<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, 1997
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, 1997
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
1997 1996
(Unaudited)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 26,281 $ 23,602
Short-term investments 2,948 5,973
Accounts receivable, net 28,815 32,203
Materials and supplies 11,009 11,237
Other 7,462 7,803
-------- --------
Total current assets 76,515 80,818
Other investments 71,563 64,654
Properties, less accumulated depreciation and
amortization 643,866 636,019
Other assets and deferred charges 9,782 8,190
-------- --------
$801,726 $789,681
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,652 $ 22,705
Income taxes 10,073 4,652
Accrued property taxes 6,573 3,981
Accrued casualty and other reserves 5,188 5,038
Other accrued liabilities 1,873 3,239
-------- --------
Total current liabilities 45,359 39,615
Deferred income taxes 132,217 132,909
Reserves and other long-term liabilities 8,353 8,361
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 565,081 557,621
Net unrealized gain on debt and marketable
equity securities 1,445 1,904
Less:
Treasury stock at cost (219,374 shares) (10,273) (10,273)
-------- --------
Total shareholders' equity 615,797 608,796
-------- --------
$801,726 $789,681
======== ========
(See accompanying notes)
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
1997 1996
---- ----
OPERATING REVENUES:
Transportation $ 44,403 $ 41,765
Realty - Land Sales 5,892 5
- Rents & Other 9,143 8,193
-------- ---------
Total revenues 59,438 49,963
OPERATING EXPENSES:
Transportation 31,033 32,123
Realty 11,982 4,767
General and Administrative 5,331 5,731
-------- ---------
Total expenses 48,346 42,621
Operating profit 11,092 7,342
OTHER INCOME (EXPENSE):
Dividends 95 93
Interest income 1,305 1,298
Interest expense (91) (67)
Gains on sales and other disposition of properties 95 2,577
Other (net) 892 662
-------- --------
Total other income 2,296 4,563
Income before income taxes 13,388 11,905
INCOME TAXES:
Current 5,425 4,252
Deferred (405) 212
-------- --------
Total income taxes 5,020 4,464
Income before minority interest 8,368 7,441
Less: minority interest (3) (18)
-------- --------
Net income $ 8,365 $ 7,423
Retained earnings:
Balance at beginning of year 557,621 530,834
Cash dividends (905) (906)
-------- --------
Balance at end of period $565,081 $537,351
======== ========
Per Share Data:
Cash dividends $ 0.10 $ 0.10
======== ========
Earnings per common share $ .92 $ 0.82
======== ========
(See accompanying notes)
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
QUARTER ENDED MARCH 31
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 8,365 $ 7,423
Adjustments to reconcile net income to cash generated:
Depreciation and amortization 5,974 5,526
Gain on disposition of assets (95) (2,577)
Deferred taxes (405) 212
Changes in operating assets and liabilities:
Accounts receivable 3,388 1,520
Other current assets 569 (859)
Other assets and deferred charges (1,592) 2,635
Accounts payable (1,053) 257
Income taxes payable 5,421 4,199
Estimated property taxes 2,592 459
Other current liabilities (1,216) 64
Reserves and other long-term liabilities (8) (84)
-------- --------
Net cash generated by operating activities 21,940 18,775
Cash flows from investing activities:
Purchases of properties (15,158) (17,725)
Purchases of investments:
Available-for-sale (5,128) (6,617)
Held-to-maturity (5,983) 0
Maturities and redemption of investments:
Available-for-sale 4,501 5,892
Held-to-maturity 1,980 10,200
Proceeds from disposition of assets 1,432 3,521
-------- --------
Net cash used in investing activities (18,356) (4,729)
Cash flows from financing activities:
Payment of dividends (905) (906)
-------- --------
Net cash used in financing activities $ (905) $ (906)
Net increase in cash and cash equivalents 2,679 13,140
Cash and cash equivalents at beginning of quarter 23,602 11,050
-------- --------
Cash and cash equivalents at end of quarter $ 26,281 $ 24,190
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the quarter for income taxes $ 134 $ 0
======== ========
Cash paid during the quarter for interest $ 91 $ 67
======== ========
(See accompanying notes)
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, 1997 and December 31, 1996, and the
results of operations and cash flows for the three-month periods ended
March 31, 1997 and March 31, 1996.
2. The results of operations for the three months ended March 31, 1997
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.
The Company is currently a party to, or involved in legal proceedings
directed at the cleanup of four Superfund sites. The Company has accrued
its allocated share of the total estimated cleanup costs for these four
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 of many
issues relating 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 or liquidity of the Company in any one period. Environmental
liabilities of $2.0 million for both March 31, 1997 and December 31,
1996, 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 subsidize 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 $1.1 million. No assessments have been made to date.
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 $876
million invested in such assets as of December 31, 1996. 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.
6. Certain prior year amounts have been reclassified to conform with the
current year presentation.
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, 1997 as compared with same period 1996 reflected an increase
of $9.5 million. Operating expenses in the first quarter 1997 reflected
an increase of $5.7 million from first quarter 1996. The increases in
operating revenues and expenses were primarily attributable to the increases
in the realty segment's revenues and expenses of $6.8 million and $7.2
million, respectively. Operating profits increased by $3.8 million from
first quarter 1996 to first quarter 1997.
ANALYSIS
Revenues - When comparing the first quarter 1997 revenues with the same period
1996, the 1997 transportation revenues increased by $2.6 million or 6.3%.
The number of shipments handled by the rail segment increased by 8.5% when
comparing the first three months of 1997 with the same period in 1996.
In the first quarter of 1996, traffic volumes were significantly affected
by adverse weather conditions and a major union strike in the trucking industry.
Thus, the increase in the traffic volumes for first quarter 1997 when compared
to the same period 1996 reflects an increase of 8.5% attributable partially to
depressed traffic volumes in first quarter 1996. Realty revenues for first
quarter 1997 increased by $6.8 million primarily attributable to a single
disposition of property of approximately $4.8 million. Sales of property for
the first quarter of 1997 approximated $5.9 million and realty rents and
other related income approximated $9.1 million.
Operating Expenses - Operating expenses in the first quarter 1997 reflected an
increase of $5.7 million as compared to the same period in 1996. When
compared to first quarter 1996, transportation operating expenses in first
quarter 1997 decreased by $1.1 million; realty operating expenses increased by
$7.2 million, and general and administrative operating expenses decreased by
$.4 million. The decreases in transportation and general and administrative
expenses of $1.1 million and $.4 million, respectively, are primarily
attributable to the reduction in operating expenses resulting from the
discontinuance of the rail operations in Macon, Georgia in the first quarter
1996 and the trucking operations of Florida Express Carrier, a trucking
subsidiary of the railroad. Again, the increase in realty operating expenses
of $7.2 million was primarily attributable to the single disposition of
property of approximately $6.0 million which resulted in a loss on
disposition of approximately $1.2 million.
Other Income - Other income in the first quarter 1997 when compared to same
period 1996 reflected a decrease of $2.3 million primarily represented by
a first quarter 1996 transaction. In the first quarter of 1996, gains on
sales and other dispositions of properties amounted to approximately $2.5
million and primarily represented the first installment of $2.4 million
involving the sale of fiber optic conduit. Offsetting the decrease of $2.5
million in gains on sales of properties was an increase in other income of
$.2 million which was primarily attributable to capital gains from sales of
securities on the Company's investment portfolio for realty development.
Net Income - Net income increased by $.9 million in first quarter 1997 when
compared to first quarter 1996.
Recent Events - The Company announced on May 5, 1997 that it had received a
proposal from St. Joe Corporation in which St. Joe has offered to merge FECI
with a wholly-owned subsidiary of St. Joe. In the proposed merger, the
approximately 4.2 million shares of FECI common stock not owned by St. Joe
would be exchanged for cash at a price of $102 per share. St. Joe's proposal
is subject by its terms to any regulatory approvals and required vote of the
outstanding shares of FECI, as well as customary terms and conditions. The
proposal is also subject by its terms to the negotiation of a merger agreement
containing terms mutually satisfactory to FECI and St. Joe.
The Board of Directors of FECI has authorized a committee of three of its
outside Directors to review the St. Joe proposal; to negotiate its terms and
conditions (including price) if the Special Committee determines that St. Joe's
proposal should be pursued; and to recommend to the full Board of Directors
whether the final terms and conditions (including price) resulting from such
negotiations are fair to and in the best interests of the Company and its
shareholders (other than St. Joe) and should be approved by the Board of
Directors.
There can be no assurances when, if or on what terms FECI and St. Joe can
reach agreement with respect to St. Joe's proposal.
On May 9, 1997, the Company received notification from Franklin Mutual Advisors,
Inc. that, as of that date, it had a present good faith intention to acquire
through open market or privately-negotiated purchases or otherwise, voting
securities of the Company such that it will hold as a result of such
acquisitions at least 15% of the voting securities of the Company. As of
March 1, 1997, Franklin Resources beneficially owned 13% of the Company's
outstanding shares.
LIQUIDITY AND CAPITAL RESOURCES
FECI'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 decreased $.3 million to $29.2 million at
March 31, 1997 from $29.5 million at year-end. The investment portfolio
increased $6.9 million to $71.6 million at March 31, 1997 from $64.7
million at year-end 1996. The Company's working capital position changed
from a ratio of 2.04 to 1.00 at year-end 1996 to a ratio of 1.69 to 1.00 at
March 31, 1997.
There was no significant change in debt, reserves, or other liabilities
during the three-month period and capital projects at March 31, 1997
amounted to approximately $64.5 million authorized and outstanding from
$31.2 million authorized and outstanding at December 31, 1996. Of the $64.5
million of capital projects, approximately 84.0% represent realty development
projects.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During April 1996, an individual, alleging that he is a shareholder of FECI,
instituted a purported class action suit in Florida state court against FECI,
St. Joe Industries, Inc., St. Joe Corporation and members of the FECI Board of
Directors (Messrs. Thornton, Belin, Nedley, Zellers, Fairbanks, Foster, Harper,
Mercer and Parrish). Certain of the individuals named in the action also are
officers or directors of St. Joe Corporation. The action, which has purportedly
been brought on behalf of all shareholders of FECI, other than the defendants
and their affiliates, is styled Kahn v. St. Joe Industries, Inc., St. Joe Paper
Co., Thornton, Belin, Nedley, Zellers, Fairbanks, Foster, Harper, Mercer,
Parrish and Florida East Coast Industries, Inc., Case No. 96-01874 CA (Circuit
Court, Fourth Judicial Circuit, Duval County, Florida, Division CV-G).
The complaint alleges that the defendants breached their fiduciary duties to the
minority shareholders of FECI in connection with the February 26, 1996
announcement by FECI that it was considering the sale of its real estate
subsidiary, GCC, to St. Joe Corporation and the sale of its railroad
subsidiary, FEC Railway, to a third party. According to the complaint, such
transactions allegedly would constitute unfair dealing and benefit St. Joe
Corporation, as FECI's majority and controlling shareholder, at the expense of
FECI's minority shareholders. The action seeks, among other things, to certify
the litigation as a class action, enjoin the sale of GCC to St. Joe Corporation
and to require the defendant directors of FECI to sell GCC by conducting an
auction or accepting competitive bids from third parties.
On May 29, 1996, the parties to the action entered into a stipulation whereby
(i) defendants agreed to appear in the litigation and waive any challenge to
sufficiency and service of process and (ii) plaintiff agreed that defendants'
time to respond to the complaint would be extended such that defendants are
not required to answer or respond to the complaint until plaintiff's counsel
provides written notice to defendants' counsel that a response is required (a
response is then required to be filed within 20 days). On February 6, 1997,
the Court entered an order approving the stipulation.
There are no other legal or regulatory proceedings pending or known to be
contemplated which, in the opinion of the General Attorney of the Registrant,
are other than normal and incidental to the kinds of businesses conducted by
the Registrant.
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, 1997 /s/ T. Neal Smith
________________________________
Vice President & Secretary
Date: May 14, 1997 /s/ J.R. Yastrzemski
_________________________________
Comptroller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996
<CASH> 26,281 23,602
<SECURITIES> 2,948 5,973
<RECEIVABLES> 28,815 32,203
<ALLOWANCES> 0 0
<INVENTORY> 11,009 11,237
<CURRENT-ASSETS> 76,515 80,818
<PP&E> 886,977 875,506
<DEPRECIATION> (243,111) (239,487)
<TOTAL-ASSETS> 801,726 789,681
<CURRENT-LIABILITIES> 45,359 39,615
<BONDS> 0 0
<COMMON> 57,946 57,946
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 801,726 789,681
<SALES> 59,438 208,031
<TOTAL-REVENUES> 61,734 218,583
<CGS> 0 0
<TOTAL-COSTS> 48,346 170,425
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 13,385 48,117
<INCOME-TAX> 5,020 17,703
<INCOME-CONTINUING> 8,365 30,414
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,365 30,414
<EPS-PRIMARY> 0.92 3.36
<EPS-DILUTED> .0 .0
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