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, 2005
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 May 3, 2005: 43,592,858 shares of $.10
par value common stock.
FLORIDA ROCK INDUSTRIES, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2005
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 10
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. Controls and Procedures 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits 17
Signatures 18
Exhibit 10(n) Summary of Compensation Arrangements with Directors 23
Exhibit 10(o) Summary of Compensation Arrangements with Named 24
Officers
Exhibit 11 Computation of Earnings Per Common Share 28
Exhibit 31(a)Certification of John D. Baker, II 29
Exhibit 31(b)Certification of John D. Milton, Jr. 30
Exhibit 31(c)Certification of Wallace A. Patzke, Jr. 31
Exhibit 32 Certification under Section 906 of Sarbanes-Oxley Act 32
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,
2005 2004
ASSETS
Current assets:
Cash and cash equivalents $ 6,506 45,891
Accounts receivable, less allowance
for doubtful accounts of $2,339
($2,555 at September 30, 2004) 123,721 107,000
Inventories 41,055 35,100
Current deferred income taxes 5,441 5,454
Prepaid expenses and other 4,949 4,891
Total current assets 181,672 198,336
Other assets 65,092 67,243
Goodwill 152,126 148,391
Property, plant and equipment, at cost:
Depletable land 141,681 127,773
Other land 77,618 75,626
Plant and equipment 847,239 818,378
Construction in process 22,730 15,784
1,089,268 1,037,561
Less accumulated depreciation,
depletion and amortization 533,082 516,602
Net property, plant and equipment 556,186 520,959
$ 955,076 934,929
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term notes payable $ 9,300 -
Accounts payable 58,485 47,121
Dividends payable 8,719 52,017
Federal and state income taxes - 7,770
Accrued payroll and benefits 22,621 31,974
Accrued insurance reserve 9,951 6,627
Accrued liabilities, other 7,868 11,271
Long-term debt due within one year 2,436 2,121
Total current liabilities 119,380 158,901
Long-term debt, excluding current installments 41,176 41,927
Deferred income taxes 82,352 79,181
Accrued employee benefits 18,494 18,268
Long-term accrued insurance reserves 10,443 10,443
Other accrued liabilities 6,814 5,329
Total liabilities 278,659 314,049
Shareholders' equity:
Preferred stock, no par value; 10,000,000
shares authorized, none issued - -
Common stock, $.10 par value; 100,000,000
shares authorized, 43,592,858 shares issued
(43,347,634 shares at September 30, 2004) 4,359 4,335
Capital in excess of par value 32,116 24,431
Retained earnings 639,942 592,114
Total shareholders' equity 676,417 620,880
$ 955,076 934,929
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,
2005 2004 2005 2004
Net sales $255,000 223,775 500,340 444,083
Freight revenues 5,565 4,827 11,153 9,911
Total sales 260,565 228,602 511,493 453,994
Cost of sales 177,510 163,272 353,311 324,793
Freight expense 5,534 4,830 11,122 9,898
Total cost of sales 183,044 168,102 364,433 334,691
Gross profit 77,521 60,500 147,060 119,303
Selling, general and administrative 25,949 21,944 48,587 44,162
Gain on sale of real estate 4,256 5 4,302 12,937
Operating profit 55,828 38,561 102,775 88,078
Interest expense (424) (554) (854) (1,181)
Interest income 19 216 92 504
Other income (expense), net 93 333 1,033 1,354
Income before income taxes 55,516 38,556 103,046 88,755
Provision for income taxes 20,376 14,059 37,819 32,130
Net income $ 35,140 24,497 65,227 56,625
Earnings per share:
Basic $ .81 .57 1.50 1.31
Diluted $ .79 .56 1.47 1.29
Cash dividend per common share $ .20 .167 .40 .333
Weighted average shares used
in computing earnings per share:
Basic 43,516 43,176 43,438 43,132
Diluted 44,451 44,042 44,393 44,002
See accompanying notes.
FLORIDA ROCK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2005 AND 2004
(In thousands)
(Unaudited)
2005 2004
Cash flows from operating activities:
Net income $65,227 56,625
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation, depletion and amortization 32,120 31,367
Deferred income tax provision 3,183 6,048
Provision for doubtful accounts (230) 369
Gain on disposition of property, plant and
equipment (5,119) (13,594)
Income tax benefit from exercise of stock
option 4,492 2,121
Net changes in operating assets and
liabilities:
Accounts receivable (16,491) (11,160)
Inventories (4,970) 2,368
Prepaid expenses and other (57) (936)
Accounts payable and accrued liabilities (7,629) 924
Other, net 95 (393)
Net cash provided by operating activities 70,621 73,739
Cash flows from investing activities:
Purchases of property, plant and equipment (71,608) (44,970)
Net proceeds from the sale of property, plant
and equipment and other assets 25,179 20,630
Additions to other assets (5,234) (9,320)
Long-term cash released from escrow 2,915 -
Business acquisition (11,366) -
Collections of notes receivable - 32
Net cash used in investing activities (60,114) (33,628)
Cash flows from financing activities:
Repayment of long-term debt (1,712) (35,149)
Increase (decrease) in short-term debt 9,300 12,000
Exercise of employee stock options 3,218 1,773
Repurchase of common stock - (5)
Payment of dividends (60,698) (14,338)
Net cash used in financing activities (49,892) (35,719)
Net increase(decrease)in cash and cash equivalents(39,385) 4,392
Cash and cash equivalents at beginning of year 45,891 38,135
Cash and cash equivalents at end of period $ 6,506 42,527
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, 2005, are not
necessarily indicative of the results that may be expected for
the fiscal year ended September 30, 2005. 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 its Annual Report on
Form 10-K for the year ended September 30, 2004. Certain
amounts have been reclassified for presentation adopted in
fiscal 2005.
(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 (in thousands except for per share amounts):
Three Months Ended Six Months Ended
March 31, March 31,
2005 2004 2005 2004
Reported net income $ 35,140 24,497 65,227 56,625
Compensation cost
determined under fair
value based method, net
of income taxes (818) (523) (1,500) (958)
Proforma net income $ 34,322 23,974 63,727 55,667
Basic earnings per share:
Reported net income $ .81 .57 1.50 1.31
Compensation cost, net
of income taxes (.02) (.01) (.03) (.02)
Proforma $ .79 .56 1.47 1.29
Diluted earnings per share:
Reported net income $ .79 .56 1.47 1.29
Compensation cost, net
of income taxes (.02) (.02) (.03) (.02)
Proforma $ .77 .54 1.44 1.27
In December 2004, the FASB issued SFAS No. 123R, Shared-Based
Compensation, which requires the Company to expense stock
options effective October 1, 2005. The Company is evaluating
the impact of this statement.
(3) Asset Retirement Obligations
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
ultimately settled for other than the carrying amount of the
liability, a gain or loss will be recognized on settlement.
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.
In March 2005, the FASB issued an interpretation of SFAS No.
143 related to the ability to reasonably estimate the fair
value of an asset retirement obligation. This interpretation
is effective for the Company no later than the end of fiscal
2006. The Company is in the process of evaluating the impact
of this interpretation.
The analysis of asset retirement obligation for the six months
ended March 31, 2005 and 2004 is as follows (in thousands):
2005 2004
Balance at beginning of period $9,033 $8,649
Additional liabilities 328 96
Accretion of expenses 200 180
Payments/settlement of obligations (1,560) (36)
Balance at end of period $8,001 8,889
(4) Employee Benefits
For the three and six months ended March 31, 2005 and 2004, no
pension income or expense was recorded. Based on current
estimates, there is no requirement to make cash contributions
for fiscal 2005.
(5) Inventories
Inventories consisted of the following (in thousands):
March 31, September 30,
2005 2004
Finished products $ 23,887 19,878
Raw materials 8,254 8,123
Work in progress 2,045 449
Parts and supplies 6,869 6,650
$ 41,055 35,100
The excess of current cost over the LIFO stated values of
inventories was $6,639,000 at March 31, 2005 and $6,619,000 at
September 30, 2004.
During the second quarter and first half of fiscal 2005,
inventory quantities decreased slightly while unit costs
increased. The result is that change in the LIFO reserve
increased cost of sales by $12,000 for the three months ended
March 31, 2005 and by $20,000 for the six months ended March
31, 2005. During the second quarter and first half of fiscal
2004, certain inventory quantities were reduced which resulted
in a liquidation of the LIFO reserve, the effect of which
decreased cost of sales by $255,000 for the three months ended
March 31, 2004 and $375,000 for the six months ended March 31,
2005.
(6) Gain on Sale of Real Estate
The Company has a contract for the sale of a former quarry
site in the Baltimore area. The contract has two separate
closings. During March 2005, the closing occurred on the
first tract with gross proceeds of $24,185,000 resulting in a
pre-tax gain of $4,256,000 ($2,694,000 after tax) for the
three and six months ended March 31, 2005. The second
closing is expected to occur during the third quarter of
fiscal 2005 with gross proceeds of $9,315,000 and an estimate
pre-tax gain of approximately $2,100,000. The Company is in
the process of completing the site work related to the sale.
As a result, $942,000 of the gain will be deferred and
recognized as income as the site work is completed. 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 ($8,273,000 after tax) for
the three months ended December 31, 2003.
(7) 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 and
Georgia.
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,
2005 2004 2005 2004
Net sales, excluding
freight
Construction aggregates $ 72,591 69,569 143,988 139,559
Concrete products 163,051 137,396 320,664 272,422
Cement and calcium 50,557 42,739 95,509 83,744
Intersegment sales (31,199) (25,929) (59,821) (51,642)
Total net sales,
excluding freight $255,000 223,775 500,340 444,083
Operating profit
Construction aggregates $ 20,645 16,936 39,470 48,323
Concrete products 24,748 11,543 46,205 24,163
Cement and calcium 16,068 13,778 26,797 22,489
Corporate overhead (5,633) (3,696) (9,697) (6,897)
Total operating $ 55,828 38,561 102,775 88,078
Profit
Identifiable assets, at quarter end
Construction aggregates $376,225 342,198
Concrete products 268,144 228,404
Cement and calcium 223,530 228,576
Unallocated corporate
assets 68,146 62,402
Cash items 6,506 42,526
Investments in affiliates 12,525 13,329
Total identifiable
Assets $955,076 $917,435
Construction aggregates operating profit for the three and six months
ended March 31, 2005 includes gains on the sale of real estate of
$4,256,000 and for the six months ended March 31, 2004 includes gains
on the sale of real estate of $12,932,000.
(8) Supplemental Disclosures of Cash Flow Information
Cash paid during the six months ended March 31, 2005 and 2004 for
certain expense items are as follows (in thousands):
2005 2004
Interest expense, net of
amount capitalized $ 860 1,103
Income taxes $41,904 29,980
The following schedule summarizes non-cash investing and
financing activities for the six months ended March 31, 2005
and 2004 (in thousands):
2005 2004
Additions to property, plant
and equipment from exchanges $ 93 55
Additions to property, plant and
equipment financed by issuing debt $1,276 -
(9) Acquisition
On October 1, 2004, the Company acquired a small quarry
operation and certain facilities on the Ohio River for
$10,382,000 and inventory at the date of closing; and
royalties to be paid as mining occurs. A preliminary
purchase price allocation has been made which resulted in
goodwill of $3,735,000. The result of operations of this
operation is immaterial to the results of the Company.
(10) 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. On April 27, 2004, the United States
Environmental Protection Agency requested the Company to
provide information on the Company's environmental
compliance programs to show that the Company is a
responsible party that should not be barred from receiving
federal government contracts or benefits. The Company
provided the requested information by letter dated June 24,
2004. 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 financial position
or results of operations.
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 asked 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. Oral argument on
the summary judgment motions was held on October 22, 2004;
however, no ruling has been issued.
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.
In December 2004, the Company's management discovered that
certain activities at the Company's Miami Quarry may be in
violation of the terms of wetland dredge-and-fill permits
issued by the U.S. Army Corps of Engineers and the Florida
Department of Environmental Protection. Upon discovery,
the Company halted the activities in question pending an
internal investigation. The Company voluntarily
disclosed the activities to the U.S. Army Corps of
Engineers and Florida Department of Environmental
Protection. On December 30, 2004, the Florida Department
of Environmental Protection issued a warning letter to the
Company. On January 13, 2005, the U.S. Army Corps of
Engineers issued a Notice of Noncompliance to the Company.
If the activities in question were found to be violations
of the permits, the Company could possibly be subject to
administrative, civil, or criminal enforcement penalties.
The Company currently is in discussions with the two
agencies to resolve any potential issues related to these
activities, including enforcement actions. 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 any potential actions by the
government agencies based on these activities.
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.
(11) Subsequent Event
The Board of Directors, at its regular board meeting on May
4, 2005, approved a 3-for-2 common stock split.
Shareholders of record on June 10, 2005 will receive one
additional share for each two shares held. The stock
split will be affected in the form of a stock dividend that
will be paid in a distribution of newly issued common stock
on July 1, 2005. As of May 3, 2005, the Company had
43,592,858 share of common stock outstanding. After the
stock split, the Company will have approximately 65,389,287
shares of common stock outstanding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview. The Company is one of the nation's leading producers
of construction aggregates, a major provider of ready-mix concrete
and concrete products in the Southeastern and mid Atlantic States
and a significant supplier of cement in Florida and Georgia. We
operate through three business segments: construction aggregates,
concrete products and cement and calcium. The construction
aggregates segment is engaged in the mining, processing,
distribution and sale of sand, gravel and crushed stone. The
concrete products segment is engaged in production and sale of
ready-mix concrete, concrete block, prestressed concrete as well as
sales of other building materials. The cement and calcium products
segment is engaged in the production and sale of Portland and
masonry cement, the importation of cement and slag which are either
sold or ground or blended and then sold and the sale of calcium
products to the animal feed industry.
For the contribution made to net sales and operating profit
from each business segment, see Note 7 to the Condensed Consolidated
Financial Statements.
Our 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
affordability of clinker and cement, reliability and affordability
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.
During August and September 2004, the southeastern United States
was affected by four hurricanes and one tropical storm. These
storms caused a temporary disruption in our business. After the
storms, the focus was on restoring conditions rather than commencing
new construction. In addition, rail operations were interrupted
resulting in restricted delivery of product to our terminals.
This resulted in a negative impact on sales volumes in all of our
southern operations during the first quarter of fiscal 2005.
Financial results will be affected by planned maintenance at the
cement plant since these costs, which can be significant, are
expensed when incurred. The Company expensed planned maintenance of
$2,100,000 in the first quarter of fiscal 2005, as compared to
$2,300,000 in the first quarter of fiscal 2004. The plant was shut
down for twelve days in the first quarter of fiscal 2005 and
fourteen days in the first quarter of fiscal 2004 for planned
maintenance. During the third quarter of fiscal 2005, a planned
maintenance has been scheduled for eight days at an estimated cost
of $1,500,000. The planned maintenance during the third quarter of
last year was $984,000.
Our insurance program consists of the Company self-insuring a
portion of the claims and paying premiums for coverage in excess of
this self-insurance retention. The self-insurance retention level
per claim is determined by comparing the premium for the coverage
versus the potential exposure. For the automobile and general
liability insurance programs, self-insurance retention is
$3,000,000. For the workers compensation insurance program, during
fiscal 2004 the self-insurance retention was $500,000 and for fiscal
2005 this was increased to $1,000,000.
Operating Results. For the second quarter of fiscal 2005,
which ended March 31, 2005, consolidated sales increased 14.0% to
$260,565,000 from $228,602,000 in the same quarter last year.
The increase in sales was due to increased revenues in all three
segments. Revenues in the concrete products segments increased
primarily due to an increase in the average selling price, increased
volumes of 12.8% and increased prices of concrete block partially
offset by a slight decrease in ready mix volumes of 1.4%. Revenues
in the aggregates segment increased as a result of higher average
selling prices partially offset by a 5.2% decrease in volumes. The
volume decreases were primarily related to lower sales volumes of
17.5% at our distribution terminals due to transportation issues in
moving product from our producing locations and lower volumes in our
northern and Georgia markets. Revenues increased in the cement and
calcium segment due to the higher cement prices and higher volumes
at our cement grinding operations partially offset by lower volumes
at our Newberry cement plant due to unscheduled maintenance during
the second quarter of this year.
For the six months of fiscal 2005, consolidated sales increased
12.7% to $511,493,000 from $453,994,000 for the same period last
year.
The increase in sales was due to increased revenues in all three
segments. Revenues in the concrete products segments increased
primarily due to an increase in the average selling price and to a
lesser extent increased volumes of concrete block of 11% and ready
mix concrete of 1.6%. Revenues in the aggregates segment increased
as a result of higher average selling prices partially offset by a
4.3% decrease in volumes. The volume decreases were primarily
related to lower sales volumes of 16.8% at our distribution
terminals due to transportation issues in moving product from our
producing locations and lower volumes in our northern and Georgia
markets. Revenues increased in the cement and calcium segment due
to the higher cement prices. While volumes remained level our
cement grinding operations achieved higher volumes but these higher
volumes were offset by lower volumes at our Newberry cement plant
due to unplanned maintenance.
Gross profit for the second quarter of fiscal 2005 increased 28.1%
to $77,521,000 from $60,500,000 for the same quarter last year.
Gross profit margin for the second quarter of fiscal 2005 increased
to 29.8% from 26.5% for the same period last year. Gross profit and
margin improved in our concrete products and cement and calcium
segments. The improvement in the cement and calcium and concrete
product segments is primarily due to improved pricing. Gross
profit in the Aggregates segment remained level as higher revenues
were offset by higher fuel and repair costs. Consolidated gross
profit was negatively impacted this quarter by an increase of
$3,535,000 in fuel costs including coal, an increase in repairs and
maintenance of $1,524,000 and an increase of $410,000 in electric
costs.
Gross profit for the first six months of fiscal 2005 increased 23.3%
to $147,060,000 from $119,303,000 for the same quarter last year.
Gross margin for the first six months of fiscal 2005 increased to
28.8% from 26.3% for the same period last year. Gross profit and
margin improved in our concrete products and cement and calcium
segments. The improvement in the cement and calcium segment is due
to improved pricing. The improvement in gross profit in the
concrete products segment was due to volume improvements, which
lowered the per unit cost, and higher sales prices. Gross profit
in the Aggregates segment remained level as price increases were
offset by higher fuel and repair costs. Consolidated gross profit
was negatively impacted by an increase of $6,305,000 in fuel costs
including coal, an increase in repairs and maintenance of $3,568,000
and an increase of $1,031,000 in electric costs.
Selling, general and administrative expenses for the second quarter
of fiscal 2005 increased to $25,949,000 as compared to $21,944,000
last year constituting 10.0% of sales as opposed to 9.6% last year.
All of the increase is due to management incentive compensation and
profit sharing which are both linked to earnings before income taxes
and real estate gains.
Selling, general and administrative expenses for the first six
months of fiscal 2005 increased to $48,587,000 as compared to
$44,162,000 last year constituting 9.5% of sales as opposed to 9.7%
last year. The increase in costs is attributable to increased
profit sharing and management incentive compensation expense,
increased costs related to new site exploration and permitting and
health insurance costs.
Operating profit increased to $55,828,000 in the second quarter of
2005 as compared to $38,561,000 for the same period last year.
Operating profit this year included the sale of the former quarry
site in Baltimore, Maryland. Gross proceeds of the sale were
$24,185,000 resulting in a pre-tax gain of approximately $4,256,000
($2,694,000 after tax). As discussed in note 6, during the third
quarter the Company will be closing on the remainder of the
contract. As discussed above, the Company had an increase in the
gross profit for the concrete products and cement and calcium
segments while the Aggregates segment had a decrease in gross
profit.
Operating profit increased to $102,775,000 in the first six months
of 2005 as compared to $88,078,000 for the same period last year.
As discussed above, the six months of this year includes the gain on
the sale of the quarry which resulted in a pre-tax gain of
$4,256,000. Last year included the sale of the former quarry site
at Naples, Florida resulting in gross proceeds of $20,250,000 and a
pre-tax gain of approximately $12,927,000 ($8,273,000 after tax) for
the first quarter of fiscal 2004. As discussed above, the
Company had an increase in gross profit for the concrete products
and cement and calcium segments while the Aggregates segment gross
profit remained level.
Interest expense for the second quarter of fiscal 2005 decreased to
$424,000 from $554,000 for the same quarter last year. Interest
expense for the first six months of fiscal 2005 decreased to
$854,000 from $1,181,000 for the same period last year. The
decrease is attributable to lower debt outstanding under the
Company's revolver partially offset by a slight increase in average
interest rates.
Interest income for the second quarter of fiscal 2005 decreased to
$19,000 as compared to $216,000 for the same quarter last year and
for the first six months of fiscal 2005 decreased to $92,000 as
compared to $504,000 for the same period last year. These
decreases were due to having less excess cash available for short-
term investment.
Included in other income is equity in operating results of our 50%
owned joint ventures. The equity in these ventures was a loss of
$596,000 for the second quarter of fiscal 2005 as compared to a loss
of $245,000 last year. The equity in these ventures was a loss of
$128,000 for the first six months of fiscal 2005 as compared to a
gain of $410,000 last year.
Income tax expense increased $6,317,000 for the second quarter of
fiscal 2005 compared to the same period last year. This is due to
higher income before taxes and by an increase in the tax rate to
36.7% versus 36.5% 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.
Income tax expense increased $5,689,000 for the first six months of
fiscal 2005 as compared to the same period last year. This is due
to higher income before taxes and by an increase in the tax rate to
36.7% versus 36.2% 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 first six months of
fiscal 2005, cash provided by operating activities of $70,621,000,
exercise of stock options of $3,218,000, short-term borrowing of
$9,300,000 and sales of assets of $25,179,000 along with cash
available at the beginning of the period funded the repayment of
$1,712,000 of debt, purchases of property, plant and equipment of
$71,608,000, payment of dividends of $60,698,000 and an acquisition
of $11,366,000.
During the first six months of fiscal 2005, cash flow provided by
operations decreased as compared to the same period last year
primarily due higher accounts receivable, higher inventories and a
decrease in accounts payable partially offset by increased net
earnings before gain on disposition of assets.
For the first six months of fiscal 2005, cash flow used in investing
activities was $60,114,000. This resulted from purchases of
property, plant and equipment of $71,608,000 and $11,366,000 used to
purchase a quarry operation. Proceeds from sales of property,
plant and equipment was $25,179,000.
Cash flow used for financing activities was $49,892,000 during the
first six months of fiscal 2005 primarily from the payment of
dividends including a special dividend of $1.00 per share on October
1, 2004 partially offset by short-term borrowing of $9,300,000.
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, 2005, there was available
$250,000,000 under a long-term revolver and $25,700,000 available
under overnight lines of credit. In addition, there is approximately
$33,000,000 that could be re-borrowed under insurance policies.
Working capital at March 31, 2005 was $62,292,000 as compared to
$39,435,000 at September 30, 2004. The primary reason for the
increase was cash generated from operations.
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. The Condensed Consolidated
Financial Statements and Notes to Condensed Consolidated Financial
Statements contain information that is pertinent to Management's
Discussion and Analysis. The preparation of financial statements
in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions about future events that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities. There have been no changes in Critical Accounting
Policies as disclosed in the Form 10-K for the year ended September
30, 2004.
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.
The Company leases certain mining properties from Patriot
Transportation Holding, Inc. under long-term leases. The Company
and Patriot believe that certain of these properties, upon
completion of mining and subsequent reclamation, present valuable
opportunities for residential or commercial development.
Accordingly, the Company and Patriot have decided to investigate
jointly the ultimate market potential for these properties. The
Company expects that the preliminary investigation will not be
completed for several months.
Outlook. The strong product demand levels experienced in most
of our markets during our first two quarters appears likely to stay
strong through the third quarter. Mid-summer pricing improvements
appear feasible at levels that should overcome, if not exceed, the
higher operating costs attributable to rising energy and commodity
prices.
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,"
"contemplates," "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, 2004 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, 2005, 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 10 to the Condensed Consolidated Financial Statements
included in this Form 10-Q is incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
On January 26, 2005, 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
A. R. Carpenter 2008 39,849,840 1,172,735 -
John D. Baker II 2008 39,753,819 1,268,756 -
G. Kennedy Thompson 2008 39,562,796 1,459,779 -
The directors whose terms of office as a director have continued
after the meeting are Edward L. Baker, J. Dix Druce Jr., John D.
Milton Jr. William H. Walton III for terms expiring in 2006 and
Thompson S. Baker II, Luke E. Fichthorn III, The Honorable Tillie
K. Fowler and Francis X. Knott for terms expiring in 2007. The
Honorable Tillie K. Fowler served as a director until her
untimely death on March 2, 2005. On May 4, 2005, the Board of
Directors appointed John A. Delaney to the Board of Directors for
a term expiring in 2008 and William P. Foley II for a term
expiring in 2007.
At the meeting, the Shareholders also approved an amendment to
the Articles of Incorporation of the Company increasing the
number of shares of authorized common stock to 100 million
shares. The votes cast on the proposal amendment were as
follows:
Votes Votes Votes
For Against Abstained
Amendment to Articles
of Incorporation 39,444,282 1,519,803 58,409
Item 6. Exhibits
Exhibits. The response to this item is submitted as a
separate section entitled "Exhibit Index" starting on page
19 of this Form 10-Q.
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.
May 9, 2005 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, 2005
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.
(3)(b)(5) Amendment to the Bylaws of Florida Rock
Industries, Inc. adopted May 5, 2004.
(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 May 27, 2004 among
Florida Rock Industries, Inc.; Wachovia Bank,
N.A.; Bank of America, N.A.; SunTrust Bank;
Wachovia Capital Markets, LLC and Banc of
America Securities, LLC.
(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
(10)(n) Summary of Compensation Arrangements with
Directors
(10)(o) Summary of Compensation with Named Executive
Officers
(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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