UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the period ended June 30, 1996.
Commission File Number 2-89530
FLORIDA EAST COAST INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-2349968
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1650 Prudential Drive, Jacksonville, FL 32201-1380
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code
(904) 396-6600
N O N E
Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ____X____ No _________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at June 30, 1996
Common Stock, $6.25 par value 9,051,987 shares
<PAGE>
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
June 30 December 31
1996 1995
(Unaudited)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 24,330 $ 11,050
Short-term investments 10,889 12,999
Accounts receivable, net 28,149 28,589
Materials and supplies 11,864 10,223
Other 7,109 7,218
-------- --------
Total current assets 82,341 70,079
Other investments 60,899 69,226
Properties, less accumulated depreciation
and amortization 623,460 608,640
Other assets and deferred charges 10,811 8,265
-------- --------
$777,511 $756,210
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 25,349 $ 20,317
Income taxes 2,534 593
Estimated property taxes 6,254 3,353
Accrued casualty and other reserves 4,575 5,226
Other accrued liabilities 2,923 2,580
-------- --------
Total current liabilities 41,635 32,069
Deferred income taxes 133,974 132,968
Reserves and other long-term liabilities 8,651 9,313
Shareholders' equity:
Common stock, $6.25 par value; 9,360,000 shares
authorized; 9,271,361 shares issued & 9,051,987
shares outstanding 57,946 57,946
Capital surplus 1,598 1,598
Retained earnings 542,916 530,834
Net unrealized gain (loss) on debt and
marketable equity securities 1,064 1,755
Less:
Treasury stock at cost (219,374 shares) (10,273) (10,273)
-------- --------
Total shareholders' equity 593,251 581,860
-------- --------
$777,511 $756,210
======== ========
(See accompanying notes)
<PAGE>
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS
OF INCOME AND RETAINED EARNINGS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
1996 1995 1996 1995
-------------------------------------
OPERATING REVENUES:
Transportation $ 43,865 $ 45,229 $ 86,114 $ 85,052
Realty - Land Sales 228 540 233 540
- Rents & Other 7,394 6,210 15,103 11,966
-------- -------- -------- --------
Total revenues 51,487 51,979 101,450 97,558
OPERATING EXPENSES:
Transportation 32,697 34,239 64,820 63,316
Realty 5,294 4,356 10,061 8,652
General and Administrative 5,161 5,231 10,892 9,774
-------- -------- --------- --------
Total expenses 43,152 43,826 85,773 81,742
Operating profit 8,335 8,153 15,677 15,816
OTHER INCOME (EXPENSE):
Dividends 107 198 200 290
Interest income 945 1,422 2,243 2,779
Interest expense (257) (161) (324) (353)
Gains on sales and other disposition
of properties 123 685 2,700 879
Other (net) 1,098 621 1,760 346
-------- -------- --------- --------
Total other income (expense) 2,016 2,765 6,579 3,941
Income before income taxes 10,351 10,918 22,256 19,757
INCOME TAXES:
Current 2,725 3,808 6,977 7,080
Deferred 1,157 286 1,369 329
-------- -------- --------- ---------
Total income taxes 3,882 4,094 8,346 7,409
Income before minority interest 6,469 6,824 13,910 12,348
Less: minority interest 0 (24) (18) (24)
-------- -------- --------- ---------
Net income $ 6,469 $ 6,800 $ 13,892 $ 12,324
Retained earnings:
Balance at beginning of year 537,351 512,437 530,834 507,813
Cash dividends (904) (905) (1,810) (1,805)
-------- -------- -------- --------
Balance at end of period $542,916 $518,332 $542,916 $518,332
======== ======== ======== ========
Per Share Data:
Cash dividends $ 0.10 $ 0.10 $ 0.20 $ 0.20
======== ======== ======== ========
Earnings per common share $ 0.71 $ 0.76 $ 1.53 $ 1.37
======== ======== ======== ========
(See accompanying notes)
<PAGE>
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
SIX MONTHS ENDED JUNE 30
1996 1995
---- ----
Cash flows from operating activities:
Net income $13,892 $12,324
Adjustments to reconcile net income to cash
generated:
Depreciation and amortization 11,399 11,222
Minority interest in income 0 24
Gain on disposition of assets (2,700) (879)
Deferred taxes 1,369 329
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net 440 (549)
(Increase) decrease in other current assets (1,532) (65)
(Increase) decrease in other assets and
deferred charges (2,546) (1,357)
Increase (decrease) in accounts payable 5,032 (89)
Increase in income taxes payable 1,941 277
Increase (decrease) in estimated property taxes 2,901 2,469
(Decrease) increase in other current liabilities (308) 549
(Decrease) increase in reserves and other
long-term liabilities (662) 1,737
------- -------
Net cash generated by operating activities 29,226 25,992
Cash flows from investing activities:
Purchases of properties (28,018) (43,774)
Purchases of investments:
Available-for-sale (14,515) (16,401)
Held-to-maturity (2,943) (15,645)
Maturities and redemption of investments:
Available-for-sale 8,420 18,193
Held-to-maturity 18,350 22,000
Proceeds from disposition of assets 4,570 6,007
------- -------
Net cash used in investing activities (14,136) (29,620)
Cash flows from financing activities:
Payment of dividends (1,810) (1,805)
------- -------
Net cash used in financing activities $(1,810) $(1,805)
Net (decrease) increase in cash & cash equivalents 13,280 (5,433)
Cash and cash equivalents at beginning of period 11,050 15,235
------- -------
Cash and cash equivalents at end of period $24,330 $ 9,802
======= =======
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 5,011 $ 7,208
======= =======
Cash paid for interest $ 324 $ 206
======= =======
(See accompanying notes)
<PAGE>
FLORIDA EAST COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments considered necessary
to present fairly the financial position as of June 30, 1996, and
December 31, 1995, and the results of operations and cash flows for the
three month and six month periods ended June 30, 1996, and June 30, 1995.
The adjustments to the unaudited financial statements consist only of
normal recurring accruals.
2. The results of operations for the six months ended June 30, 1996, and
1995, are not necessarily indicative of the results that may be expected
for the full year.
3. The Company has retained certain self-insurance risks with respect to
losses for third-party liability, property damage, and group health
insurance coverage provided employees. The Company is the defendant and
plaintiff in various lawsuits resulting from its operations. In the
opinion of management, adequate provision has been made in the financial
statements for the estimated liability which may result from disposition
of such lawsuits.
The Company is subject to proceedings arising out of environmental laws
and regulations, which primarily relate to the disposal and use of fuel
and oil used in the transportation business. It is the Company's policy
to accrue and charge against earnings environmental cleanup costs when it
is probable that a liability has been incurred and an amount can be
reasonably estimated. As assessments and cleanups proceed, these accruals
are reviewed and adjusted.
The Company is currently a party to, or involved in, legal proceedings
directed at the cleanup of three Superfund sites. The Company has accrued
its allocated share of the total estimated cleanup costs for these three
sites. Based upon management's evaluation of the other potentially
responsible parties, the Company does not expect to incur additional
amounts even though the Company has joint and several liability. Other
proceedings involving environmental matters such as alleged discharge of
oil or waste material into water or soil are pending against the Company.
It is difficult to quantify future environmental costs because many
issues relate to actions by third parties or changes in environmental
regulation. However, based on information presently available, management
believes that the ultimate disposition of currently known matters will not
have a material effect on the financial position, liquidity or results of
the operations of the Company. Environmental liabilities of $2.2 and $2.5
million for June 30, 1996 and December 31, 1995, respectively, will be paid
over an extended period, and the timing of such payments cannot be
predicted with any confidence.
4. The revenue recognition policies are:
Transportation Revenues: Revenues are substantially recognized upon
completion of transportation services at destination.
Realty Land Sales: Revenue is recognized upon closing of sales contracts
for sale of land or upon settlement of legal proceedings such as
condemnations.
Rental Income: Revenue is recognized upon completion of rental and lease
contracts. The Company uses the straight-line basis for recording the
revenues over the life of the lease contract.
5. Because a large percentage of the Company's properties are long-lived,
asset replacement will be at a higher cost and will take place over many
years. The acquisition of new assets will result in higher depreciation
charges and, in the case of Realty, higher taxes and operating costs.
Generally accepted accounting principles require the use of historical
costs in preparing financial statements. This approach disregards the
effect of inflation on the replacement cost of property and equipment.
The Company is a capital-intensive company and has approximately $830
million invested in such assets as of December 31, 1995. The
replacement costs of these assets, as well as the related depreciation
expense, would be substantially greater than the amounts reported on the
basis of historical costs.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
As reported since April 1, 1995, the composition of revenues and expenses
of the transportation segment of the Company has changed. This change is
primarily related to the consolidation of International Transit, Inc.'s
(ITI), the trucking subsidiary of the Company, revenues and expenses into the
financials since April 1995, and the implementation on April 1, 1995 of a
haulage agreement with a connecting rail carrier. The inclusion of ITI's
revenues and expenses into the consolidated financials increased the
consolidated revenues and expenses, whereas the haulage agreement with the
connecting carrier reduced revenues and expenses in the consolidated
financials and, as a result, the period-to-period comparisons will be
affected throughout 1996.
Florida East Coast Industries, Inc.'s (FECI) operating revenues for the
year ended June 30, 1996, as compared with the same period 1995, reflected an
increase of $3.9 million or 4.0%. Transportation revenues increased by $1.1
million or 1.2% for the first six months of 1996 when compared to the same
period in 1995. The increases in consolidated operating revenues of $3.9
million and the transportation revenues of $1.1 million are primarily
attributable to the inclusion of ITI's revenues for six months of 1996 and
three months of 1995 offset by the decline in the number of shipments handled
in 1996 versus 1995 and lower revenue associated with haulage shipments. Land
sales for the realty segment of the Company declined by $.3 million and rents
and other income increased by $3.1 million. The increase in rental income
is the result of the additional leasable space becoming available during the
first six months of 1996. As of June 30, 1996, the realty segment of the
Company had approximately 4.6 million square feet of leasable space in
inventory as compared to 4.0 million as of December 31, 1995.
Comparing total operating revenues for the second quarter 1996 with the
second quarter 1995, total operating revenues declined by $.5 million or .9%.
Comparing second quarter 1996 transportation revenues with second quarter 1995,
transportation revenues declined by $1.4 million or 3.0%. Again, this decline
in revenues is indicative of the approximate 1.6% decrease in the number of
shipments from second quarter 1995 to second quarter 1996. Using the same
comparative period, land sales declined by $.3 million while rents and other
income increased by $1.2 million.
When comparing second quarter 1996 with first quarter 1996, total operating
revenues increased by approximately $1.5 million or 3.1%. For this same
comparative period, transportation revenues increased by approximately $1.6
million or 3.8%. This increase in revenues was the result of the 4.5% increase
in the number of shipments handled in second quarter versus first quarter 1996.
Also during these comparative periods, land sales increased by $.2 million
and rents and other income declined by $.3 million.
Total operating expenses for the six months ending June 30, 1996 increased
by $4.0 million or 4.9% when compared to the same period in 1995. For this
same comparative period, transportation expenses increased by $1.5 million or
2.4%. As discussed above, the increases in consolidated operating expenses of
$4.0 million and transportation expenses of $1.5 million are the results of the
inclusion of ITI's expenses into consolidated financials offset by reduced
operating expenses associated with haulage agreement and the decline in
shipments in 1996 compared to 1995. Comparing the first six months 1996 with
the first six months 1995, realty expenses increased by $1.4 million, and
general and administrative expenses increased by $1.1 million.
When comparing second quarter 1996 with second quarter 1995, total
operating expenses decreased by $.7 million or 1.5%. The decrease of $.7
million is comprised of a decrease in transportation expenses of $1.5 million;
a decrease in general and administrative expenses of $.07 million, and an
increase in realty expenses of $.9 million.
When comparing second quarter 1996 with first quarter 1995, total operating
expenses increased $.5 million. This increase was comprised of an increase in
transportation expenses of $.6 million; an increase in realty expenses of $.5
million, and a decrease in general and administrative expenses of $.6 million.
As information, environmental costs continue to be insignificant
expenditures, and represent less than .12% of total revenues or .33% of total
current assets. Compliance with the federal, state and local laws and
regulations relating to the protection of the environment has not affected the
Company's capital additions, earnings or competitive position, nor does
management anticipate any future problems which will adversely affect the
Company's financial situation based on the information available today. The
Company's policy is to actively prevent environmental problems, and management
is confident current accruals for present and future environmental costs are
sufficient and represent the upper limit of the Company's exposure.
Other income increased $2.6 million during the first six months of 1996
when compared to the same period in 1995. This increase is comprised of an
increase of $1.8 million in gains on sales and other disposition of properties;
and an increase in other of $1.4 million offset by a decrease in interest
income of $.5 million. The gain on sales of $1.8 million was reported in the
first quarter of 1996, and represents the first of three installments involving
the sale of fiber optic conduit for $8.7 million. The increase of $1.4 million
of other is primarily attributable to increased earnings on the Company's
investment portfolio for realty development.
When comparing second quarter 1996 with second quarter 1995, total other
income decreased by $.7 million. When comparing second quarter 1996 with first
quarter 1995, total other income declined by approximately $2.5 million, and
this difference is primarily related to the sale of fiber optic conduit in the
first quarter 1996.
RECENT EVENTS:
As reported in the 1995 Annual Report to Shareholders, the Special
Committee of the Board of Directors has recommended, and the Board has concurred
with the recommendation, that FECI should pursue a disposition of its
transportation subsidiary, FEC Railway Company, but only in conjunction with a
disposition of all of FECI's realty subsidiary, Gran Central Corporation (GCC).
St. Joe Paper Company, the Company's parent, which has changed its name to
St. Joe Corporation, has indicated a willingness to consider exchanging shares
of FECI stock it owns for all of the shares of GCC stock held by FECI and, in
that regard, has proposed acquiring all the issued and outstanding shares of
common stock of GCC in a tax-free exchange of its shares in FECI in return for
100% ownership of GCC stock. St. Joe and FECI have each hired appraisal firms
to assist in evaluating the property of GCC, and St. Joe and FECI intend to see
if they can negotiate terms of an exchange that will be acceptable to both
parties. Discussions between St. Joe and FECI are ongoing. There can be no
assurance when, if, and on what terms St. Joe may acquire GCC from FECI.
LIQUIDITY AND CAPITAL RESOURCES
FEC's principal sources of liquidity include cash generated by operations,
earnings on invested cash, and earnings on its investment portfolios, consisting
largely of U.S. Treasury securities for its short-term investments, and
approximately $46.5 million being actively managed in other diversified
investment funds.
Current cash generations are used for capital expenditures in the
transportation and realty sectors and in payment of dividends. The investment
portfolios are informally dedicated to major real estate development.
Cash and short-term investments increased $11.2 million to $35.2 million
at June 30, 1996 from $24.0 million at year-end 1995. The investment portfolios
decreased $8.3 million to $60.9 million at June 30, 1996 from $69.2 million at
year-end 1995. The Company's working capital position changed from a ratio of
2.19 to 1.00 at year-end 1995 to a ratio of 2.25 to 1.00 at March 31, 1996 and
to a ratio of 1.98 to 1.00 at June 30, 1996.
There were no significant changes in debt, reserves or other liabilities
during the six-month period. Authorized capital projects at June 30, 1996
increased to approximately $85.1 million authorized and outstanding from $33.2
million as of December 31, 1995. Of the $85.1 million of capital projects,
approximately 92% represents realty development projects. These expenditures
are expected to be funded from current operations supplemented, as necessary,
by cash and investments currently on hand.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 19, 1996, Florida East Coast Industries, Inc. was served with a
complaint filed by Alan Russell Kahn. The complaint is filed in the Circuit
Court of Duval County, Florida. Mr. Kahn alleges that he is a shareholder of
Florida East Coast Industries, Inc. In addition to Florida East Coast
Industries, Inc., the following entities and persons are named as defendants:
St. Joe Industries, Inc.
St. Joe Corporation
Board of Directors, as individuals
In his prayer for relief, Mr. Kahn requests the following:
(1) an order certifying the action as a class action;
(2) an injunction preventing the sale of Gran Central to St. Joe;
(3) an order requiring the Directors to place Gran Central for sale by
means of an auction, or to accept competitive bids from third
parties in some other fashion;
(4) an order requiring St. Joe to account to Mr. Kahn and the class
for any profits, and
(5) an order granting Mr. Kahn attorneys' fees and costs.
Mr. Kahn and the defendants have entered into a stipulation pursuant to which
the defendants' time to respond to Mr. Kahn's complaint has been extended, and
defendants are required to file an answer or other response within 20 days of
notice in writing to plaintiff's counsel to defendants' counsel that a response
is required.
Item 5. Other Information
On March 1, 1996, the United States Securities and Exchange Commission sent a
letter to Florida East Coast Industries, Inc., notifying it that the SEC was
conducting an informal inquiry into the trading in the securities of Florida
East Coast Industries, Inc.
The letter requested certain information regarding the circumstances and events
surrounding the proposed acquisition of Gran Central Corporation by St. Joe
Corporation. The requested information was timely provided to the SEC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLORIDA EAST COAST INDUSTRIES, INC.
(Registrant)
Date: August 15, 1996 /s/ T. Neal Smith
___________________________________
Vice President & Secretary
(Principal Financial Officer)
Date: August 15, 1996 /s/ J.R. Yastrzemski
___________________________________
Comptroller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<CASH> 24,330 11,050
<SECURITIES> 10,889 12,999
<RECEIVABLES> 28,149 28,589
<ALLOWANCES> 0 0
<INVENTORY> 11,864 10,223
<CURRENT-ASSETS> 82,341 70,079
<PP&E> 854,844 830,806
<DEPRECIATION> (231,384) (222,166)
<TOTAL-ASSETS> 777,511 756,210
<CURRENT-LIABILITIES> 41,430 32,069
<BONDS> 0 0
<COMMON> 57,946 57,946
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 777,511 756,210
<SALES> 101,450 201,107
<TOTAL-REVENUES> 108,029 209,031
<CGS> 0 0
<TOTAL-COSTS> 85,773 166,479
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 22,238 42,552
<INCOME-TAX> 8,141 15,915
<INCOME-CONTINUING> 14,097 26,637
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,097 26,637
<EPS-PRIMARY> 1.56 2.95
<EPS-DILUTED> 0 0
</TABLE>
