FRK Florida Rock Inds

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2007

FLORIDA ROCK INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Florida		59-0573002
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

155 East 21 ^st Street, Jacksonville, Florida 32206
(Address, including zip code, of registrant’s principal executive offices)

(904) 355-1781
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock $.10 par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 to Section 15(d) of the Act. Yes o No þ

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of an accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ       Accelerated filer o      Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes o No þ

At March 31, 2007 the aggregate market value of the shares of Common Stock held by non-affiliates of the registrant was approximately $3,121,184,543. As of November 14, 2007 there were 66,692,551 shares of the registrant’s Common Stock outstanding.

 

 

TABLE OF CONTENTS

Our aggregates segment sells through 13 aggregates distribution terminals in Florida, Georgia, Virginia, Maryland, Delaware, Washington D.C., Louisiana and one terminal(through a joint venture) in New York.

During fiscal 2007 we produced and shipped 36.2 million tons of construction aggregates. Currently, we have 2.1 billion tons of permitted reserves, excluding reserves in Miami (See Item 3 – Legal Proceedings)

We sell construction aggregates throughout most of Florida, except that in Florida’s panhandle region we sell only in Pensacola. In Georgia we primarily serve the regional construction markets around Griffin, Macon, Columbus, Rome and the southern and western portions of the Atlanta market and all of South Georgia. In Virginia we primarily serve the Richmond, Norfolk, Virginia Beach, Williamsburg and Northern Virginia markets. Our principal markets in Maryland and Delaware are the greater Baltimore area, Frederick, Montgomery, Harford and Cecil Counties, the Eastern Shore of Maryland and south central Delaware. We serve the Auburn and Mobile areas in Alabama and the Chattanooga area in Tennessee. The principal markets for our Illinois and Kentucky quarries are cities on the Ohio and Mississippi River. In July 2007, we acquired operations in Freeport, Bahamas that sell aggregates in Freeport and import aggregates into Florida.

The geographic reach of our aggregates markets is inherently limited by transportation costs from our quarries. We ship construction aggregates by truck (the most expensive mode of transport), rail, barge and ship (the least expensive mode). In Florida and Georgia we ship by rail and truck. In Virginia and Maryland we serve the regional construction markets around Richmond and the greater Baltimore area by truck; and our marine division ships materials by barge throughout the Chesapeake Bay area, along the James River between Richmond and Norfolk, to Virginia Beach and as far north as Woodbridge, Virginia on the Potomac River and to Washington D. C. on the Anacostia River. We ship aggregates from our Illinois and Kentucky quarries by barge and truck. We ship aggregates from the Freeport quarry via truck and ship. One joint venture sells products by ship from Canada into New York, South Carolina, Georgia and Florida.

Our concrete products segment is the largest single customer of our aggregates segment. In fiscal 2007 the concrete products segment purchased approximately 41% of its requirements of coarse aggregates and 78% of its sand requirements from the aggregates division. The remaining aggregates were purchased from other suppliers whose geographic locations coupled with transportation costs make it more economical to supply certain of the Company’s plants. At the present time there is an adequate supply of construction aggregates in the areas in which our concrete operations are located. Due to the Court ruling setting aside certain mining permits in Florida’s Lake Belt area, aggregate supplies in Florida markets have tightened and significant price increases have been announced for the South Florida area.

Our Concrete Products Segment.

Our concrete products segment manufactures and markets ready mixed concrete, concrete block, precast and prestressed concrete. It also markets other building materials. Our concrete operations serve most of Florida (except the panhandle area); southern and southwest Georgia; the greater Baltimore, Maryland area;

Washington, D.C.; and in Virginia, northern Virginia as well as Williamsburg, Hampton-Newport News, the Richmond-Petersburg-Hopewell area and the Norfolk/Virginia Beach area. In July 2007, through an acquisition, we also began selling ready-mix concrete and concrete block in Freeport, Bahamas.

Since ready mixed concrete hardens rapidly, delivery is time constrained and generally confined to a radius of approximately 20 to 25 miles from the producing plant.

The annual capacity at our 13 operating concrete block plants is approximately 95 million 8''x8''x16'' equivalent units of concrete block.

At most of our Florida and Georgia concrete facilities, we purchase and resell building material items related to the use of ready mixed concrete and concrete block.

We produce prestressed concrete products for commercial developments and bridge and highway construction in Wilmington, North Carolina. We produce precast concrete lintels and other building products in Kissimmee, Florida.

Our Cement and Calcium Products Segment.

Our Newberry, Florida cement plant produces portland and masonry cement which we sell in both bulk and bags to the concrete products industry. Our Brooksville, Florida plant produces calcium products for the animal feed, paint, plastics and joint compound industries. Our Tampa facility imports cement and slag. We resell some of the imported cement and either blend, bag or reprocess the balance of the cement into specialty cements which are then sold. We grind and sell the slag in blended or unblended form. Our Port Manatee, Florida plant imports clinker that we grind into bulk cement and sell.

Our concrete products segment is the largest single customer of our cement segment. In fiscal 2007, our cement segment supplied approximately 45% of the cement used in its operations. While we purchased cement from six outside suppliers, two outside companies supplied approximately 50% of the cement used by our concrete products segment.

We are doubling the production capacity at our Newberry facility. Construction began on this project in fiscal 2006 and is expected to be completed in early fiscal 2009.

Competition.

Each of our segments operates in a highly competitive industry. Depending on the market, we compete with a number of large regional and small local producers. Because of the relatively high transportation costs associated with our products, the level of competition in each market is heavily influenced by the distance from production facilities to markets served and the availability of cost-effective rail and barge transportation. In addition, our concrete products compete with other building materials such as asphalt, brick, lumber, steel and other products. We believe that price, plant location, transportation costs, service, product quality and reputation are the major factors that affect competition within a given market.

Non-Domestic Sales and Assets.

     We sell a small amount of products outside the United States. Non-domestic net sales were $1,781,510 in 2007.

Long-lived assets outside the United States were $19,477,896 at September 30, 2007.

Backlog.

We do not believe that backlog information is meaningful in anticipating annual revenue or profitability from year to year.

Environmental Regulation.

Our operations are subject to and affected by federal, state and local laws and regulations relating to the environment, health and safety and other regulatory matters. Certain of our operations may from time to time involve the use of substances that are classified as toxic or hazardous substances within the meaning of these laws and regulations. Environmental operating permits are required for certain of the Company’s operations and such permits are subject to modification, renewal and revocation.

We regularly monitor and review our operations, procedures and policies for compliance with these laws and regulations. Despite these compliance efforts, the risk of environmental liability is inherent in the operation of our businesses. Such regulations have not had a material adverse impact in recent years and are not expected to have a material adverse effect on our capital expenditures or operating results over the next year. However, there can be no assurance that environmental liabilities or subsequent changes in environmental regulations will not have a material adverse effect on the Company in the future. Additional information concerning environmental matters is presented in Item 1A “Risk Factors” and Item 3 “Legal Proceedings” of this Form 10-K and such information is incorporated herein by reference.

Employees . We employed approximately 2,950 persons at September 30, 2007.

Available Information

We maintain an Internet address at www.flarock.com. We make available free of charge through our Internet web site this annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, if any, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.

We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers, and employees as well as a Financial Code of Ethical Conduct, both of which are available on our website. We disclose on our Internet web site any waivers of or amendments to these codes as they apply to our directors and executive officers.

Each of the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee of our Board of Directors has adopted a written charter addressing various issues of importance relating to each committee, including the committee’s purposes and responsibilities, an annual performance evaluation of each committee, and similar issues. We have also adopted a set of Corporate Governance Guidelines to address issues of fundamental importance relating to the corporate governance of the Company, including director qualifications and responsibilities. These Corporate Governance Guidelines, and the charters of each of these committees, are available on our website.

We make paper copies of our filings with the SEC, our Code of Business Conduct and Ethics, our Financial Code of Ethical Conduct, our Corporate Governance Guidelines and the charters of key board committees, available to our shareholders free of

charge upon request by writing to: Florida Rock Industries, Inc., Attn: Corporate Secretary, 155 E. 21st Street, Jacksonville, Florida 32206.

Our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer are required to file with the SEC each quarter and each year certifications regarding the quality of the Company’s public disclosure of its financial condition. The annual certifications are included as Exhibits to this Annual Report on Form 10-K. Our Chief Executive Officer is also required to certify to the New York Stock Exchange each year that he is not aware of any violation by the Company of the New York Stock Exchange corporate governance listing standards.

Item 1A. Risk Factors.

Our future results may be affected by a number of factors over which we have little or no control. The following issues, uncertainties, and risks, among others, should be considered in evaluating our business and growth outlook. Additional risks not currently identified or known to us could also negatively impact our business or financial results.

This Form 10-K and other written reports and oral statements made from time to time by us contain statements which, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of federal securities law. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and are based on assumptions that we believe in good faith are reasonable, but which may be materially different from actual results. Investors can identify these statements by the fact that they do not relate only to historic or current facts. The words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “outlook,” “plan,” “project,” “scheduled,” and similar expressions in connection with future events or future operating or financial performance are intended to identify forward-looking statements. Any or all of our forward-looking statements in this Form 10-K and in other publications may turn out to be wrong.

Statements and assumptions on future revenues, income and cash flows, performance, economic trends, the outcome of litigation, regulatory compliance, and environmental remediation cost estimates are examples of forward-looking statements. Numerous factors, including potentially the risk factors described in this section, could affect the outcome of our forward-looking statements.

Factors that we currently believe could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to, those set out below. In addition to the risk factors described below, we urge you to read our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K.

Risk Factors Relating to Our Industry and Operations

Our business faces many competitors in our markets. We operate in a highly competitive environment. Our competition ranges from large public and private companies to independent and local aggregate producers and ready mix manufacturers. Many factors affect the competitive environments in our markets, including the number of competitors in the market, the pricing policies of those competitors, the financial strength of those competitors, potential product substitutes, the total production capacity serving the market, the barriers that potential competitors face to enter the market, the proximity of natural resources to the market, as well

as economic conditions and product demand within the market. Such factors come together in each of our markets in varying ways, sometimes in ways that adversely impact demand for our products and our results of operations.

Our business is dependent on the cyclical construction industry. Substantially all of our sales are to the construction industry. Our results depend heavily on residential, commercial and infrastructure construction activity and spending levels in our markets. The construction industry in our markets tends to be cyclical. Construction activity and spending levels vary across our markets and are influenced by interest rates, inflation, consumer spending habits, demographic shifts, environmental laws and regulations, employment levels and the availability of funds for public infrastructure projects. Economic downturns may lead to recessions in the construction industry, either in individual markets or nationally. A reduction in construction activity in our markets can result in reduced revenues and profitability. Since our industry is capital intensive, a large portion of our costs are fixed. As sales volumes decrease, our operating profit margin will decrease due to this fixed cost component except to the extent we are able to increase prices or reduce costs.

Our results vary depending on levels of infrastructure and other public construction. During fiscal 2007, 10 to 15% of our sales were from public works projects related to roads, highways and bridges. Any significant loss of funding or decrease in state and federal funding of these projects could have a significant effect on our volumes, sales and profitability.

Our operations are heavily concentrated in the state of Florida. During fiscal 2007, 60% of our sales were within the state of Florida. As a result, fluctuations in the rate of growth in Florida can have a significant impact on our profitability. During fiscal 2007, approximately 30-35% of our business in Florida related to residential construction. Future results are likely to be significantly influenced by the level of homebuilding activity in Florida.

Fluctuation in interest rates and consumer confidence affect the construction industry. Increases in interest rates and declines in consumer confidence may reduce residential and commercial construction activity, which could reduce our sales, volumes and profitability.

Adverse weather lessens demand for our products, which is seasonal in many of our markets. The aggregates and concrete products business is conducted outdoors. Construction activity, and thus demand for our products, decreases substantially during periods of cold weather or when heavy or sustained rains fall. Our operations are seasonal, with sales generally peaking during the third and fourth quarters of our fiscal year because of normally better weather conditions. However, high levels of rainfall can adversely impact our operations during this period as well. Adverse weather conditions can reduce our revenues and profitability if they occur with unusual intensity, during abnormal periods, or last longer than usual in our major markets, especially during peak construction periods. Severe weather such as hurricanes or tropical storms can damage our facilities, resulting in increased repair costs and business disruption.

Our business is capital intensive, resulting in significant fixed costs. The cost to acquire reserves and to construct and operate our plants is very expensive. A significant portion of our costs are fixed expenses due to the capital intensive nature of the industry. As a result, volume changes will have a significant impact on our operating profit percentage and absolute dollars of profit. The capital intensive nature of our business also requires us to have significant liquidity and / or access to credit facilities and to reinvest a significant portion of our cash flow.

To operate our business we consume large amounts of electricity and diesel fuel which are subject to price fluctuations and shortages. We consume significant amounts of electricity, diesel fuel, coal and natural gas in our production and distribution process. The price and availability of energy are subject to political, economic and market factors that are generally outside our control. The supply and price of these products can be affected by hurricanes and tropical storms, particularly in the Gulf Coast region. Fluctuations in the prices of these commodities and disruptions in supply can have a significant impact on our operations.

Changes in the cost or availability of raw materials supplied by third parties may adversely affect our operating and financial performance. We generally maintain our own reserves of aggregates that we use to manufacture our products. We also produce a significant amount of the cement that we use in our concrete business. We do depend on third parties to supply us with aggregates and cement in some regions. For example, our Northern Concrete operations purchase all of their cement from third parties. We may in the future be unable to secure an economical source of supply due to any number of factors, including limited supplies, increased demand in domestic or international markets and limited transportation facilities. If this happens, our costs to procure these materials may increase significantly or we may be obliged to procure alternatives to replace these materials. Currency exchange rates also affect the cost and availability of imported cement, clinker, slag, gypsum and ocean freight.

Our long-term success is dependent upon securing and maintaining aggregate reserves in growth markets. Construction aggregates are expensive to transport and often must be supplied from local quarries. New aggregate sites may take several years to permit. Therefore, it is important to develop and maintain long-term reserves in growth markets. Our strategy is to secure additional land and permits in target markets where possible, and to develop the distribution network to transport aggregates by truck, rail and water in order to maintain economic sources of supply. As urban sprawl continues, it reduces the opportunities for locating long-term reserves and increases the opportunity for community opposition to new and existing operations. As communities grow, existing quarry locations may be depleted, or quarry production may be restricted by additional regulation and some of the most attractive sites for new quarries may be used for other building, or may be difficult to permit for quarrying. 

Our long-term success is dependent on securing and maintaining mining permits. Tighter land use or zoning restrictions affecting existing quarry permits or making new quarry permits more difficult to obtain could also restrict our ability to conduct our businesses economically. Legal challenges to existing permits could restrict our ability to utilize existing quarry reserves.  As discussed in Item 3, “Legal Proceedings”, a court ruled that our quarry permit for South Florida’s Lake Belt region was invalid and ordered us to cease mining in July 2007, pending the Corps issuing a Supplemental Environmental Impact Study. While mining has ceased in this area of Florida, earnings are reduced, which could require us to take a charge related to the impairment of the value of the related assets and has disrupted, at least temporarily, our sources of aggregates supply in certain Florida markets.

Our future growth is also partially dependent on acquiring other business in our industry and integrating them with our existing operations. As a result of the limited opportunities to establish new quarries, expansion of our business is dependent in part on acquisition of existing businesses that own aggregate reserves. Our future results will be dependent in part on our ability to successfully integrate these businesses into Florida Rock.

Our products are shipped by rail, truck, barge or ship, usually by third parties. Significant delays, availability of transportation or fluctuations in cost can materially affect our business. Delivery of our product is via truck, rail or barge and primarily by third party providers. The cost of these services is outside our control and can cause our products to have a competitive disadvantage. The timing of delivery is outside our control and distribution of our product is subject to interruption of rail and barge service. Additionally, unfavorable weather conditions can cause interruption in the delivery of our product, especially by rail and barge. If we are unable to ship our products as a result of the railroads or shipping or trucking companies failing to operate or if there are material changes in the cost or availability of rail, shipping or trucking services, we may not be able to arrange alternative and timely means to ship our products, which could lead to interruptions or slowdowns in our businesses.

Our future is dependent on attracting and retaining qualified personnel. The ability to attract, develop and retain our qualified work force is a significant factor in our success. The competition for our work force is high. Our success in attracting and retaining our work force is dependent on the availability and skills of our workers in our markets, the availability of other jobs in our markets and the ability to offer competitive salary and benefit packages.

Changes in legal requirements and governmental policies concerning zoning land use, environmental and other areas of the laws and litigation to these markets, impact our business. Our operations expose us to the risk of material environmental liabilities. Our operations are affected by numerous federal, state and local laws and regulations related to zoning, land use and environmental matters. Despite our compliance efforts there is the inherent risk of liability in the operation of our business especially from an environmental standpoint. These potential liabilities could have an adverse impact on our operations and profitability. Our operations require numerous governmental approvals and permits, which often require us to make significant capital and maintenance expenditures to comply with zoning and environmental laws and regulations. Stricter laws and regulations, or stricter interpretation of existing laws or regulations, may impose new liabilities on us, require additional investment by us in pollution control equipment, or impede our opening new or expanding existing plants or facilities.

Occupational health and safety risks and regulations may have an impact on future productivity and financial performance. Our operations involve risk of manufacturing accidents, storage tank leakage, accidents from the operation of mobile equipment and manufacturing machinery, and exposure to dust, silica, asbestos, arsenic and other naturally occurring elements. These operating risks can cause personal injury and property damage. These risks can have an adverse effect on productivity and profitability at an operating location.

Litigation could affect our profitability. The nature of our business exposes us to various litigation matters including product liability claims (including product liability claims relating to prestress beams), employment, health and safety matters, environmental matters, regulatory and administrative proceedings, governmental investigations, tort claims and contract disputes. We contest these matters vigorously and make insurance claims where appropriate. However, litigation is inherently costly and unpredictable, making it difficult to accurately estimate the outcome of existing or future litigation. Although we make accruals as we believe warranted, the amounts that we accrue could vary significantly from any amounts we actually pay due to the inherent uncertainties in the estimation process.

Risk Factors Relating to the Merger with Vulcan Materials Company

Florida Rock shareholders may not receive the form of merger consideration that they elect for all their shares and may receive in part a form of consideration that has lower value. The merger agreement contains provisions that are designed to ensure that, in the aggregate, 70% of Florida Rock shares will be converted into cash and 30% of Florida Rock shares will be converted into Holdco common shares. The value of the cash consideration at the time of the merger may be higher than the value of the share consideration at such time, or vice versa. If elections are made by Florida Rock shareholders to receive more cash or more shares of Holdco than these percentages, either those electing to receive cash or those electing to receive shares of Holdco, respectively, will have the consideration of the type they selected reduced by a pro rata amount, and will receive a portion of their consideration in the form that they did not elect to receive. Accordingly, it is likely that a substantial number of Florida Rock shareholders will not receive a portion of the merger consideration in the form that they elect and that the consideration they do receive will have a lower value than what they elected to receive.

Because the exchange ratio is fixed, the market value of Holdco common stock issued to Florida Rock shareholders may be less than the value of their shares of Florida Rock common stock. Florida Rock shareholders who receive shares in the Florida Rock merger will receive a fixed number of shares of common stock of Holdco rather than a number of shares with a particular fixed market value. The market values of Vulcan and Florida Rock common stock at the time of the merger vary significantly from their prices on the date the merger agreement was executed. Because the exchange ratio will not be adjusted to reflect any changes in the market value of Vulcan or Florida Rock common stock, the market value of the Holdco common stock issued in the Florida Rock merger surrendered in the Florida Rock merger will be lower than the value of such shares on the date the merger agreement was executed and likely will be lower than the $67.00 to be paid to Florida Rock shareholders in the cash portion of the Florida Rock merger.

We may fail to realize the anticipated benefits of the merger, which could adversely affect the value of Holdco stock. The merger involves the integration of two companies that have previously operated independently. Vulcan and Florida Rock expect the combined company to result in financial and operational benefits, including enhanced earnings growth, overhead savings, operating cost savings and other synergies. However, to realize the anticipated benefits from the merger, we must successfully combine the businesses of Vulcan and Florida Rock in a manner that permits this earnings growth and cost savings. In addition, we must achieve these savings without adversely affecting revenues. If we are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

The failure to integrate successfully Vulcan’s and Florida Rock’s businesses and operations in the expected timeframe may adversely affect Holdco’s future results. Vulcan and Florida Rock have operated and, until the completion of the merger, will continue to operate, independently. Vulcan and Florida Rock will face significant challenges in consolidating functions, integrating their organizations, procedures and operations in a timely and efficient manner and retaining key Vulcan and Florida Rock personnel. The integration of Vulcan and Florida Rock will be costly, complex and time consuming.

The integration process and other disruptions from the merger transaction could be more costly than we expect or result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls,

procedures and policies that adversely affect our ability to maintain relationships with customers, suppliers, employees and others with whom we have business dealings or to achieve the anticipated benefits of the merger.

Integrating Vulcan and Florida Rock may divert management’s attention away from operations. Successful integration of Vulcan’s and Florida Rock’s organizations, procedures and operations may place a significant burden on the management of Vulcan and Florida Rock and their internal resources. The integration efforts could divert management’s focus and resources from other strategic opportunities and from operational matters during the integration process.

Vulcan’s incurrence of additional debt to pay the cash portion of the merger consideration will significantly increase Vulcan’s interest expense, financial leverage and debt service requirements. Vulcan anticipates borrowing approximately $3.3 billion to $3.4 billion in order to pay for Florida Rock common stock and acquisition related transaction costs. Incurrence of this new debt will significantly increase the combined company’s leverage. While management believes Holdco’s cash flows will be adequate to service this debt, there may be circumstances in which required payments of principal and/or interest on this new debt could adversely affect Holdco’s cash flows and operating results, and therefore the market price of Holdco stock.

Item 1B. Unresolved Staff Comments.

None.

Item 2. PROPERTIES.

Our principal properties are located in Florida, Georgia, Tennessee, Alabama, North Carolina, Virginia, Washington, D.C., Maryland, Kentucky, Illinois and Delaware.

Construction Aggregates and Cement Segments

     The following table summarizes our principal construction aggregates production and cement and calcium production facilities and estimated reserves at September 30, 2007.

We operate thirteen construction aggregates distribution terminals located in Florida, Georgia, Maryland, Virginia, Delaware, Louisiana and Washington D. C. comprising approximately 168 acres, of which the Company owns 154 and leases 14 acres.

Concrete Segment

We own 100 sites and lease 25 sites used in our ready mixed concrete, concrete block and prestressed concrete plants in Florida, Georgia, North Carolina, Virginia and Maryland aggregating approximately 972 acres. Of these acres we own 880 acres and lease 92 acres. The lease terms vary from month-to-month to expiring in 2019.

Additional Properties

We lease administrative office space in Springfield, Virginia, and we own administrative offices in Richmond, Virginia. In addition, we own approximately 14 acres in Maryland which are used for shop facilities. We own approximately 6,340 acres in Suwannee and Columbia counties in Florida that we hold for investment. Currently, we operate a hunting lodge on this property that we use for business entertainment. We have agreed to sell this property to our Chairman, Edward L. Baker, and our Chief Executive Officer, John D. Baker II, in connection with our pending merger with Vulcan Materials Company. See Item 13 “Certain Relationships and Related Transactions and Director Independence.”

On October 4, 2006, we entered into a Joint Venture Agreement with a subsidiary of Patriot Transportation Holding, Inc. (FRP), to develop approximately 4,300 acres of land near Brooksville, Florida. We will continue to mine the property and pay royalties to FRP for as long as mining does not interfere with the development of the property. The property does not yet have the necessary entitlements for real estate development. Approval to develop real property in Florida entails an extensive entitlements process involving multiple and overlapping regulatory jurisdictions and the outcome is inherently uncertain. We currently expect that the entitlements process may take several years to complete.

We own certain other properties which are summarized as follows:

At September 30, 2007 certain property, plant and equipment with a carrying value of $2,917,000 were pledged to secure industrial development revenue bonds and certain other notes and contracts with an outstanding principal balance totaling $19,356,000 on such date.

Item 3. LEGAL PROCEEDINGS.

On March 22, 2006, the United States District Court for the Southern District of Florida (in a case captioned Sierra Club, National Resources Defense Council and National Parks Conservation Association v. Lt. Gen. Carl A. Stock, et al. ) ruled that the mining permit issued for our Miami quarry, as well as several permits issued to competitors in the same region, had been improperly issued. The Court remanded the permitting process to the U.S. Army Corps of Engineers for further review and consideration.

On July 13, 2007, the Court ordered the Company to cease all mining excavation at the Miami quarry, effective on July 17, 2007, pending the issuance by the U.S. Army Corps of Engineers of a Supplemental Environmental Impact Statement.

The Court based its decision to shut down mining activity at the Miami quarry and two quarries owned by competitors on concern that levels of benzene had been detected in an area of the Biscayne Aquifer known as the Northwest Wellfield, which supplies a significant portion of the water supply to the Miami area. At this time, the Company does not have any information to indicate that the benzene was produced by the Company’s mining activities or that the levels of benzene pose a risk to human health.

For the year ended September 30, 2007, we sold 3,156,000 tons of aggregates from the Miami quarry, generating $36,102,000 in revenues. A significant portion of this volume is shipped by rail to Central and Northeast Florida and used in our concrete production facilities in Southeastern Florida, Central Florida and Jacksonville. Our Miami quarry employs 40 persons and has property, plant and equipment of approximately $85,233,000 of which $23,562,000 is land.

We estimate that recoverable reserves at the Miami quarry (assuming that mining is permitted to continue in the long term) are approximately 132 million tons.

The Company and the members of its board of directors were named in a purported shareholder class action complaint filed in Florida state court (the Duval County Circuit Court) on March 6, 2007, captioned Dillinger v. Florida Rock, et al. , Case No. 16-20007-CA-001906. The complaint seeks to enjoin the merger and alleges, among other things, that the directors have breached their fiduciary duties owed to the Company’s shareholders by attempting to sell the Company to Vulcan for an inadequate price.

We believe the lawsuit described above is without merit but have determined to seek a settlement to avoid the expense, risk, inconvenience and distraction of continued litigation. Accordingly, the parties have entered into a memorandum of understanding providing for the settlement of the lawsuit and have agreed to seek final court approval of the settlement and dismissal of the lawsuit on the terms set forth in the memorandum. The settlement is conditioned on the closing of our pending merger with Vulcan Materials Company. Pursuant to the memorandum, the Company agreed to include additional requested disclosure in its proxy statement for the special meeting of shareholders at which the merger agreement was approved and to pay plaintiff’s attorneys’ fees. The court approval required by the memorandum will include the dismissal of the lawsuit with prejudice and a release of any claims, whether legal or equitable, which plaintiff or any member of the purported class may have in connection with the merger or this proxy statement.

We 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 our consolidated financial statements.

We have retained certain self-insurance risks with respect to losses for third party liability and property damage.

SHAREHOLDER RETURN PERFORMANCE

     The following graph and table compare the performance of our common stock to the S&P 500 Index, the Dow Jones U.S. Building Materials and Fixtures Index and a peer group of companies in our industry for the five-year period commencing September 30, 2002 and ending on September 30, 2007. The peer group consists of Martin Marietta Materials, Inc., Texas Industries, Inc., and Vulcan Materials Company. The table and graph assume that $100 was invested on September 30, 2002 in the Company’s common stock and in each of the indices and assumes the reinvestment of dividends.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Florida Rock Industries, Inc., The S&P Smallcap 600 Index,
The Dow Jones US Building Materials & Fixtures Index And A Peer Group

Item 6. SELECTED FINANCIAL DATA.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

      Executive 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.

     During fiscal 2007, our business was significantly affected by the dramatic downturn in residential construction activity in Florida. For the contribution made to net sales and operating profit from each business segment, see Note 15 to the Consolidated Financial Statements.

     On February 19, 2007, we agreed to merge with Vulcan Materials Company pursuant to an Agreement and Plan of Merger dated February 19, 2007. The merger was approved by our shareholders on August 14, 2007, and is expected to close on or about November 16, 2007.

Our Business

     We are a major basic construction materials company concentrating on growth markets in the Southeastern and Mid-Atlantic states. We operate in three business segments: construction aggregates, cement and calcium products, and concrete products.

      Construction Aggregates. Our construction aggregates segment is engaged in the mining, processing, distribution and sale of crushed stone, sand and gravel. Our construction aggregates segment operates plants in multiple states:

     During fiscal 2007 we produced and shipped 36.2 million tons of construction aggregates. Currently, we have 2.1 billion tons of permitted reserves.

      Concrete Products Segment. Our concrete products segment produces and sells ready-mix concrete, concrete block, prestressed and precast concrete and sells other building materials in multiple states:

In 2007, we had a delivery fleet of 1,276 ready-mix and block trucks.

      Cement and Calcium Products. Our cement and calcium products segment operates a cement plant in Newberry, Florida, import terminals and grinding facilities in Tampa and Port Manatee, Florida and a limestone grinding facility in Brooksville, Florida.

     Our Newberry cement plant produced 685,000 tons of cement in 2007. Construction to double the annual production capacity of this plant continued in 2007. Construction is expected to be completed in early fiscal 2009.

     Our Tampa facility imports, blends or bags and sells cement and grinds, blends and sells granulate blast furnace slag. Our Port Manatee facility imports and grinds clinker (unground cement) and sells the ground cement.

     Our Brooksville facility operates a limestone grinding plant that provides product for the animal feed industry and paint, plastic and joint compound industries.

Business Environment

     Our business principally serves customers in the construction industry. Our business is impacted by a number of factors affecting the construction industry and the economy as a whole. Although a number of different factors, risks and trends affect our business, we have highlighted some of these factors below:

      Our Markets. Construction activity and general economic conditions in our principal markets significantly affect our results. The following breakdown shows our sales by market:

      Construction Activity. Residential construction has declined dramatically in our Florida markets. We cannot estimate when the housing market will turn around and until residential construction recovers, volumes will continue to trail fiscal 2006 volumes. Construction activity in our markets is affected by a number of factors, including population growth, economic conditions, interest rates and other factors.

     Our financial results also are affected by highway construction spending levels. On August 10, 2005, the “Safe, Accountable, Flexible and Efficient Transportation Equity Act-A Legacy for Users” became law, providing $286.5 billion in guaranteed funding for federal highway, transit and safety programs. We expect this legislation to result in modest increases in highway construction spending over the next several years.

      Cement Supplies. In 2004 there was a severe cement shortage in the Florida market. The cement shortage was fueled by a record level of demand, unusual downtime at some of our competitors’ plants and limited availability of imports due to stronger international demand, particularly in China, and a shortage of available barges. The cement shortage eased in 2005, although many states in our markets experienced somewhat tight supply conditions. Demand for cement products also weakened in late fiscal 2006 as a result of the slowdown in residential construction. During fiscal 2007, the demand continues to weaken as a result of the slowdown in residential construction. During 2007 due to this weak demand, our Newberry cement plant was shutdown for thirty-nine days due to lack of storage space for our product. We began construction of an expansion of our Newberry plant in fiscal 2006. Some of our competitors also either are expanding capacity or building new plants.

      Additional Factors Influencing Operations. Our operations are influenced by a number of other external and internal factors. External factors include weather, competition, interest rates, fuel costs, transportation costs, driver availability, labor costs and inflation. Internal factors include sales mix, plant location, quality and quantities of aggregates reserves, capacity utilization and other operating factors.

     In October 2005 a hurricane affected southern Florida and caused a disruption of business during the first quarter of fiscal 2006. Rail operations were interrupted, resulting in restricted delivery of product to our terminals. This interruption caused a shortage of aggregate production in some parts of Florida which affected business in areas not affected by the hurricane during the first quarter of fiscal 2006.

     Financial results are 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 $3,800,000 in fiscal 2007, as compared to $4,100,000 in fiscal 2006. The plant was shut down for twenty-three days in fiscal 2007 and nineteen days in fiscal 2006 for planned maintenance. Planned maintenance is scheduled for the first quarter of fiscal 2008 at an estimated cost of $2,900,000 as compared to $2,600,000 for the first quarter of fiscal 2007. Planned maintenance costs typically result in an overhaul to the wear parts of the major operating components. Since the cement manufacturing process is continuous, the coordination of the repair to multiple components is paramount. Items that typically are inspected, repaired and/or replaced during an outage include: chain and belt conveyors, idlers, rollers, mill journals, impact hammers, grinding table liners, separator blades, mill liners, bearings, fans, ductwork, airslides, grinding media, refractory, castable and shell replacement.

     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 is determined by comparing the premium for the coverage versus the potential exposure. For the automobile insurance programs, self-insurance retention is $3,000,000 per occurrence. For workers compensation and general liability insurance programs, the self-insurance retention is $1,000,000 per occurrence with an aggregate of $2,000,000 for general liability.

      Operating Review. Fiscal 2007 sales declined 21.0% to $1,080,774,000 from $1,367,789,000 for fiscal 2006 due to decreased demand in all three business segments. The primary reason for the revenue decline is volume decreases in all three of our business segments due to a significant slow down in construction

activity, particularly in the residential markets. In addition, sales prices for cement decreased slightly due to a change in product mix and lower sales price of concrete block. These decreases were partially offset by higher average selling prices in our aggregate segment and the higher average selling price of ready-mix concrete.

     In our aggregates segment for the year, volumes at our producing locations were down 19.1% over 2006 volumes, although volume declines were partially offset by a 15.2% increase in the average selling price. Volumes decreased in both our southern and northern operations.

     In our concrete segment for the year, volumes of ready-mix concrete declined 23.1%, while our block volumes were down 44.9% compared to 2006. Sales prices for ready-mix concrete increased 5.4% and for concrete block decreased 1.5%.

     In our cement operations for the year volumes decreased 24.4% and the average selling price of cement declined 0.3%.

     Fiscal 2006 sales increased 18.6% to $1,367,789,000 from $1,153,452,000 in fiscal 2005 due to increased revenues in all three business segments. These increases were attributable to both increased volumes and sales prices of construction aggregates at producing locations, ready-mix concrete, concrete block and building materials, and cement.

     In our aggregates segment for fiscal 2006, volumes at our producing locations were up 7.0% over 2005 volumes primarily from acquisitions at the end of fiscal 2005 or early fiscal 2006, increased volumes from our quarry on the Ohio River in Illinois acquired at the beginning of fiscal 2005 and from our Georgia and Florida operations. These volume increases were offset by decreases in volumes at our distribution terminals of 4.8% and lower volumes in our Virginia and Maryland markets.

     In our concrete segment for fiscal 2006, volumes of ready-mix concrete were up 3.2%, while our block volumes were down 1.9% compared to 2005. Sales prices for ready-mix were up 16.9% and for block were up 19.1%.

     In our cement operations for fiscal 2006 volumes decreased 2.1% due to lower volumes at our grinding facilities partially offset by increased volumes at the Newberry cement plant.

     Gross profit for fiscal 2007 decreased 27.4% and gross margin decreased to 29.9% of sales as compared to 32.6% for 2006. We experienced gross profit and gross margin declines in all three business segments due to sales declines. Our business is capital intensive, resulting in significant fixed costs. When we experience these levels of decreases in volumes, it will cause a significant decrease in our gross profit margin and gross profit. Construction aggregates declines were primarily due to decreased volumes and higher depreciation expense due to completion of new production facilities and high fixed costs, partially offset by increased prices. The cement and calcium group declines for the year were due to reduced volumes and higher costs. Our concrete products segment for the year declined due to reduced ready-mix and block volumes and higher fixed costs partially offset by increased sales prices of ready-mix concrete. The cement and concrete products segments were adversely affected by increased raw material prices. Depreciation expense was approximately $9,743,000 higher, which depressed profit and margin.

     Gross profit for fiscal 2006 increased 26.9% and gross margin increased to 32.6% of sales as compared to 30.5% for 2005. These increases were due to all three business segments gross profit and gross margin improvements. Construction aggregates improvements were primarily due to higher sales prices and increased volumes. Gross profit in fiscal 2005 benefited from an insurance settlement of

$2,116,000 which recovered costs previously expensed. The cement and calcium group improvement for the year was due to price increases partially offset by the reduced volumes. Our concrete products segment for fiscal 2006 improved due to increased sales prices and ready-mix volumes. All three segments' gross profit and margins were adversely affected by dramatic increases in fuel and energy costs and construction aggregates and concrete products were adversely affected by repairs and maintenance. The cement and concrete products segments were adversely affected by increased raw material prices. Gross profit in fiscal 2005 also benefited from an insurance settlement of $2,116,000 which recovered costs previously expensed. Fuel costs were $14,464,000 higher in 2006 as compared to 2005. Repair costs increased $5,453,000 in fiscal 2006. Higher depreciation expense of approximately $7,425,000 also depressed profit and margin.

     Selling, general and administrative (SGA) expenses on a consolidated basis decreased 12.8% in 2007. SGA as a percentage of sales were 10.5% for fiscal 2007 as compared to 9.5% for fiscal 2006. The dollar decrease is due to reduced profit sharing and management incentive compensation, which are both linked to earnings before income taxes and real estate gains, reduced professional services, reduced contributions and reduced risk insurance cost and a general reduction in selling general and administrative costs. These lower expenses were partially offset by $10,062,000 of costs related to our merger with Vulcan. SGA expense decreased in all three business segments primarily due to profit sharing and management incentive. Without these decreased expenses, SGA expenses for each of the business segments would have decreased slightly. For corporate overhead, SGA expenses increased as a result of merger expenses.

     Selling, general and administrative (SGA) expenses on a consolidated basis increased 20.0% in 2006 compared to 2005. SGA as a percentage of sales were 9.5% for fiscal 2006 as compared to 9.4% for fiscal 2005. The dollar increase is due to profit sharing and management incentive compensation, which are both linked to earnings before income taxes and real estate gains, stock option expense related to the adoption of FAS 123R which increased cost by $5,192,000 and legal services. All three business segments had an increase in SGA expense primarily due to profit sharing, management incentive and stock option expenses. Without these increased expenses, SGA expenses for each of the business segments would have increased slightly. For corporate overhead, SGA expenses increased as a result of higher profit sharing, management incentive, stock option expense and professional fees. In fiscal 2005 SGA expenses benefited $556,000 from reimbursement of legal fees in connection with the insurance settlement discussed above and $596,000 from life insurance proceeds

     Consolidated operating profit decreased to $214,217,000 in 2007 as compared to $319,475,000 for the same period last year. Gains on the sale of real estate this year were $3,928,000 versus $3,569,000 during fiscal 2006. Operating profit for the year for the aggregates group decreased to $103,246,000 from $117,215,000 last year. This was due to a 19.1% decrease in volume partially offset by price increases. The aggregates group did not have real estate gains in fiscal 2007 as compared to $1,685,000 last year. For the concrete products segment, operating profit decreased to $81,452,000 from $148,149,000 last year. This was due to 23.1% decrease in ready-mix volumes and a 44.9% decrease in block volumes, partially offset by price increases. For the cement and calcium segment, operating profit decreased to $55,745,000 from $83,600,000 last year. This decrease is primarily due to reduced volumes.

     Consolidated operating profit increased to $319,475,000 in 2006 as compared to $249,473,000 in 2005. Fiscal 2005 included the gain on the sale of a former quarry and other real estate which resulted in a gain of $6,367,000. Gains on the sale of real estate in fiscal 2006 were $3,569,000. Operating profit for 2006 for the Aggregates group increased to $117,215,000 from $94,552,000. This was due to a 7.0% increase in volume and price increases slightly offset by higher SGA expense and further reduced by higher fuel and repair costs. The aggregates

group had real estate gains of $1,685,000 in 2006 as compared to $6,194,000 in fiscal 2005. For the concrete products segment, operating profit increased to $148,149,000 from $118,161,000 in fiscal 2005. This was due to 3.2% increase in ready-mix volumes, price increases and additional real estate gains of $1,711,000. These increases were slightly offset by increased fuel and SGA expenses. For the cement and calcium segment, operating profit increased to $83,600,000 from $57,336,000 in 2005. This increase was due to higher prices, partially offset by increased SGA expenses.

     Interest expense for 2007 increased to $423,000 from $259,000 in 2006 as a result of interest on non debt obligations. Interest of $1,030,000 was capitalized this year as compared to $898,000 last year. Interest expense for 2006 decreased to $259,000 from $1,555,000 in 2005 as a result of lower debt outstanding on revolving credit agreements and capitalization of interest of $898,000.

     Interest income for 2007 was $2,701,000 as compared to $3,161,000 last year. The decrease is the result of having less average excess cash available during fiscal 2007 for investment in short-term investments. The Company ended the year with approximately $34.9 million of cash and cash equivalents.

     Interest income for 2006 was $3,161,000 as compared to $1,260,000 in 2005. Fiscal year 2005’s interest income included $604,000 of interest income on the insurance settlement discussed above. The increase was the result of having more excess cash available during fiscal 2006 for investment in short-term investments. During fiscal 2006, the Company had very little usage of its revolving credit facilities. The Company ended the year with approximately $93 million of excess cash.

     Other income decreased $6,270,000 from last year primarily from gains on sale of other assets last year and lower equity in affiliates. Other income for 2006 includes a gain from an exchange of real estate which resulted from a legal settlement of $2,838,000. Also included in other income in fiscal 2006 is a gain of $1,442,000 from the sale of a 15% interest in an affiliate. Included in other income is our 50% equity in the operating results of our joint ventures. During fiscal 2007 this equity in earnings of joint ventures was a loss of $380,000 as compared to $810,000 last year. This loss is the result of reduced volumes.

     Income tax expense decreased to $76,916,000 in 2007 as compared to $118,675,000 last year. This is due to lower income before taxes and a decrease in the effective tax rate to 35.3% versus 36.0% last year.

     Income tax expense increased to $118,675,000 in 2006 as compared to $97,979,000 in 2005. This is due to higher income before taxes and a decrease in the effective tax rate to 36.0% versus 37.4% last year. The decrease in effective income tax rate is due to the 3% manufacturers credit in fiscal 2006 and an increase in excess percentage depletion as a result of increased revenues.

     Net earnings for fiscal 2007 were $141,016,000 as compared to $211,409,000 last year. Included in net earnings for this year is the gain on the sale of real estate of $3,928,000 pre-tax ($2,541,000 after tax). Included in fiscal 2006 was the gain on the sale of real estate of $3,569,000 ($2,284,000 after tax) and a gain of $2,838,000 pretax from the exchange of real estate ($1,816,000 after tax).

      Liquidity and Capital Resources. The following key financial measurements reflect the Company’s financial position and capital resources at September 30 (dollars in thousands):

     In 2007, cash provided by operations of $206,599,000, sales of assets of $12,613,000 and proceeds from the exercise of stock options of $15,721,000 were used to purchase $241,352,000 of property, plant and equipment, for business acquisitions of $30,727,000 and to pay dividends of $29,691,000.

     In 2006, cash provided by operations of $291,719,000, sales of assets of $9,384,000 and proceeds from the exercise of stock options of $3,949,000 were used to purchase $158,929,000 of property, plant and equipment, for business acquisitions of $44,030,000, to repurchase stock of $19,898,000 and to pay dividends of $49,197,000.

Operating Activities:

     During fiscal 2007, cash flow provided by operations was $206,599,000. The major reason for the decrease from 2006 was decreased earnings, a decrease in accounts payables and accrued expenses partially offset by a decrease in inventory, an increase in accounts receivable, an increase in depreciation and amortization.

     During fiscal 2006, cash flow provided by operations was $291,719,000. The major reason for the increase from 2005 was increased earnings, an increase in depreciation and amortization, an increase in accounts payable and accrued liabilities partially offset by an increase in accounts receivable and inventory.

Investing Activities:

     Cash flow used for investing activities was $267,432,000 for fiscal 2007. This resulted from purchases of property, plant and equipment of $241,352,000 and $30,727,000 used for business acquisitions, partially offset by proceeds from sales of property, plant and equipment and other assets of $12,613,000.

     Cash flow used in investing activities was $205,946,000 for fiscal 2006. This resulted from purchases of property, plant and equipment of $158,929,000 and $44,030,000 used for business acquisitions partially offset by proceeds from sales of property, plant and equipment and other assets of $9,384,000.

Financing Activities:

     Cash flow provided by financing activities was $2,356,000 in fiscal 2007. The exercise of stock options provided $15,721,000 of funds and the tax benefit related to these exercises provided $31,986,000 of funds. Payment of dividends used $29,691,000 of funds.

     Cash flow used for financing activities was $61,341,000 in fiscal 2006. During the year, dividends of $49,197,000 were paid and $19,898,000 of common stock was repurchased.

     The merger with Vulcan is expected to close on November 16, 2007. Future capital expenditures will be determined based on the combined companies’ future capital expenditure plans.

     The Company expects that the Purchase and Put Agreements covering $3,550,000 of the Industrial Revenue Bonds (See Note 7 to the Consolidated Financial Statements) will continue to be amended until the earlier of the final maturity date of the respective bonds or until the project financed by the bonds is terminated. To the extent that the bonds mature or the Purchase and Put Agreements are not extended, the Company will repurchase and/or repay the bonds with borrowings under its revolving credit agreement. The Company believes it will be able to renegotiate its present credit facilities or obtain similar replacement credit facilities when necessary in the future.

Capital Resources:

     Working capital for fiscal 2007 decreased to $109,894,000 from $153,925,000 for fiscal 2006. The decrease was due to decreased cash from operations.

     Working capital for fiscal 2006 increased to $153,925,000 from $121,545,000 for fiscal 2005. The increase was due to increased cash from operations.

     Upon completion of the merger with Vulcan, the Company’s revolving credit facilities will be terminated and future funding will be provided by Vulcan credit facilities.

     The following table summarizes the Company’s contractual obligations, maturities and commitments. See Notes 8 and 13 of the Notes to Consolidated Financial Statements for additional information regarding long-term debt and operating leases.

     Excluded from the above table are minimum royalties on contracts that are cancelable on short notice.

      Off-Balance Sheet Arrangements. There are no off-balance sheet arrangements, such as financing or variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

      Critical Accounting Policies. The Consolidated Financial Statements and Notes to 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. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions, and in some cases, actuarial calculations. We constantly review these significant factors and make adjustments where facts and circumstances dictate. Actual results could differ from those estimates. Historically, actual results have not significantly deviated from estimated results determined using the factors described above.

     Note 2 to the Consolidated Financial Statements provides detail on the application of these and other accounting policies. These critical accounting policies and Note 2 should be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following is a discussion of the accounting policies considered to be most critical to the Company. These accounting policies are both most important to the portrayal of the financial condition and results, and require management’s most difficult, subjective or complex judgments often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management has discussed each of these critical accounting policies with the Audit Committee, and the Audit Committee has reviewed this disclosure regarding Critical Accounting Estimates.

      Self-insurance reserves. It is our policy to self insure for certain insurable risks consisting primarily of physical loss to property, business interruptions, workers’ compensation, comprehensive general liability, product liability and auto liability. Insurance coverage is obtained for catastrophic property and casualty exposures as well as those risks required to be insured by law or contract. Based on an independent actuary’s estimate of the aggregate liability for claims incurred, a provision for claims under the self-insured program is recorded and adjusted monthly. The actuarial estimates are subject to uncertainty from various sources, including changes in claim reporting patterns, claims settlement patterns, judicial decisions, legislation, and economic conditions. Although the Company believes that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect the Company’s self-insurance obligations and future expense.

      Long-lived assets. The Company periodically evaluates the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. The Company reviews its property, plant and equipment for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount to the net undiscounted cash flows expected to be generated by the asset. An impairment loss would be recorded for the excess of net carrying value over the fair value of the asset impaired. The fair value is estimated based on expected discounted future cash flows. The results of impairment tests are subject to management’s estimates and assumptions of projected cash flows and operating results. The Company believes that, based on current conditions, materially different reported results are not likely to result from long-lived asset impairments. However, a change in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of materially different reported results.

      Intangible assets and goodwill. Financial Accounting Standards Board Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets” requires companies to test goodwill for impairment on an annual basis at the reporting unit level (or an interim basis if an event occurs that might reduce the fair value of a reporting unit below its carrying value). The Company has determined that it has three reporting units and the annual impairment test will be performed as of September 30th. SFAS 142 also requires that the carrying value of an identifiable intangible asset that has an indefinite life be determined by using a fair value based approach.

     The valuation of goodwill and intangibles with indefinite useful lives for impairment requires management to use significant judgments and estimates including, but not limited to, projected future revenue and cash flows. The Company believes that, based on current conditions, materially different reported results are not likely to result from goodwill and intangible impairments. However, a change in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of materially different report results.

      Inventory. Inventories are valued at the lower of cost or market. Inventory for the aggregates segment on a quarterly basis is based on internal

estimates of production during the period. An outside consultant measures the volume of aggregates inventory for our large quarries on a quarterly basis and the balance of the locations primarily on a semi-annual basis. Aggregates inventory is adjusted to the amounts shown in the report of the outside consultant.

      Asset Retirement Obligation. SFAS No. 143, “Accounting for Asset Retirement Obligations,” and FIN 47; “Accounting for Conditional Asset Retirement Obligations – an interpretation of FASB Statement No. 143,” require 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 amortized over the life of the asset. The liability is accreted at the end of each reporting period through charges to operating expenses. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement. For concrete and terminal locations, asset retirement obligations are recorded for lease-stipulated requirements, as well as closure obligations related to storage tanks. For the cement and calcium segment, asset retirement obligations have been provided for obligations to reclaim mining sites, asbestos removal, and closure obligations related to storage tanks. For the aggregates segment, an asset retirement obligation was provided where the Company has a legal obligation to reclaim the mining site and closure obligations related to storage tanks.

      Assessments, Claims and Litigation. From time to time, the Company is involved with assessments, claims and litigation. The Company uses both in-house and outside legal counsel to assess the probability of loss. The Company establishes an accrual when the claims and litigation represent a probable loss and the cost can be reasonably estimated. Accruals for remediation efforts are recorded no later than the time a feasibility study is undertaken and the Company commits to a formal plan of action. Additionally, legal fees associated with these matters are accrued at the time such claims are made. There can be no assurance that the ultimate resolution of these assessments, claims and litigation will not differ materially from the Company estimates.

      Employee Benefits. Under the provisions of SFAS No.87, “Employer’s Accounting for Pensions” and SFAS No. 106, “Employer’s Accounting for Postretirement Benefits Other Than Pensions,” measurement of the obligations under employee benefits plans are subject to a number of assumptions. These include the rate of return on plan assets, health care cost trend rates and the rate at which the future obligations are discounted to the value of the liability. (See Note 12 to the consolidated financial statements).

      Related Party Transactions. Patriot Transportation Holding, Inc. (“Patriot”), a related party through common directors (See Note 5 to the consolidated financial statements), hauls diesel fuel, cement 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 the mid 1980’s and early 1990’s. In addition, the Company provides administrative services to Patriot. These services are provided at market prices.

     On October 4, 2006, the Company entered into a 50-50 joint venture with a subsidiary of Patriot Transportation Holding, Inc. (“FRP”) to develop property near Brooksville, Florida. We contributed approximately 553 acres of land with a book value of $1,700,000 and FRP contributed approximately 3,433 acres of land which the Company leased from Patriot under a long-term mining lease. In addition, we contributed an additional 288 acre parcel that we acquired in 2006, and FRP reimbursed us $3,018,000 for one-half of the acquisition costs of that parcel. The Company’s investment in the joint venture is $5,136,000 as of September 30, 2007. The Company and FRP are each required to fund up to $2 million each in additional capital contributions. The Company will continue to conduct mining operations on a portion of the property and pay royalties to FRP based on actual tons mined.

      New Accounting Pronouncements. In March 2005, the Emerging Issues Task Force reached a consensus on Issue 04-6, “Accounting for Stripping Costs Incurred during Production in the Mining Industry” (“EITF 04-6”), EITF 04-6 was effective for the Company beginning October 1, 2006 and requires that stripping costs incurred during the production phase of the mine be included in the costs of the inventory produced during the period that the stripping costs are incurred. The Company currently accounts for stripping costs consistent with the method prescribed by EITF 04-6, and as such, it did not have an effect on the Company’s consolidated financial statements.

     In June 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, Accounting for Income Taxes,” which clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are effective for the Company beginning October 1, 2007 and it is not expected to have a material effect on the Company’s consolidated financial statements.

     In June 2006, the FASB ratified EITF No. 06-3, “Disclosure Requirements for Taxes Assessed by a Government Authority on Revenue-Producing Transactions.” EITF 06-3 requires disclosure of a company’s accounting policy with respect to presentation of taxes collected on a revenue producing transaction between a seller and a customer. For taxes that are reported on a gross basis (included in revenue and costs), EITF 06-3 also requires disclosure of the amount of taxes included in the financial statements. EITF 06-3 was effective for the Company beginning January 1, 2007 and did not have a material effect on the Company’s consolidated financial statements. The Company records taxes collected on revenue producing activities on a net basis.

     In September 2006, the FASB issued FASB Staff Position (FSP) No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities,” which prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities. FSP AUG AIR-1 is effective for the Company beginning October 1, 2007 and, as the Company does not currently use the prohibited method, is not expected to have a material impact on the Company’s consolidated financial statements.

     In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements in Current Year Financial Statements,” which requires registrants to consider the effect of all carryover and reversing effects or prior year misstatements when quantifying errors in current year financial statements. The cumulative effective of initial application is to be reported in the carrying amount of assets and liabilities as of the beginning of that fiscal year, and the offsetting is to be made to the opening balance of retained earnings for that year. The provisions of SAB 108 are effective for the Company’s fiscal year ended September 30, 2007 and did not have a material impact on the consolidated financial statements.

     In September 2006, the FASB ratified EITF Issue No. 06-5, “Accounting for Purchases of Life Insurance—Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4.” This issue requires that the determination of the amount that could be realized under an insurance contract (1) consider any additional amounts (beyond cash surrender value) included in the contractual terms of the policy and (2) be based on assumed surrender at the individual policy or certificate level, unless all policies or certificates are required to be surrendered as a group. When it is probable that contractual restrictions would limit the amount that could be realized, such contractual

limitations should be considered and any amounts recoverable at the insurance company’s discretion should be excluded from the amount that could be realized. EITF 06-5 is effective for the company beginning October 1, 2007 and the Company is in the process of evaluating its impact, if any, on the consolidated financial statements.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for the Company beginning October 1, 2008 and the Company is evaluating the impact, if any, of this Statement on its consolidated financial statements.

     In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R).” This Statement requires the Company to recognize the overfunded or underfunded status of its defined benefit postretirement plans as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. This Statement also requires the measurement of defined benefit plan assets and obligations as of the date of the Company’s fiscal year end. SFAS 158 is effective for the Company as of September 30, 2007 (See Note 12), with the exception of the measurement date provisions, which are effective for the Company’s fiscal year ending September 30, 2009.

      Outlook. Residential construction in our markets continues to show significant weakness, with the subprime credit crunch adding additional negative impact. Non-residential is still slightly ahead of the prior year but these comparisons will get tougher in the coming months and without any rebound in residential historical precedent would indicate softening in non-residential construction as well in the coming months. Highway/infrastructure spending remains strong but will be dependent on continued strength in tax revenues for the states in the coming year.

     During the fourth quarter of fiscal 2007 the level of construction activity in the residential sector decreased resulting in a reduction in volumes in all three business segments. The volumes in these segments in fiscal 2007 have continued to be depressed from fiscal 2006 levels. The temporary shutdown of mining ordered by the federal court for our Miami quarry continues in effect while our appeal of that order remains pending before the Eleventh Circuit Court of Appeals. Meanwhile we expect the Army Corps of Engineers to issue the Supplemental Environmental Impact Statement ordered by the federal district court in early 2008.

     For further discussion of the issues surrounding the Miami quarry, refer to Note 17 to the Consolidated Financial Statements.

     For our cement segment, construction continues on our expansion with completion now scheduled for late calendar 2008 or early 2009. The decline in residential construction is depressing our volumes in this segment with little expectation of any near term improvement in demand. High shipping costs are holding up the price of cement imports offsetting the pressure on prices in the local Florida market caused by the overall softening of demand.

      Inflation. In the past five years the Company has been able to raise the price of its core products in amounts that generally offset or exceed inflation as measured by the Consumer Price Index.

      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 7. A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our operations are highly dependent on the interest rate-sensitive construction industry. Economic activity in the construction industry in general, and the residential construction market in particular, is adversely affected by rising interest rates and escalating costs. A significant decrease in construction activity in our markets may have a material adverse effect on our sales and net income.

Aside from inherent risks from within our operations, our earnings are affected by market risk from changes in interest rates. For our cash and cash equivalents, a change in interest rates affects the amount of interest income that can be earned. For our debt instruments changes in interest rates affect the amount of interest expense incurred.

The following table provides information about the Company’s financial instruments and the maturity dates thereof that are sensitive to changes in interest rates (in thousands):

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Florida Rock Industries, Inc.:

We have audited the accompanying consolidated balance sheets of Florida Rock Industries, Inc. and subsidiaries as of September 30, 2007 and 2006, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended September 30, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Florida Rock Industries, Inc. and subsidiaries as of September 30, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2007 in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of computing share-based compensation as of October 1, 2005 and changed its method of accounting for defined benefit postretirement plans as of September 30, 2007.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of September 30, 2007, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated November 16, 2007 expressed an unqualified opinion on the effective operation of internal control over financial reporting.

KPMG LLP

Jacksonville, Florida
Certified Public Accountants
November 16, 2007

See accompanying notes.

See accompanying notes.

     See accompanying notes.