Florida Rock Industries Inc.: Wheeling, Dealing And Reeling

Construction materials company acquires quarry operation while its buyout from another company awaits final approval. In the meantime, federal court decision stalls South Florida operations.

These are uncertain times, to say the least, for Florida Rock Industries Inc. On Aug. 14 the company's shareholders will meet to vote on a merger with Vulcan Materials Co. In February Vulcan Materials agreed to acquire the Jacksonville, Fla.-based maker of construction aggregates, cement, concrete and concrete products for approximately $4.6 billion.

The merger comes at a challenging time for Florida Rock. The company -- an IW 50 Best Manufacturer for 2007 -- has struggled during fiscal 2007 as the housing construction market continues to slow. For the third quarter, the company reported net income fell 38% to $36.1 million from $58.3 million in the year-earlier period. Operating profit decreased 40% to $54.1 million, while total sales fell 23.6%.

Florida Rock President and CEO John Baker attributed the lackluster quarter to construction slowdowns.

"While the significant decline in residential construction remains with us and is yet to level out, nonresidential and transportation spending remain strong," said Baker when the company announced the results. "We continue to focus on our costs even as we pursue the remaining steps to consummate our pending merger with Vulcan."

While the company waits for the merger to be finalized, it has been making deals of its own. On Aug. 1, the South Florida Business Journal reported that Florida Rock closed the purchase of Bahamas-based Freeport Aggregate Ltd. The new addition is expected to supply up to 300,000 tons of aggregates annually, according to the South Florida Business Journal.

Meanwhile, a federal court handed the company a major setback on July 17 when it ordered Florida Rock and two other mining companies to cease mining operations at their Miami quarries while the U.S. Army Corps of Engineers conducts an investigation.

The investigation stems from safety concerns over benzene being detected on the quarry sites near Northwest Miami-Dade County's primary water supply. A March 22 court ruling determined that several mining permits, including the one issued to Florida Rock in Miami, had been improperly issued. The company has appealed the order to cease mining activities at the property.

In an SEC filing, Baker defended the company's actions.

"Our evidence shows that the benzene is not a present threat to the well field and is not necessarily attributable to mining operation," he said.

Florida Rock Industries Inc.
At A Glance

Florida Rock Industries Inc.
Jacksonville, Fla.
Primary Industry: Petroleum & Coal Products
Number of Employees: 3,464
2006 In Review
Revenue: $1.4 billion
Profit Margin: 15.46%
Sales Turnover: 1.11
Inventory Turnover: 19.07
Revenue Growth: 18.58%
Return On Assets: 20.08%
Return On Equity: 28.27%

Through the third quarter, the company sold more than 2.4 million tons of aggregates from its Miami quarry, generating $28.6 million in revenues. A large portion of the material produced at the Miami quarry is used in Florida Rock's concrete production facilities in Southeastern Florida, Central Florida and Jacksonville. Florida Rock estimates that recoverable reserves at the Miami quarry are 135 million tons. The company employs 68 people at the Miami quarry.

Baker said in the SEC transcript from a July 17 conference call that he does not think the ruling will affect the company's deal with Vulcan Materials.

"We do not expect the ruling will impact the company's pending merger with Vulcan Materials Company," he said. "At the present time, our focus is on the exercise of our appeal rights and the request for a stay."

Baker added during the July teleconference that contingency plans were still in the formative stages and that the company was communicating with customers and suppliers to develop a strategy if the appeal fails.


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