<PAGE>
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 March 31, 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 March 31, 1996
Common Stock, $6.25 par value 9,051,987 shares
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FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
March 31 December 31
1996 1995
(Unaudited)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 24,190 $ 11,050
Short-term investments 13,787 12,999
Accounts receivable, net 27,069 28,589
Materials and supplies 10,726 10,223
Other 7,574 7,218
-------- --------
Total current assets 83,346 70,079
Other investments 59,279 69,226
Properties, less accumulated depreciation and
amortization 619,261 608,640
Other assets and deferred charges 5,630 8,265
-------- --------
$767,516 $756,210
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,574 $ 20,317
Income taxes 4,792 593
Estimated property taxes 3,812 3,353
Accrued casualty and other reserves 5,119 5,226
Other accrued liabilities 2,751 2,580
-------- --------
Total current liabilities 37,048 32,069
Deferred income taxes 133,101 132,968
Reserves and other long-term liabilities 9,229 9,313
Shareholders' equity:
Common stock, $6.25 par value; 9,360,000 shares
authorized; 9,271,361 shares issued and 9,051,987
shares outstanding 57,946 57,946
Capital surplus 1,598 1,598
Retained earnings 537,351 530,834
Net unrealized gain on debt and marketable
equity securities 1,516 1,755
Less:
Treasury stock at cost (219,374 shares) (10,273) (10,273)
-------- --------
Total shareholders' equity 588,138 581,860
-------- --------
$767,516 $756,210
======== ========
(See accompanying notes)
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FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Dollars in thousands except per share amounts)
(Unaudited)
QUARTER ENDED MARCH 31
1996 1995
---- ----
OPERATING REVENUES:
Transportation $ 42,249 $ 39,823
Realty - Land Sales 5 0
- Rents & Other 7,709 5,756
-------- ---------
Total revenues 49,963 45,579
OPERATING EXPENSES:
Transportation 32,123 29,077
Realty 4,767 4,296
General and Administrative 5,731 4,543
-------- ---------
Total expenses 42,621 37,916
Operating profit 7,342 7,663
OTHER INCOME (EXPENSE):
Dividends 93 92
Interest income 1,298 1,357
Interest expense (67) (192)
Gains on sales and other disposition of properties 2,577 194
Other (net) 662 (275)
-------- --------
Total other income 4,563 1,176
Income before income taxes 11,905 8,839
INCOME TAXES:
Current 4,252 3,272
Deferred 212 43
-------- --------
Total income taxes 4,464 3,315
Income before minority interest 7,441 5,524
Less: minority interest (18) 0
-------- --------
Net income $ 7,423 $ 5,524
Retained earnings:
Balance at beginning of year 530,834 507,813
Cash dividends (906) (900)
-------- --------
Balance at end of period $537,351 $512,437
======== ========
Per Share Data:
Cash dividends $ 0.10 $ 0.10
======== ========
Earnings per common share $ 0.82 $ 0.62
======== ========
(See accompanying notes)
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FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
QUARTER ENDED MARCH 31
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 7,423 $ 5,524
Adjustments to reconcile net income to cash generated:
Depreciation and amortization 5,526 5,498
Gain on disposition of assets (2,577) (194)
Deferred taxes 212 43
Changes in operating assets and liabilities:
Accounts receivable 1,520 536
Other current assets (859) 616
Other assets and deferred charges 2,635 1,276
Accounts payable 257 5,197
Income taxes payable 4,199 2,488
Estimated property taxes 459 87
Other current liabilities 64 571
Reserves and other long-term liabilities (84) 898
-------- --------
Net cash generated by operating activities 18,775 22,540
Cash flows from investing activities:
Purchases of properties (17,725) (23,429)
Purchases of investments:
Available-for-sale (6,617) (9,845)
Held-to-maturity 0 (15,645)
Maturities and redemption of investments:
Available-for-sale 5,892 8,502
Held-to-maturity 10,200 7,500
Proceeds from disposition of assets 3,521 690
-------- --------
Net cash used in investing activities (4,729) (32,227)
Cash flows from financing activities:
Payment of dividends (906) (900)
-------- --------
Net cash used in financing activities $ (906) $ (900)
Net increase (decrease) in cash and cash equivalents 13,140 (10,587)
Cash and cash equivalents at beginning of quarter 11,050 15,235
-------- --------
Cash and cash equivalents at end of quarter $ 24,190 $ 4,648
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the quarter for income taxes $ 0 $ 783
======== ========
Cash paid during the quarter for interest $ 67 $ 133
======== ========
(See accompanying notes)
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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 (consisting of
normal recurring accruals) considered necessary to present fairly the
financial position as of March 31, 1996, and December 31, 1995, and the
results of operations and cash flows for the three month periods ended
March 31, 1996, and March 31, 1995.
2. The results of operations for the three months ended March 31, 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 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 two Superfund sites. The Company has accrued
its allocated share of the total estimated cleanup costs for these two
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 operations of the Company. Environmental
liabilities of $2.5 million for both March 31, 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.
Gran Central Corporation, a wholly-owned subsidiary of the Company,
entered into an agreement with the State of Florida Department of
Transportation to furnish all land necessary for the construction of the
N.W. 106th Street Interchange on the Homestead Extension of the Florida
Turnpike and to provide security to the Department for 15 years to cover
any annual operating deficit related to the interchange which is not
covered by toll revenues. The maximum assessment amount over the 15
years would be approximately $9.3 million with no annual assessment to
exceed approximately $1.1 million.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Florida East Coast Industries, Inc.'s (FECI) operating revenues for the quarter
ended March 31, 1996, as compared with same period 1995 reflected an increase
of $4.4 million or 9.6%. Operating expenses in the first quarter 1996 reflected
an increase of $4.7 million or 12.4% from first quarter 1995. Operating profits
decreased by $.3 million from first quarter 1995 to first quarter 1996.
ANALYSIS
Revenues - When comparing the first quarter 1996 revenues with the same period
1995, the 1996 transportation revenues increased by $2.4 million or 6.1%.
The increase in transportation revenues of $2.4 million is primarily
attributable to the consolidation of ITI's revenues of approximately $6.0
million into the Company's financials. Discounting ITI's revenues,
transportation revenues declined and were attributable to the combination of the
haulage agreement previously discussed and the decline in shipments of
approximately 7.2% in the first quarter 1996 versus first quarter 1995. Realty
revenues for first quarter 1996 increased by $2.0 million which was primarily
attributable to rents and other income.
Operating Expenses - Operating expenses in the first quarter 1996 reflected an
increase of $4.7 million or 12.4% as compared to the same period in 1995. When
compared to first quarter 1995, transportation operating expenses in first
quarter 1996 increased by $3.0 million, realty operating expenses increased by
$.5 million, and general and administrative operating expenses increased by
$1.2 million. The increases in transportation and general and administrative
expenses of $3.0 million and $1.2 million, respectively, are primarily
attributable to the consolidation of ITI's expenses of approximately $6.0
million now included in the Company's financials.
Other Income - Other income in the first quarter 1996 when compared to same
period 1995, reflected an increase of $3.4 million represented by increases in
gains on sales and other disposition of property of $2.4 million and in other
income of $.9 million. The gain on sales and disposiion of property of $2.4
million represents the first of three installments involving the sale of fiber
optic conduit for $8.7 million. The increase in other income of $.9 million is
primarily attributable to increased earnings on the Company's investment
portfolio for realty development.
Net Income - Net income increased by $1.9 million in first quarter 1996 when
compared to first quarter 1995.
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, 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.
To date, no purchase price discussions have been made nor will any discussions
be made until the completion of the appraisals. Accordingly, 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 portfolio,
consisting largely of U.S. Treasury securities with maturities less than
twelve months.
Current cash generations are used for capital expenditures in the
transportation and realty sectors and for payment of dividends. The
investment portfolio is informally dedicated to major real estate development.
Cash and short-term investments increased $13.9 million to $38.0 million at
March 31, 1996, from $24.0 million at year-end 1995. The investment portfolio
decreased $9.9 million to $59.3 million at March 31, 1996, from $69.2
million at year-end 1995. This decrease of $9.9 million is primarily due to
the cash requirements of current realty development projects. 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.
There was no significant change in debt, reserves, or other liabilities
during the three-month period and capital projects at March 31, 1996,
amounted to approximately $69.7 million authorized and outstanding from
$33.2 million authorized and outstanding at December 31, 1995. Of the $69.7
million of capital projects, approximately 95% represent realty development
projects.
<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 Paper Company
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.
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
Paper Company. The requested information was timely provided to the SEC.
<PAGE>
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: May 14, 1996 /s/ T. Neal Smith
________________________________
Vice President & Secretary
Date: May 14, 1996 /s/ J.R. Yastrzemski
_________________________________
Comptroller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> 24,190 11,050
<SECURITIES> 13,787 12,999
<RECEIVABLES> 27,069 28,589
<ALLOWANCES> 0 0
<INVENTORY> 10,726 10,223
<CURRENT-ASSETS> 83,346 70,079
<PP&E> 845,551 830,806
<DEPRECIATION> (226,290) (222,166)
<TOTAL-ASSETS> 767,516 756,210
<CURRENT-LIABILITIES> 37,048 32,069
<BONDS> 0 0
<COMMON> 57,946 57,946
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 767,516 756,210
<SALES> 49,963 201,107
<TOTAL-REVENUES> 54,526 209,031
<CGS> 0 0
<TOTAL-COSTS> 42,621 166,479
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 11,905 42,552
<INCOME-TAX> 4,464 15,915
<INCOME-CONTINUING> 7,441 26,637
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,441 26,637
<EPS-PRIMARY> 0.82 2.95
<EPS-DILUTED> .0 .0
</TABLE>
