the results of operations as if this acquisition had
occurred October 1, 2002(in thousands, except per share
amounts).
Three Months Six Months
Ended March 31, Ended March 31,
2003 2003
Total sales $187,967 374,685
Net income $ 18,951 34,082
Earnings per share:
Basic $ .44 .79
Diluted $ .44 .78
The pro forma results have been prepared for comparative
purposes only and include certain adjustments for increased
interest expense on the revolving credit agreement. The pro
forma results are not indicative either of the results of
operations that actually would have resulted had the
acquisition occurred October 1, 2002 or of future results.
(7) Inventories
Inventories consisted of the following (in thousands):
March 31, September 30,
2004 2003
Finished products $ 19,953 21,240
Raw materials 6,849 8,223
Work in progress 2,008 1,704
Parts and supplies 5,900 5,912
$ 34,710 37,079
(8) Gain on Sale of Real Estate
On November 12, 2003, the Company closed on all remaining
installments of a sale of a former quarry site. Gross
proceeds of the sale were $20,250,000 resulting in a pre-tax
gain of approximately $12,927,000 or $8,273,000 after tax for
the six months ended March 31, 2004. A portion of proceeds
of the sale are held in escrow subject to completion of
another like kind exchange transaction. The escrow is
included in other assets in the accompanying balance sheet.
(9) Business Segments
The Company has identified three business segments, each of
which is managed separately along product lines. All of the
Company's operations are in the Southeastern and Mid-Atlantic
States. The Aggregates segment mines, processes and sells
construction aggregates. The Concrete products segment
produces and sells ready-mix concrete and other concrete
products. The Cement and Calcium segment produces and sells
cement and calcium products to customers in Florida, Georgia
and Maryland.
Operating results and certain other financial data for the
Company's business segments are as follows (in thousands):
Three Months Ended Six Months Ended
March 31, March 31,
2004 2003 2004 2003
Net sales, excluding
freight
Aggregates 69,569 54,906 139,559 109,760
Concrete products 137,396 112,702 272,422 223,716
Cement and calcium 42,739 14,837 83,744 29,251
Intersegment sales (25,929) (22,078) (51,642) (41,619)
Total net sales,
excluding freight $223,775 160,367 444,083 321,108
Operating profit
Aggregates $ 16,936 14,383 48,323 26,054
Concrete products 11,543 6,573 24,163 11,578
Cement and calcium 13,778 5,995 22,489 9,325
Corporate overhead (3,696) (2,060) (6,897) (3,423)
Total operating $ 38,561 24,891 88,078 43,534
Profit
Identifiable assets, at quarter end
Aggregates 342,198 328,807
Concrete products 228,404 218,815
Cement and calcium 228,576 112,793
Unallocated corporate
assets 62,402 56,967
Cash items 42,526 10,598
Investments in affiliates 13,329 16,680
Total identifiable
Assets $917,435 744,660
Aggregates operating profit for the six months ended March
31, 2004 includes gains on the sale of real estate of
$12,932,000. Aggregates operating profit for the three and
six months ended March 31, 2003 includes gains on sale of
real estate of $2,448,000.
(10) Supplemental Disclosures of Cash Flow Information
Cash paid during the six months ended March 31, 2004 and
2003 for certain expense items are as follows (in
thousands):
2004 2003
Interest expense, net of
amount capitalized $ 1,103 881
Income taxes $29,980 13,297
The following schedule summarizes non-cash investing and
financing activities for the six months ended March 31, 2004
and 2003 (in thousands):
2004 2003
Additions to property, plant
and equipment from:
Exchanges $ 55 762
Additions to receivables from
selling property, plant and
equipment for a note $ - 20
(11) Related Party Transaction
On March 31, 2004, the Company purchased from Patriot
Transportation Holding, Inc. ("Patriot") a parcel of land
and improvements containing approximately 6,321 acres in
Northeast Florida for $13,000,000 in escrow cash. This
transaction was reviewed and approved on behalf of the
Company by a committee of independent directors after
receipt of an appraisal and consultation with management.
(12) Contingent Liabilities
In November 2000, the United States Environmental
Protection Agency through the offices of the United States
Attorney for the District of Columbia commenced an
investigation of DC Materials, Inc. and Cardinal Concrete
Company, both subsidiaries of the Company, with respect to
a parcel of real property leased by DC Materials, Inc. in
the District of Columbia. The investigation consists of
looking into possible violations of the Clean Water Act in
connection with the discharge of runoff water at the
aforementioned site. On September 10, 2003, a former
employee of this facility was convicted of violating the
Clean Water Act. As a result, he has been barred from
receiving federal government contracts or benefits at this
facility. Neither the Company nor its subsidiaries have
been barred from receiving government contracts or benefits
at this facility. The Company and its subsidiaries are
cooperating fully with the investigation, which is still
continuing. Based in part on advice of counsel, in the
opinion of management, the outcome is not expected to have
a material adverse effect on the Company's consolidated
financial statements.
A lawsuit was filed by three national environmental groups
on August 20, 2002 challenging federal agency decisions to
authorize continued limestone mining in Miami-Dade County,
Florida "Lake Belt." Specifically, the environmental
plaintiffs challenge the U.S. Army Corps of Engineers' (the
"Corps") April 2002 decision to issue twelve new mining
permits pursuant to Section 404 of the federal Clean Water
Act, and the U.S. Fish and Wildlife Service's June 2001
decision not to require formal consultation under the
federal Endangered Species Act regarding those permits.
The environmental plaintiffs claim that the two federal
agencies violated the Clean Water Act, the Endangered
Species Act, the Migratory Bird Treaty Act, and the
National Environmental Policy Act. They ask the court to
set aside the April 2002 permits and to enjoin the Corps
from "authorizing any further mining within the Lake Belt
project area unless and until the Corps fully complies with
the requirements of the Clean Water Act, Migratory Bird
Treaty Act, and National Environmental Policy Act."
The mining companies holding the April 2002 permits were
not named as defendants in the lawsuit by the environmental
plaintiffs; however, since the mining companies would be
adversely affected if the environmental groups were to
obtain all of the relief they seek, on September 18, 2002,
two Motions to Intervene were filed on behalf of several of
the mining companies, including the Company which motions
were granted by the Court on February 23, 2004.
On March 25, 2004, the plaintiffs filed a Motion to Amend
Complaint. The amended complaint dropped plaintiffs'
claim under the Migratory Bird Treaty Act and added a claim
that the Corps violated the National Environmental Policy
Act by not preparing a supplemental environmental impact
statement. Plaintiffs' amended complaint did not include
a motion for a preliminary injunction.
The Company is unable to assess at this time, with any
degree of certainty, the impact on the Company and its
future financial performance of an adverse judgment in this
lawsuit.
A lawsuit was filed by three environmental organizations on
June 26, 2003, challenging federal agency decisions to
authorize the Company's proposed limestone mine in Ft.
Myers, Florida. Specifically, the environmental
plaintiffs challenge the U.S. Army Corps of Engineers' (the
Corps") April 2003 decision to issue a new mining permit
pursuant to Section 404 of the federal Clean Water Act, and
the U.S. Fish and Wildlife Service's January 30, 2002,
biological opinion concluding that this limestone mining
would not jeopardize the continued existence of the Florida
panther. The environmental plaintiffs claim that the two
federal agencies violated the Clean Water Act, the
Endangered Species Act, the Administrative Procedures Act,
and National Environmental Policy Act. They ask the court
to invalidate that the U.S. Fish and Wildlife Service's
January 30, 2002, biological opinion, to set aside the
April 2003 Corps permit, and to remand U.S. Fish and
Wildlife Service's January 30, 2003, biological opinion so
that the Service can prepare "a complete and adequate"
biological opinion.
The Company was not named as defendant in the lawsuit by
the environmental plaintiffs; however, since the Company
would be adversely affected if the environmental groups
were to obtain all of the relief they seek, on September 2,
2003, the Company filed a Motion to Intervene. The court
has not yet ruled on the Motion to Intervene. The federal
defendants to this lawsuit filed a Motion to Transfer Venue
to the Middle District of Florida. The Court denied this
Motion to Transfer Venue.
Plaintiffs filed their motion for Summary Judgment on
January 16, 2004 and defendants filed their Cross Motion
for Summary Judgment on February 20, 2004. Both parties
have filed their reply briefs and are waiting for the court
to set a date for oral arguments on the Motions for Summary
Judgment.
The Company is unable to assess at this time, with any
degree of certainty, the impact on the Company and its
future financial performance of an adverse judgment in this
lawsuit.
The Company and its subsidiaries are involved in litigation
on a number of other matters and are subject to certain
claims which arise in the normal course of business, none
of which, in the opinion of management, are expected to
have a materially adverse effect on the Company's
consolidated financial statements.
The Company has retained certain self-insurance risks with
respect to losses for third party liability and property
damage.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Results
The Company's operations are influenced by a number of external
and internal factors. External factors include weather,
competition, levels of construction activity in the Company's
markets, the cost and availability of money, appropriations and
construction contract lettings by federal and state governments,
fuel costs, transportation costs, driver availability,
availability and reliability of ocean shipping vessels to deliver
clinker and cement, labor costs and inflation. Internal factors
include sales mix, plant location, quality and quantities of
aggregates reserves, capacity utilization and other operating
factors.
Financial results of the Company for any individual quarter are
not necessarily indicative of results to be expected for the
year, due primarily to the effect that weather has on the
Company's sales and production volume. Normally, the highest
sales and earnings of the Company are attained in the Company's
third and fourth quarters and the lowest sales and earnings are
attained in the Company's first and second quarters. In
addition, quarterly results will be affected by planned
maintenance at the cement plant. The Company expenses
maintenance costs at the cement plant, which can be significant,
when incurred. The Company expensed planned maintenance of
$2,300,000 in the first quarter and first half of fiscal 2004, as
compared to $1,878,000 in the first quarter and first half of
fiscal 2003. The plant was shut down for 14 days in the first
quarter and first half of fiscal 2004 and nine days in the first
quarter and first half of fiscal 2003 for planned maintenance.
During the third quarter of 2004, a planned maintenance has been
scheduled for eight days at an estimated cost of $1,000,000.
During the third quarter of fiscal 2003, the planned maintenance
was nine days at a cost of $644,000.
For the second quarter of fiscal 2004, which ended March 31,
2004, consolidated sales increased 39.7% to $228,602,000 from
$163,615,000 in the same quarter last year. The cement
operations acquired in August 2003 contributed sales of
$26,932,000. Excluding this acquisition, sales would have been
$201,670,000, which represents a 23.3% increase. The increase
in sales was due to increased revenues in all three segments.
Revenues in the concrete products segments increased due to
higher volumes of all products and an increase in the average
selling price. Revenues in the aggregates segment increased
primarily as a result of higher volumes partially offset by a
slight decrease in the average selling price attributable to
variations in product mix. Revenues increased in the cement and
calcium segment due to the acquisition and to higher cement
volumes from existing operations partially offset by a lower
average selling price of cement at the existing operations.
Cement volumes were also unusually high at our Newberry plant as
certain of our trading partners transferred extra volumes to us
during the quarter to accommodate short-term operating changes at
their respective facilities. For all three business segments,
volumes were aided by more favorable weather conditions in all
our major markets.
For the first six months of fiscal 2004, which ended March 31,
2004, consolidated sales increased 38.5% to $453,994,000 from
$327,861,000 in last year. The cement operations acquired in
August 2003 contributed sales of $52,316,000. Excluding this
acquisition, sales would have been $401,678,000, which represents
a 22.5% increase. The increase in sales was due to increased
revenues in all three segments. Revenues in the concrete
products segments increased due to higher volumes of all products
and an increase in the average selling price. Revenues in the
aggregates segment increased as a result of higher volumes
partially offset by a slight decrease in the average selling
price. Revenues increased in the cement and calcium segment due
to the acquisition and higher cement volumes from existing
operations partially offset by lower average selling price of
cement from existing operations. Cement volumes were also
unusually high at our Newberry plant as certain of our trading
partners transferred extra volumes to us during the quarter to
accommodate short-term operating changes at their respective
facilities. For all three business segments, volumes were aided
by more favorable weather conditions in all our major markets.
For the contribution made to net sales and operating profit from
each business segment, see Note 9 to the Condensed Consolidated
Financial Statements.
Gross profit for the second quarter increased 45.3% to
$60,500,000 from $41,637,000 for the same quarter last year.
Gross profit margin for the second quarter increased to 26.5%
from 25.4% last year. Gross profit and margin improved in all
three segments. The improvement in the aggregates segment was
due to volume increases which resulted in lower operating costs
per ton. These improvements were partially offset by start up
losses of new quarry operations that were approximately $400,000
higher this year. The improvement in the cement and calcium
segment is due to the acquisition in August 2003 and in existing
operations lowering the cost per unit as a result of increasing
volumes. The improvement in gross profit in the concrete
products segment was due to volume improvements which lowered the
per unit cost and lower depreciation expense. The improvements
were partially offset by $1,800,000 of additional risk insurance
reserves due to increased frequency and severity of claims during
the second quarter.
Gross profit for the six months increased 53.6% to $119,303,000
from $77,657,000 last year. Gross profit margin increased to
26.3% from 23.7% last year. Gross profit and margin improved in
all three segments. The improvement in the aggregates segment
was due to volume increases which resulted in lower operating
costs per ton and lower depreciation expense. These
improvements were partially offset by start up losses of new
quarry operations that were approximately $1,200,000 higher this
year. The improvement in the cement and calcium segment is due
to the acquisition in August 2003 and in existing operations
lowering the cost per unit as a result of increasing volumes.
The improvement in gross profit in the concrete products segment
was due to volume improvements, which lowered the per unit cost
and lower depreciation expense. These improvements were
partially offset by $1,800,000 of additional risk insurance
reserves due to increased frequency and severity of claims during
the second quarter.
Selling, general and administrative expenses for the second
quarter increased to $21,944,000 from $19,194,000 last year
constituting 9.6% of sales as opposed to 11.7% last year. The
increased amount is primarily due to increased profit sharing
expense (which is linked to profitability before real estate
gains) and a contribution to a state scholarship program, which
is offset by a credit to state income taxes.
Selling, general and administrative expenses for the six months
increased to $44,162,000 from $36,571,000 last year constituting
9.7% of sales as opposed to 11.2% last year. The increased
amount is primarily due to increased profit sharing expense
(which is linked to profitability before real estate gains);
additional new site permitting expenses and a contribution to a
state scholarship program which is offset by a credit to state
income taxes.
On November 12, 2003, the Company closed on all remaining
installments of a sale of its former quarry site at Naples,
Florida. Gross proceeds of the sale were $20,250,000 resulting
in a pre-tax gain of approximately $12,927,000 or $8,273,000
after tax for the six months of fiscal 2004.
Interest expense for the second quarter increased to $554,000
from $443,000 for the same quarter last year. Interest expense
for the six months increased to $1,181,000 from $912,000 last
year. This increase is attributable to higher debt outstanding
under the Company's revolver due to the acquisition in August
2003.
Interest income for the second quarter decreased to $216,000 as
compared to $524,000 for the same quarter last year. Interest
income for the six months decreased to $504,000 as compared to
$1,053,000 last year. This is primarily due to the loss of
interest on the real estate transaction described in Note 8.
Included in other income is the Company's equity in operating
results of 50% owned joint ventures. The equity in these
ventures was a loss of $245,000 for the second quarter of fiscal
2004 as compared to a loss of $326,000 last year. The equity in
these ventures was a gain of $410,000 for the six months of
fiscal 2004 as compared to a loss of $314,000 last year.
Income tax expense increased $5,202,000 for the second quarter of
fiscal 2004. This is due to higher income before taxes and an
increase in the tax rate to 36.5% versus 35.2% last year. Income
tax expense increased $16,543,000 for the six months of fiscal
2004. This is due to higher income before taxes and an increase
in the tax rate to 36.2% versus 35.2% last year. This increase
in the effective income tax rate was due to increased
contribution to earnings from the cement and calcium and concrete
products business segments not subject to percentage depletion.
Liquidity and Capital Resources. For the six months of
fiscal 2004, cash provided by operating activities of
$71,618,000, proceeds from sale of property, plant and equipment
of $20,630,000, exercise of stock options of $3,894,000 and
short-term borrowings of $12,000,000 funded the repayment of
$35,149,000 of debt; purchases of property, plant and equipment
of $44,970,000, additions to other assets of $9,320,000 and
payment of dividends of $14,338,000.
For the six months of fiscal 2003, cash provided by operating
activities of $42,535,000 exercise of stock options of $674,000
and proceeds from the sale of property of $4,054,000 funded the
repayment of $3,400,000 of the short-term overnight lines;
purchases of property, plant and equipment of $26,693,000 and
payment of dividends of $5,724,000.
Cash generated by operating activities is used to fund the
capital expenditure program, dividend payments and if there is
excess cash, it is used to reduce revolving credit facilities.
If there is a shortfall, borrowings are made under the revolving
credit facilities. Based on current expectations, management
believes that its internally generated cash flow and access to
existing credit facilities are sufficient to meet the liquidity
requirements necessary to fund operations, capital requirements,
debt service and future dividend payments. At March 31, 2004,
there was available $160,000,000 under a long-term revolver and
$53,000,000 available under overnight lines of credit. This
revolver expires on June 30, 2005. During April 2004, the
Company signed a letter of intent to increase the maximum amount
under the revolver to $250,000,000 and to extend the maturity to
June 30, 2009. In addition, there is approximately $28,000,000
that could be re-borrowed under insurance policies.
Working capital at March 31, 2004 was $98,670,000 as compared to
$94,371,000 at September 30, 2003.
While the Company is affected by environmental regulations, such
regulations are not expected to have a major effect on the
Company's capital expenditures or operating results.
Critical Accounting Policies. There have been no changes
in Critical Accounting Policies as disclosed in the Form 10-K for
the year ended September 30, 2003.
Related Party Transactions. Patriot Transportation
Holding, Inc. ("Patriot"), a related party, hauls diesel fuel and
other supplies for the Company. Charges for such services are
based on prevailing market prices. The Company also leases
various aggregate mining and other properties paying rent or
royalties based on long-term contracts entered into during mid
1980's and early 1990's. In addition, the Company provides
administrative service to Patriot and Patriot provides
construction management services to the Company. These services
are provided at market prices. During fiscal 2002, Patriot
agreed to sell for $15,000,000 land to the Company. In May 2003,
Patriot agreed to sell another parcel of property for $1,638,000.
The closing of these sales is to occur no later than December 31,
2004. These transactions have been reviewed and approved on
behalf of the Company by a committee of independent directors.
In December 2003, the Company had also agreed to purchase and on
March 31, 2004, purchased from Patriot a parcel of land and
improvements containing approximately 6,321 acres in Northeast
Florida for $13,000,000 in cash. This transaction was reviewed
and approved on behalf of the Company by a committee of
independent directors after receipt of an appraisal and
consultation with management.
Outlook. While we can't anticipate the continuation of
the very favorable weather we experienced in the first two
quarters, we remain very optimistic about our markets in the near
term. The product demand levels experienced in our markets
during our first two quarters appear to be sustainable for the
third quarter. Tight cement supplies in the southeast are
causing some mild instability that could remain for as long as
the supply of ocean shipping vessels continues to be tight.
Commercial construction demand appears to be improving slowly in
most of our markets.
During the second quarter ocean shipping rates for clinker and
cement have increased dramatically as a result of a shortage in
ocean vessels in the Atlantic and Caribbean areas and short-term
maintenance shutdowns at several other cement producers put
greater demands on Florida cement production facilities. As the
third quarter begins, supplies of cement in the Florida market as
well as the southeastern market remain extremely tight leading
some concrete producers to shut down facilities for short periods
of time. It is anticipated that the Company will have
approximately 30,000 tons less of imported cement during the
third quarter. The Company has not had to shut down any
concrete facilities to date due to the shortage of cement.
Forward-Looking Statements. Certain matters discussed in
this report contain forward-looking statements that are subject
to risks and uncertainties that could cause actual results to
differ materially from those indicated by such forward-looking
statements. These forward-looking statements relate to, among
other things, capital expenditures, liquidity, capital resources
and competition and may be indicated by words or phrases such as
"anticipate," "estimate," "plans," "project," "continuing,"
"ongoing," "expects," "management believes," "the Company
believes," "the Company intends" and similar words or phrases.
The following factors are among the principal factors that could
cause actual results to differ materially from the forward-
looking statements: availability and terms of financing; the
weather; competition; levels of construction activity in the
Company's markets; cement shipments; fuel and electric costs;
transportation costs; inflation; quality and quantities of the
Company's aggregates reserves; residential and nonresidential
construction; public spending for federal highways and
infrastructure; governmental regulations; ocean shipping rates;
and management's ability to determine appropriate sales mix,
plant location and capacity utilization.
However, this list is not a complete statement of all
potential risks or uncertainties. These forward-looking
statements are made as of the date hereof based on management's
current expectations and the Company does not undertake, and
affirmatively disclaims, an obligation to update such statements,
whether as a result of new information, future events or
otherwise. Additional information regarding these and other risks
factors may be found in the Company's other filings made from
time to time with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
There are no material changes to the disclosures made in Form 10-
K for the fiscal year ended September 30, 2003 on this matter.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
As required by Rule 13a-15 under the Exchange Act, as of
March 31, 2004, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's
disclosure controls and procedures. This evaluation was
carried out under the supervision and with the participation
of the Company's management, including the Company's
President and Chief Executive Officer, Chief Financial
Officer and Chief Accounting Officer. The evaluation
conducted by, the Company's President and Chief Executive
Officer, Chief Financial Officer and Chief Accounting
Officer has provided them with reasonable assurance that the
Company's disclosure controls and procedures are effective
in alerting them in a timely manner to material information
required to be included in periodic SEC filings.
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information
required to be disclosed in Company reports filed or
submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed in Company reports
filed under the Exchange Act is accumulated and communicated
to management, including the Company's Chief Executive
Officer, Chief Financial Officer and Chief Accounting
Officer, as appropriate, to allow timely decisions regarding
required disclosures.
(b) Changes in Internal Controls. There have been no changes in
internal controls or in other factors that could
significantly affect these controls subsequent to the date
of their evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Note 12 to the Condensed Consolidated Financial Statements
included in this Form 10-Q is incorporated by reference.
Item 2. Changes in Securities and Use of Proceeds
Purchases of Equity Securities. The only repurchases of equity
securities during the second quarter were repurchases of
factional shares in connection with the 3 for 2 stock split in
the form of a dividend to shareholders of record as of January 2,
2004, as set forth in the following chart.
ISSUER PURCHASES OF EQUITY SECURITIES
(a) Total (b) Average (c) Total (d) Maximum
Number of Price Paid Number of Number (or
Shares (or per Share Shares (or Approximate
Units (or Unit) Units) Dollar Value)
Purchased Purchased of Shares (or
As Part of Units) that
Publicly May Yet Be
Announced Purchased Under
Plans or the Plans or
Programs Programs
Period
January 1, 2004
thru January 31,
2004 143 36.73 - -
February 1, 2000
thru February 29,
2004 - - - -
March 1, 2004
Thru March 31,
2004 - - - -
Total 143 36.73 - -
Item 4. Submission of Matters to a Vote of Stockholders
On February 4, 2004, the Company held its annual shareholders
meeting. At the meeting, the shareholders elected the following
directors by the vote shown.
Term Votes Votes Brokers
Ending For Withheld Non-Votes
Thompson S. Baker II 2007 26,997,131 666,659 -
Luke E. Fichthorn III 2007 26,938,014 725,776 -
Tillie K. Fowler 2007 27,458,297 205,493 -
Francis X. Knott 2007 27,319,327 344,463 -
William H. Walton III 2006 27,445,139 208,651 -
The directors whose terms of office as a director have continued
after the meeting are A.R. Carpenter, John D. Baker II, and G.
Kennedy Thompson for terms expiring in 2005 and Edward L. Baker,
J. Dix Druce, Jr. and John D. Milton, Jr. for terms expiring in
2006.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The response to this item is submitted as a
separate section entitled "Exhibit Index" starting on page
18 of this Form 10-Q.
(b) Reports on Form 8-K. During the three months ended March
31, 2004, the Company filed the following reports on Form
8-K:
On January 22, 2004, the Company filed a Form 8-K filing a
copy of the Company's press release on earnings for the
quarter ended December 31, 2003 under Item 7 "Financial
Statements and Exhibits", Item 9 "Regulation FD
Disclosures" and Item 12 "Disclosure of Results of
Operations and Financial Condition."
On March 16, 2004, the Company filed a Form 8-K/A filing
financial statements and Pro Forma Financial Information
related to the Lafarge Florida, Inc. acquisition under Item
7 "Financial Statements, Pro Forma Financial Statements and
Exhibits."
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
April 27, 2004 FLORIDA ROCK INDUSTRIES, INC.
JOHN D. BAKER, II
JOHN D. BAKER, II
President and Chief Executive
Officer
JOHN D. MILTON, JR.
JOHN D. MILTON, JR.
Executive Vice President,
Treasurer and Chief Financial
Officer
WALLACE A. PATZKE, JR.
WALLACE A. PATZKE, JR.
Vice President, Controller
and Chief Accounting Officer
FLORIDA ROCK INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH, 2004
EXHIBIT INDEX
(3)(a)(1) Restated Articles of Incorporation of Florida
Rock Industries, Inc., filed with the Secretary
of State of Florida on May 9, 1986, incorporated
by reference to an exhibit previously filed with
Form 10-Q for the quarter ended December 31,
1986. File No. 1-7159.
(3)(a)(2) Amendment to the Articles of Incorporation of
Florida Rock Industries, Inc. filed with the
Secretary of State of Florida on February 19,
1992, incorporated by reference to an exhibit
previously filed with Form 10-Q for the quarter
ended September 30, 1993. File No. 1-7159.
(3)(a)(3) Amendments to the Articles of Incorporation of
Florida Rock Industries, Inc. filed with the
Secretary of the State of Florida on February 7,
1995, incorporated by reference to an appendix
to the Company's Proxy Statement dated December
15, 1994.
(3)(a)(4) Amendment to the Articles of Incorporation of
Florida Rock Industries, Inc. filed with the
Secretary of State of Florida on February 4,
1998, incorporated by reference to an exhibit
previously filed with Form 10-Q for the quarter
ended March 31, 1998. File No. 1-7159.
(3)(a)(5) Amendment to the Articles of Incorporation of
Florida Rock Industries, Inc. filed with the
Secretary of State of Florida on May 5, 1999.
A form of such amendment was previously filed
as Exhibit 4 to the Company Form 8-K dated May
5, 1999 and is incorporated by reference
herein. File No.1-7159.
(3)(b)(1) Restated Bylaws of Florida Rock Industries,
Inc., adopted December 1, 1993, incorporated by
reference to an exhibit previously filed with
Form 10-K for the fiscal year ended September
30, 1993. File No. 1-7159.
(3)(b)(2) Amendment to the Bylaws of Florida Rock
Industries, Inc. adopted October 5, 1994,
incorporated by reference to an exhibit
previously filed with Form 10-K for the fiscal
year ended September 30, 1994. File No. 1-
7159.
(3)(b)(3) Amendment to the Bylaws of Florida Rock
Industries, Inc. adopted February 4, 1998,
incorporated by reference to an exhibit
previously filed with Form 10-Q for the quarter
ended March 31, 1998. File No. 1-7159.
(3)(b)(4) Amendment to the Bylaws of Florida Rock
Industries, Inc. adopted December 5, 2001.
incorporated by reference to an exhibit
previously filed with Form 10-Q for the quarter
ended December 31, 2001. File No. 1-7159.
(4)(a) Articles III, VII, and XIII of the Articles of
Incorporation of Florida Rock Industries, Inc.
incorporated by reference to exhibits previously
filed with Form 10-Q for the quarter ended
December 31, 1986 and Form 10-K for the fiscal
year ended September 30, 1993 and Articles XIV
and XV, of the Articles of Incorporation of
Florida Rock Industries, Inc. incorporated by
reference as appendix to the Company's Proxy
Statement dated December 15, 1994. File No. 1-
7159.
(4)(b) Credit Agreement dated as of June 28, 2000 among
Florida Rock Industries, Inc.; First Union
National Bank; Bank of America, N.A.; SunTrust
Bank; and First Union Securities, Inc.;
incorporated by reference to an exhibit
previously filed with Form 10-Q for the quarter
ended June 30, 2000. File No. 1-7159.
(4)(c) The Company and its consolidated subsidiaries
have other long-term debt agreements which do
not exceed 10% of the total consolidated assets
of the Company and its subsidiaries, and the
Company agrees to furnish copies of such
agreements and constituent documents to the
Commission upon request.
(4)(d) Rights Agreements, dated as of May 5, 1999
between the Company and First Union National
Bank, incorporated by reference to Exhibit 4 to
the Company's Form 8-K dated May 5, 1999. File
No. 1-7159.
(10)(a) Employment Agreement dated June 12, 1972 between
Florida Rock Industries, Inc. and Charles J.
Shepherdson, Sr. and form of Addendum thereto,
incorporated by reference to an exhibit
previously filed with Form S-1 dated June 29,
1972. File No. 2-44839.
(10)(b) Addendums dated April 3, 1974 and November 18,
1975 to Employment Agreement dated June 12, 1972
between Florida Rock Industries, Inc., and
Charles J. Shepherdson, Sr., incorporated by
reference to an exhibit previously filed with
Form 10-K for fiscal year ended September 30,
1975. File No. 1-7159.
(10)(c) Amended Medical Reimbursement Plan of Florida
Rock Industries, Inc., effective May 24, 1976,
incorporated by reference to an exhibit
previously filed with Form 10-K for the fiscal
year ended September 30, 1980. File No. 1-7159.
(10)(d) Amendment No. 1 to Amended Medical Reimbursement
Plan of Florida Rock Industries, Inc. effective
July 16, 1976, incorporated by reference to an
exhibit previously filed with Form 10-K for the
fiscal year ended September 30, 1980. File No.
1-7159.
(10)(e) Tax Service Reimbursement Plan of Florida Rock
Industries, Inc. effective October 1, 1976,
incorporated by reference to an exhibit
previously filed with Form 10-K for the fiscal
year ended September 30, 1980. File No. 1-
7159.
(10)(f) Amendment No. 1 to Tax Service Reimbursement
Plan of Florida Rock Industries, Inc.,
incorporated by reference to an exhibit
previously filed with Form 10-K for the fiscal
year ended September 30, 1981. File No. 1-
7159.
(10)(g) Amendment No. 2 to Tax Service Reimbursement
Plan of Florida Rock Industries, Inc.,
incorporated by reference to an exhibit
previously filed with Form 10-K for the fiscal
year ended September 30, 1985. File No. 1-
7159.
(10)(h) Summary of Management Incentive Compensation
Plan as amended effective October 1, 1992.
Previously filed with Form 10-K for the fiscal
year ended September 30, 1993. File No. 1-7159.
(10)(i) Florida Rock Industries, Inc. Management
Security Plan, incorporated by reference to an
exhibit previously filed with Form 10-K for the
fiscal year ended September 30, 1985. File No.
1-7159.
(10)(j) Various mining royalty agreements with Patriot
Transportation Holding, Inc. or its subsidiary,
none of which are presently believed to be
material individually, but all of which may be
material in the aggregate, incorporated by
reference to exhibits previously filed with Form
10-K for the fiscal year ended September 30,
1986. File No. 1-7159.
(10)(k) Florida Rock Industries, Inc. 1996 Stock Option
Plan, incorporated by reference to an appendix
to the Company's Proxy Statement dated December
18, 1995. File No. 1-7159.
(10)(l) Florida Rock Industries, Inc. 2000 Stock Option
Plan, incorporated by reference to an exhibit
previously filed with the Proxy Statement dated
December 20, 2000. File No. 1-7159.
(10)(m) Amendment to Florida Rock Industries, Inc. 2000
Stock Option Plan, incorporated by reference to
an exhibit previously filed with Form 10-Q for
the Quarter ended March 31, 2003.
File No. 1-7159
(11) Computation of Earnings Per Common Share.
(14) Financial Code of Ethical Conduct. Previously
filed with Form 10-K for the fiscal year ended
September 30, 2003. File No. 1-7159
(31)(a) Certification of John D. Baker, II
(31)(b) Certification of John D. Milton, Jr.
(31)(c) Certification of Wallace A. Patzke, Jr.
(32) Certification under Section 906 of Sarbanes-
Oxley Act of 2002
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