FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1996.
Commission File No. 2-89530
FLORIDA EAST COAST INDUSTRIES, INC.
(Exact name of Registrant as specified in its Charter)
Florida 59-2349968
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1650 Prudential Drive, Jacksonville, FL 32201-1380
(Address of principal executive offices)
Registrant's telephone number, including area code (904) 396-6600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
Common Stock, $6.25 Par Value New York Stock Exchange
Collateral Trust 5% Bonds New York Stock Exchange
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 by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, or
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated in Part III of this Form 10-K or any amendment to
this Form 10-K. (X)
Based on the closing sales price of February 3, 1997, the aggregate market value
of the voting stock held by non-affiliates of the Registrant was $354,171,936.
The number of shares of the Registrant's common stock, $6.25 par value, is
9,271,361 shares issued and 9,051,987 shares outstanding at February 3, 1997,
with 219,374 shares of treasury stock.
<PAGE>
PART I
ITEM 1. BUSINESS
General
Florida East Coast Industries, Inc. (Registrant) was incorporated under the
laws of the State of Florida on December 9, 1983, for purposes of (a)
directly, or through the ownership of shares in any corporation, to acquire,
hold, manage, improve, develop and dispose of real estate and property; (b)
only through the ownership of shares in any corporation, to engage in the
transportation industry; (c) directly, or through the ownership of shares in
any corporation, to purchase or otherwise acquire, hold, own and dispose of
shares or other securities in any corporation; and (d) to engage in any other
lawful act or activity for which a corporation may be organized under the
Florida General Corporation Act.
Segments
Registrant is segmented into areas of Transportation (principally by rail)
and Realty (real estate ownership, development, leasing and management).
Transportation: Registrant owns 100% of the stock of Florida East Coast
Railway Company (Railway) and 80% of the stock of International Transit, Inc.
(ITI).
Railway owns 100% of the stock of seven subsidiary corporations, all of which
are included in the consolidated Transportation segment and which, considered
in the aggregate, do not constitute a significant subsidiary.
Principal commodities carried by Transportation include automotive vehicles,
crushed stone, cement, trailers-on-flatcars, containers-on-flatcars and basic
consumer goods such as foodstuffs. Movement is relatively stable throughout
the year with heaviest traffic ordinarily occurring during the first and last
quarters of the year.
Railway is the only railroad serving locations along the east coast of Florida
between Jacksonville and West Palm Beach. From West Palm Beach to Miami,
Railway is competitive with CSX Transportation (CSXT) for rail traffic,
excluding that of trailer-on-flatcar/container-on-flatcar traffic which is
handled exclusively by Railway under agreement with CSXT. Common motor
carriers and owner-operators are competitive throughout the entire
transportation system.
Railway is considered generally as a terminating railroad, meaning the majority
of the traffic received from other carriers is destined for Jacksonville and
points south. A significant portion of traffic handled is received from
Jacksonville rail connections, CSXT and Norfolk Southern Railway, destined to
points on Railway's line, whereas a less significant portion is forwarded to
those connections for destinations outside Florida. In recent years, Railway
has experienced continuing growth in traffic originating and terminating
at points on its own line, and this local traffic is now generating in excess of
46% of rail traffic revenues.
ITI is a common motor carrier providing truckload service throughout most of
the southeastern United States which was acquired at the beginning of the
second quarter 1995. Since April 1, 1995, ITI's revenues and expenses have
been consolidated into the Company's financials and this consolidation has
affected period-to-period comparisons, but did not significantly impact the
consolidated net income of the Company.
Realty: Registrant owns 100% of the stock of Gran Central Corporation
(GCC).
GCC is engaged in the development, lease, management and sales of its property,
and general management of all real property included in the consolidated
financials. GCC is in competition with other developers and brokers throughout
its operating area.
Employees: As of December 31, 1996, the Registrant employed approximately
1,046 employees, including 1,016 in Transportation; 25 in Realty and 5 in
Corporate. Approximately 731 Transportation employees are covered by
collective bargaining agreements.
Recent Events: As reported in the 1995 Annual Report to Shareholders, the
Special Committee of the Board of Directors in 1995 recommended, and the Board
has concurred with the recommendation, that FECI should pursue a disposition of
its transportation subsidiary, Florida East Coast Railway Company ("FECRR"),
but only in conjunction with a disposition of all of FECI's realty subsidiary,
Gran Central Corporation ("GCC").
St. Joe Corporation 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, 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 each hired an appraisal firm to
assist in evaluating the property of GCC, and St. Joe and FECI have conducted
negotiations on the possible terms of an exchange. The FECI Special Committee
has conducted a process of discussions with prospective purchasers of FECRR and
has selected a party with which to negotiate a transaction.
St. Joe has advised the FECI Special Committee that, before proceeding further
with discussions concerning the acquisition of GCC or the disposition of FECRR,
the Special Committee of St. Joe's Board of Directors is providing Peter J.
Rummell, who was appointed Chairman and Chief Executive Officer of St. Joe in
early January 1997, an opportunity to review the possible transactions and
report his views to St. Joe's Special Committee.
President Clinton's Proposed Fiscal 1998 Budget (the "Proposed Budget") could
have a substantial and adverse effect upon the tax treatment of a merger of
FECI with another company subsequent to the acquisition of GCC common stock
by St. Joe. The Proposed Budget contains a provision that would amend current
laws such that a merger of FECI with another company within two years of the
exchange of GCC common stock for FECI common stock, pursuant to which the FECI
shareholders would own less than fifty percent of both the voting power and
valaue of the stock of the surviving company, could cause FECI to recognize
gain on the exchange of the GCC common stock. Under this provision of the
Proposed Budget, FECI's taxable gain would be measured by the difference
between the fair market value of the GCC common stock and FECI's adjusted tax
basis in such stock. Under the Proposed Budget, this provision would be
effective as to a transaction that occurs after the date of first Congressional
Committee action to amend current law. It is uncertain whether such provision
will be enacted by Congress, or, if such a provision is enacted, what form it
will take (including its effective date).
There can be no assurance when, if or on what terms a transaction involving
FECI and another corporation may occur or when, if or on what terms St. Joe
may acquire GCC from FECI.
Registrant has no foreign operations.
Item 2. PROPERTIES
Transportation: Transportation owns approximately 12,000 acres of land
property, all located along the east coast of the state of Florida and
devoted to railroad operations. In addition to rail right-of-way between
Jacksonville and Miami and between Ft. Pierce and Lake Harbor, operating
property includes significant switching/classification yards, trailer/container
loading/unloading facilities, automobile marshaling yard, maintenance
facilities, etc., at major terminals throughout the system.
Transportation physical plant (i.e., track structure, shops and office
buildings) is in excellent condition and includes 351 miles of main track, 91
miles of branch line track, 157 miles of yard switching track and 184 miles of
other tracks, including second main and passing tracks. The main track is
generally constructed of 132# rail and other track materials on concrete
crossties providing a track structure meeting the needs of today's heavy
traffic loads. Certain of the branch line and yard tracks, though in good
physical condition, are constructed of materials lighter than the 112# and 115#
rails deemed necessary for this trackage, and programs are currently under way
to relay these tracks with heavier materials. These programs may be expected
to extend several years into the future.
Transportation owns 82 diesel electric locomotives, approximately 2,635 freight
cars, approximately 77 tractors, 1,359 trailers for highway revenue service,
numerous pieces of rail-mounted and non-rail-mounted work equipment, and
numerous automotive vehicles used in maintenance and transportation operations.
All equipment owned is in good physical condition.
Realty - Realty owned and managed approximately 19,112 acres of land at year-
end 1996, including approximately 346 acres developed with buildings; 1,158
acres developed with infrastructure ready to receive buildings, and
approximately 16,493 acres of undeveloped properties including 1,115 acres
owned by Transportation but not required for operations. These properties are
held for lease, development and/or sale, and have a situs in fourteen counties
of the state of Florida as follows:
Duval 1,526 acres
St. Johns 3,385 "
Putnam 87 "
Flagler 3,464 "
Volusia 3,823 "
Brevard 2,555 "
Orange 79 "
Indian River 5 "
St. Lucie 610 "
Martin 662 "
Palm Beach 217 "
Broward 62 "
Dade 1,740 "
Manatee 897 "
----------
Total 19,112 "
At year-end 1996, Realty also owned fifty-five (55) buildings as detailed below:
No. of Rentable Year
Location Bldgs. Type Square Ft. Built
- -------- ------ ---- ---------- -----
duPont Center
Jacksonville, FL 2 Offices 160,000 1987-88
Barnett Plaza
Jacksonville, FL 1 Office 67,000 1982
Gran Park at
Interstate South
Jacksonville, FL 6 Office/Showroom/
Warehouses 260,000 1987-89
Gran Park at the 2 Office/Showroom/
Avenues Warehouses 101,000 1992
Jacksonville, FL 3 Offices 240,000 1992-95
2 Office/Warehouses 301,000 1994-96
Gran Park at
Deerwood
Jacksonville, FL 2 Offices 261,000 1995-96
Gran Park at
Melbourne 1 Office/Showroom/
Melbourne, FL Warehouse 28,000 1989
Gran Park at 1 Office/Showroom/
Riviera Beach, FL Warehouse 62,000 1987
Lewis Terminals 2 Rail Warehouses 176,000 1982-87
4 Cross Docks 74,000 1987-91
Gran Park-McCahill
Miami, FL 2 Rail Warehouses 468,000 1992-94
1 Front Load Ware-
house 91,000 1996
Gran Park at Miami 5 Office/Showroom/
Miami, FL Warehouses 369,000 1988-94
5 Office/Warehouses 483,000 1990-96
4 Rail Warehouses 398,000 1989-94
7 Front Load
Warehouses 790,000 1991-95
1 Double Front Load
Warehouse 239,000 1993
1 Office/Service
Center 39,000 1994
Hialeah, FL 1 Cross Dock 20,000 1987
1 Transit Warehouse 30,000 1975
Pompano Beach, FL 1 Rail Warehouse 54,000 1987
-- ---------
TOTALS 55 4,711,000
Realty's holdings include lands adjacent to Railway's tracks which are suitable
for development into office and industrial parks offering both rail and non-
rail-served parcels. Certain other holdings are in urban or suburban locations
offering opportunities for development of office building structures or
business parks offering both office building sites and sites for flexible space
structure such as office/showroom/warehouse buildings. Realty intends to
develop infrastructure and construct buildings for lease and continued
ownership wherever possible.
ITEM 3. LEGAL PROCEEDINGS
During 1996, the Registrant filed legal action against the State of Florida
and several counties of the State concerning overassessment of 1996 ad
valorem taxes. As of March 14, 1997, the Company and the State of Florida have
agreed on a settlement, and the necessary paperwork is being prepared to bring
this issue to conclusion.
The Railway was named as a potentially responsible party (PRP) for the
remediation of a designated Superfund site in Portsmouth, Virginia. The
USEPA alleged that the Railway caused certain materials to be sent to the
site over a period of years. These materials were utilized by the owner of the
site in the course of its business which the Railway believes caused the site to
become contaminated. The Railway vigorously opposed any attempt to impose
liability upon the Railway. The owner of the site filed suit in the United
States District Court for the Eastern District of Virginia, Norfolk Division,
seeking to impose liability upon the defendants, including the Railway, for
remediation of the site. A settlement between the owner of the site and the
Railway was achieved in late 1996. The settlement of approximately $.2 million
was approved by the Court and the USEPA. Unless additional contamination is
discovered at the site, or it becomes necessary to remediate areas beyond
the original cleanup, the Railway will have no further liability at the site.
The Railway has been named as a PRP for the remediation of two designated
Superfund sites near Jacksonville, Florida. On the first site, the USEPA
has alleged the Railway caused certain materials to be disposed at the site
over a period of years. The USEPA has offered all named PRPs an opportunity
to participate in a pilot allocation program. This program is similar to
binding arbitration. If the Railway participates in this program, its share
of the liability for the remediation will be fixed. The USEPA has also offered
to negotiate a separate settlement with certain parties, including the Railway,
whom we believe the USEPA considers to be de minimis parties. Railway believes
that, whichever alternative is chosen, its liability for the remediation of the
site will not be material. On the second site, the Railway was contacted by the
USEPA during 1996, at which time the Railway was asked to provide certain
information about the manner in which the Railway disposes of steel drums. The
USEPA is attempting to determine whether or not the Railway should be a PRP at
the steel drum site in Jacksonville, Florida. There is some evidence that the
Railway may have sent a small number of steel drums to the site for disposal.
The Railway believes its responsibility, if any, for the remediation of the
site will not be material.
The Railway was contacted by the USEPA during 1996, seeking reimbursement of
costs associated with the remediation of a site in Hialeah, Florida. An
individual operated a business on this site for a number of years. The owner
of the business slightly encroached upon the Railway's right-of-way. Upon
discovering this, the Railway entered into a Lease Agreement with the
business owner rather than require the building be removed. The individual
has ceased doing business. The USEPA is seeking reimbursement of the
approximate $2 million spent in remediation from the Railway on the grounds
that the Railway was an "owner" of the site. Settlement negotiations are
ongoing at this time and are not estimated to be material.
During April 1996, an individual, alleging that he is a shareholder of FECI,
instituted a purported class action suite 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 Ccourt, 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 plaint'ff'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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
a. Principal market on which Florida East Coast Industries, Inc.'s common
stock is traded: New York Stock Exchange. Symbol: FLA
b. The table below presents the high and low market prices and dividend
information for Florida East Coast Industries, Inc.'s common shares:
1996
----
Quarter Ended Dec. 31 Sept. 30 June 30 March 31
High $89 1/4 $85 7/8 $90 1/8 $89
Low $81 1/8 $77 $83 $67 3/8
Dividends $.10 $.10 $.10 $.10
1995
----
Quarter Ended Dec. 31 Sept. 30 June 30 March 31
High $72 1/8 $76 1/2 $79 3/4 $80 3/4
Low $64 1/8 $67 1/2 $70 3/8 $65 7/8
Dividends $.10 $.10 $.10 $.10
c. The total number of holders of record of Florida East Coast Industries,
Inc.'s common stock as of December 31, 1996 was 764.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands except per share amounts*)
(Unaudited)
Years Ended December 31
1996 1995 1994
---- ---- ----
Revenues:
Operating Revenues $208,031 $201,107 $199,544
Other Income 10,552 7,926 9,117
-------- -------- --------
Total Revenues and
Other Income $218,583 $209,033 $208,661
Income before cumulative
effect of change in
accounting principle $ 30,455 $ 26,639 $ 34,605
Minority Interest (41) (2) 0
Cumulative effect of
change in accounting
principle for income
taxes 0 0 0
-------- ------- -------
Net Income $ 30,414 $26,637 $34,605
======== ======= =======
Per Share Data:
Cash Dividend $ 0.40 $ 0.40 $ 0.40
======== ======= =======
Income before cumulative
effect of change in
accounting principle $ 3.36 $ 2.95 $ 3.85
Cumulative effect of
change in accounting
principle for income
taxes $ 0.00 $ 0.00 $ 0.00
-------- ------- -------
Net Income Per Common
Share $ 3.36 $ 2.95 $ 3.85
At year-end:
Total Assets $789,681 $756,210 $722,494
Working Capital $ 41,203 $ 38,010 $ 39,750
Shareholders' Equity $608,796 $581,860 $552,268
Average Number of Employees 1,035 994 1,319
*Average Wage per Employee $ 39,496 $ 42,215 $ 36,482
The Items Below Pertain to Railway Operations Only (Not Consolidated)
Revenue Ton-Miles
(thousands) 4,098,000 4,122,000 4,388,000
*Freight Revenue Per
Ton-Mile $ 0.0352 $ 0.0345 $ 0.0338
Miles of Road Operated
at Year-End 442 442 442
Revenues: 1993 1992
---- ----
Operating Revenues $181,096 $175,755
Other Income 5,103 8,253
-------- --------
Total Revenues and
Other Income $186,199 $184,008
Income before cumulative effect of
change in accounting principle $ 20,779 $ 24,045
Minority Interest 0 0
Cumulative effect of change in
accounting principle for income
taxes $ 1,504 $ 0
-------- --------
Net Income $ 22,283 $ 24,045
======== ========
Per Share Data
Cash Dividend $ 0.40 $ 0.40
Income before cumulative effect of
change in accounting principle $ 2.31 $ 2.67
Cumulative effect of change in
accounting principle for income
taxes $ 0.17 $ 0.00
-------- --------
Net Income Per Common Share $ 2.48 $ 2.67
At year-end:
Total Assets $688,445 $670,419
Working Capital $ 42,552 $ 39,407
Shareholders' Equity $523,038 $503,464
Average Number of Employees 1,463 1,448
*Average Wage per Employee $ 33,936 $ 33,414
The Items Below Pertain to Railway Operations Only (Not Consolidated)
Revenue Ton-Miles (thousands) 4,257,000 4,158,000
*Freight Revenue Per Ton-Mile $ 0.0342 $ 0.0340
Miles of Road Operated at Year-End 442 442
Quarterly Financial Data (Unaudited)
(Dollars in thousands except per share amounts)
1996
----
Dec. 31 Sept. 30 June 30 March 31
Operating Revenues $55,458 $51,123 $51,487 $49,963
Other Income $ (568) $ 4,541 $ 2,016 $ 4,563
Operating Expenses $41,256 $43,396 $43,152 $42,621
Net Income $ 8,866 $ 7,656 $ 6,469 $ 7,423
Net Income Per Common Share $ 0.98 $ 0.85 $ 0.71 $ 0.82
1995
----
Dec. 31 Sept. 30 June 30 March 31
Operating Revenues $51,839 $51,710 $51,979 $45,579
Other Income $ 2,178 $ 1,807 $ 2,765 $ 1,176
Operating Expenses $42,668 $42,069 $43,826 $37,916
Net Income $ 7,171 $ 7,142 $ 6,800 $ 5,524
Net Income Per Common Share $ 0.79 $ 0.78 $ 0.76 $ .62
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT DISCUSSION AND ANALYSIS OF INCOME STATEMENTS
This statement summarizes the Company's consolidated income results for
the three-year period ending December 31, 1996. The purpose of this
discussion is to provide background information for the figures presented,
including the significant events which contributed thereto.
Operating revenues increased throughout the three-year period, with
increases of $6.9 million or 3.4% from year-end 1995 to year-end 1996, and
$1.6 million or .8% from year-end 1994 to year-end 1995.
The 1996 increase of $6.9 million in operating revenues consisted of
increases of $1.9 million in transportation revenues and $6.8 million in
realty rental income, with a decrease of $1.8 million in land sales. The 1995
increase of $1.6 million in operating revenues included an increase of $10.3
million in transportation revenues and $4.5 million in realty revenues, with a
decrease of $13.2 million in land sales. The decrease of $13.2 million in land
sales from 1994 to 1995 is primarily the result of a single land sale of $11.3
million to the State of Florida in 1994.
As reported since the second quarter of 1995, the composition of
revenues and expenses of the Transportation segment of the Company has
changed. The change is related primarily to the consolidation of
International Transit, Inc.'s (ITI) revenues and expenses into the financials as
of April 1, 1995. However, the contribution to net income by ITI did not
significantly impact the Company's consolidated net income. Also
contributing to the change was the implementation on April 1, 1995 of a
Haulage Agreement with a connecting rail carrier whereby the connecting rail
carrier's intermodal shipments were handled in wholesale fashion to and from
the Company's South Florida intermodal terminals. The inclusion of ITI's
revenues and expenses into the consolidated financials increased the
Company's revenues and expenses, whereas the Haulage Agreement reduced
revenues and expenses in the consolidated financials.
The increase of $1.9 million in transportation revenues from 1995 to
1996 is primarily attributable to the inclusion of ITI's revenues of $25.2
million into the Company's financials. Revenues in 1996 from the rail segment
of the Company remained approximately the same as in 1995. The increase in
transportation revenues of $10.3 million from 1994 to 1995 was primarily
attributable to the inclusion of ITI's revenues of $19.1 million into the
Company's financials offset by the decline in revenues due to the Haulage
Agreement previously discussed.
Transportation rail revenues are derived from four major classifications
of traffic: shipments of rock, intermodal (containers and trailers),
automotive and all other commodity type shipments. Brief discussions of the
volumes shipped in 1996 and the conditions impacting those volumes are presented
below.
Comparing 1996 with 1995, rock shipments increased 1.4% representing the
continued growth in construction along the east coast of Florida and in the
Greater Orlando area relating to commercial, residential and highway improvement
development. Rock shipments in 1995 were approximately the same as 1994.
Intermodal shipments in 1996 decreased by approximately 1.7% when compared
to 1995. This decrease was primarily related to a somewhat slow market for
intermodal business in the first three quarters of 1996. At the end of the
third quarter 1996, intermodal shipments had declined by approximately 3.9% when
compared to the same periods in 1995. A strong 1996 fourth quarter, with an
increase of approximately 5.0% over fourth quarter 1995, resulted in a modest
decline for the year 1996 of 1.7%. Intermodal shipments in 1995 declined by
approximately 1.4% when compared to 1994.
Automotive shipments in 1996 improved by approximately 9.3% over 1995 which
was brought about by growth in new vehicle sales. Automotive shipments during
1994 and 1995 remained relatively unchanged.
All other carload shipments in 1996 decreased by approximately 1.2% when
compared to 1995. This decline was primarily related to sizable gains
realized in 1995 of shipments of raw sugar and a one-time shipment of
military equipment. All other carload shipments in 1995 increased by 5% when
compared to 1994.
Realty land sales decreased by $1.8 million in 1996 when compared to
1995. When comparing 1995 with 1994, land sales decreased by $13.2 million,
which was primarily attributable to a single sale of realty property for
approximately $11.3 million to the State of Florida in the first quarter of
1994.
Realty rental income increased by $6.8 million in 1996 compared to 1995
and $4.5 million in 1995 compared to 1994. These increases resulted primarily
from the construction of new buildings which added additional leasable space
to inventory and the normal increases associated with tenant billings.
As of year-end 1996, Gran Central Corporation owned fifty-five (55)
buildings with approximately 4.7 million square feet of leasable space. In
1996, approximately .6 million square feet were added to the inventory of
leasable space. Approximately 93% of the 4.7 million square feet of leasable
space was under lease at year-end 1996 as compared to 95% in 1995 and 90% in
1994. The Company expects rental revenue to continue to increase as new
space is constructed and added to inventory.
At year end, there were seven new buildings under construction which,
upon completion, will add approximately .9 million square feet of leasable
space. The Company is primarily involved in ongoing development of land for
construction of buildings for lease, with only occasional realty sales
anticipated.
Operating expenses increased $3.9 million or 2.4% in 1996 from 1995 and
$13.5 million or 8.8% in 1995 from 1994. The increases of $3.9 million in 1996
and $13.5 million in 1995 were primarily related to the inclusion of ITI's
operating expenses of $24.7 million in 1996 and $18.9 million in 1995 into
the Company's consolidated financials.
Discounting ITI's operating expenses of $24.7 million, operating
expenses decreased by $7.3 million or 4.7% when comparing 1996 with 1995. The
operating expense changes were primarily attributable to the outsourcing of
services previously performed by Railway's subsidiaries and the implementation
of a Haulage Agreement in the second quarter of 1995. The 1995 operating
expenses increased by $13.5 million over 1994 which was attributed to the
inclusion of ITI's expenses into the Company's consolidated financials.
Discounting ITI's operating expenses of $18.9 million from the consolidated
operating expenses, operating expenses decreased $5.4 million or 3.5% when
comparing 1995 with 1994. This net decrease was also the result of the
outsourcing of services and the Haulage Agreement mentioned above.
Other income increased by $2.6 million in 1996 compared to 1995. The
increase was primarily attributable to increases of $1.6 million in gains on
sales and other disposition of properties, and $1.5 million in other income
offset by a reduction of approximately $.5 million in interest income. The
increase of $1.6 million in gains on sale and other disposal of properties
resulted from a sale of fiber optic conduit for $8.7 million. The $1.5
million increase in other income is primarily attributable to capital gains
from the sale of securities. Comparing 1995 with 1994, other income
decreased by $1.2 million.
Income taxes increased by $1.8 million in 1996 from 1995 and decreased by
$5.2 million in 1995 from 1994 primarily due to changes in income before income
taxes for those comparative periods.
MANAGEMENT DISCUSSION AND ANALYSIS OF BALANCE SHEETS
The Consolidated Balance Sheets provide information about the nature and
amounts of the Company's investments, its obligations to creditors, and its
shareholders' equity at the end of the year. This information complements
data found in the Consolidated Statements of Income and Retained Earnings and
is designed to contribute to the shareholders' understanding of the Company.
Total current assets for 1996 increased by $10.7 million when compared to
1995. This change is represented primarily by increases of $5.5 million in
cash, cash equivalents and short-term investments, $1.0 million in materials
and supplies, $3.6 million in accounts receivable, and $.6 million in other
current assets. Large liquid reserves are maintained to meet the Company's
commitment to realty construction and development.
Other investments decreased by $4.6 million in 1996 from 1995 to a
total of $64.7 million. This decrease was attributed primarily to realty
development and construction in 1996. Other investments include approximately
$46.3 million of a portfolio managed in diversified investment funds and the
balance being invested in U.S. Treasury Bills and similar highly liquid
investments. These investments are classified as long-term because of
management's intent to use them to finance major realty construction projects.
At year-end 1996 and currently, the Company has four major realty
development projects in progress: Gran Park at Jacksonville, Gran Park at the
Avenues, Gran Park at Deerwood (all in Jacksonville), and Gran Park at Miami.
Construction activities in these parks contributed significantly to the
$27.4 million increase in properties from 1995 to 1996. The additions in 1996
amounted to approximately .6 million square feet of leasable space represented
by five new buildings placed in service.
Total current liabilities in 1996 increased approximately $7.5 million
when compared to 1995. This change was primarily attributable to increases of
$2.4 million in accounts payable, $4.1 million in income taxes, and $.6 million
each in accrued property taxes and other liabilities offset by a decrease of
$.2 million in casualty and other reserves.
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 only time environmental recoverables are recorded in the books of the
Company is at the time a claim is filed with the State and is expected to be
recovered. Such amounts are not material to the consolidated financial
statements.
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 will adversely affect the Company's financial
situation based upon the information available today.
Environmental expenditures for capital improvements and infrequent
expenditures for ongoing operations and maintenance have historically been in-
significant to the operations of the Company. Management does not anticipate
any changes in these expenditures.
The Company's financial position continues to be strong as indicated by
the current ratios of 2.19 in 1995 and 2.04 in 1996. The Company has no long-
term debt or open lines of credit, nor does the Company anticipate that any
will be negotiated in the foreseeable future. The Company is not obligated
under any significant capital or operating-type leases, except for the short-
term leasing of locomotives, freight cars, trailers and data processing
equipment.
As of December 31, 1996, the Company had authorized approximately $31.2
million for capital expenditures, of which 77% represented realty development
and construction. These expenditures are expected to be funded from current
operations supplemented, as necessary, by cash and investments currently on
hand.
MANAGEMENT DISCUSSION AND ANALYSIS OF STATEMENTS OF CASH FLOWS
The Statements of Cash Flows detail the Company's cash flow from
operating, investing and financing activities during the year. Since the
Company does not use debt to finance its operations, the sources of funds
throughout the year are exclusively generated by operating and investing
activities. To date, these sources have been sufficient to fund the purchases
and construction of properties and pay dividends.
Net income for 1996 increased approximately $3.8 million when compared to
1995, and 1995 decreased approximately $8.0 million when compared to 1994.
The changes in net cash generated by operating activities from 1995 to
1996 and from 1994 to 1995 were primarily attributable to changes in net incomes
and the associated timing differences of remitted cash receipts and payments
for those comparative periods.
The composition of gains on disposition of assets largely includes gains
on non-realty land sales of $2.9, $1.3 and $4.0 million for the years 1996,
1995 and 1994, respectively.
The purchases of properties for 1996, 1995 and 1994 amounted to $55.6
million, $70.6 million and $49.3 million, respectively. Purchases of
properties for the past three years have been financed primarily from cash
generated by operating activities with the balance of the funding being
applied from investments.
The Company is a capital intensive company and has approximately $876
million invested in such assets. 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. Therefore, 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. The acquisition
of new assets will also result in higher depreciation charges and, in the case
of realty, higher taxes and operating costs.
Cash flows from financing activities for the past three years represent
dividend payments.
Cash dividends of $.40 per share were paid in each of the three years,
reflecting the Company's philosophy that shareholders receive a current benefit
at the same time that the Company is reinvesting most earnings in a debt-free
asset growth program.
The Company continues to believe that asset growth should be internally
funded by operating and investing activities rather than through the use of
debt. However, the Company is confident that if a need to access the market
for funds were to arise, such access would be readily available.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Board of Directors and Shareholders
Florida East Coast Industries, Inc.:
We have audited the consolidated financial statements of Florida East Coast
Industries, Inc. and subsidiaries as listed in the accompanying Index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the accompanying
Index. These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
signficiant 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 East Coast
Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
s/s KPMG Peat Marwick LLP
Jacksonville, Florida
January 31, 1997
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Years ended December 31, 1996, 1995 and 1994
(Dollars in thousands except per share amounts)
Years ended December 31
1996 1995 1994
Operating Revenues:
Transportation $172,958 $171,016 $160,731
Realty - Land Sales 982 2,830 16,100
- Rents & Other 34,091 27,261 22,713
-------- -------- --------
Total Revenues 208,031 201,107 199,544
-------- -------- --------
Operating Expenses:
Transportation 129,289 129,618 120,147
Realty 19,792 17,025 16,796
General and Administrative 21,344 19,836 16,046
-------- -------- --------
Total Expenses 170,425 166,479 152,989
-------- -------- --------
Operating Profit 37,606 34,628 46,555
Other Income (Expense):
Dividends 399 440 320
Interest Income 4,800 5,359 4,614
Interest Expense (600) (639) (48)
Gains on sales and other disposition of prop 2,926 1,280 4,038
Other (net) 3,027 1,486 193
-------- -------- --------
Total Other Income 10,552 7,926 9,117
-------- -------- --------
Income before income taxes 48,158 42,554 55,672
Income Taxes: (Note 8)
Current 17,551 13,028 13,990
Deferred 152 2,887 7,077
-------- -------- --------
Total Income Taxes 17,703 15,915 21,067
-------- -------- --------
Income before minority interest 30,455 26,639 34,605
Less: minority interest (41) (2) 0
-------- -------- --------
Net Income 30,414 26,637 34,605
-------- -------- --------
Retained earnings:
Balance at beginning of year $530,834 $507,813 $476,808
Cash dividends (3,627) (3,616) (3,600)
-------- -------- --------
Balance at Year-end $557,621 $530,834 $507,813
======== ======== ========
Per share data:
Cash dividends $ 0.40 $ 0.40 $ 0.40
-------- -------- --------
Earnings per common share $ 3.36 $ 2.95 $ 3.85
======== ======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in thousands except per share amounts)
1996 1995
Assets
Current Assets:
Cash and cash equivalents $ 23,602 $ 11,050
Short-term investments (Note 6) 5,973 12,999
Accounts receivable, net 32,203 28,589
Materials and supplies 11,237 10,223
Other current assets (Note 8) 7,803 7,218
-------- --------
Total current assets 80,818 70,079
Other Investments (Note 6) 64,654 69,226
Properties, Less Accumulated Depreciation and
Amortization (Note 5) 636,019 608,640
Other Assets and Deferred Charges 8,190 8,265
-------- --------
Total Assets $789,681 $756,210
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 22,705 $ 20,317
Income taxes 4,652 593
Accrued property taxes 3,981 3,353
Accrued casualty and other reserves (Note 10) 5,038 5,226
Other accrued liabilities 3,239 2,580
-------- --------
Total current liabilities 39,615 32,069
Deferred Income Taxes (Note 8) 132,909 132,968
Reserves and Other Long-Term Liabilities (Note 10) 8,361 9,313
Commitments and Contingencies (Note 10)
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 557,621 530,834
Net unrealized gain on investments available-
for-sale (Note 6) 1,904 1,755
Treasury stock at cost (219,374 shares) (10,273) (10,273)
-------- --------
Total shareholders' equity 608,796 581,860
-------- --------
Total Liabilities and Shareholders' Equity $789,681 $756,210
======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
Years ended December 31
1996 1995 1994
Cash Flows from Operating Activities:
Net Income $30,414 $26,637 $34,605
Adjustments to reconcile net income to cash
generated
Depreciation and amortization 23,506 22,292 21,747
Minority interest in income 41 2 0
Gain on disposition of assets (2,926) (1,280) (4,038)
Deferred taxes 152 2,887 7,077
Changes in operating assets and liabilities:
Accounts receivable, net (3,614) (1,541) 2,210
Other current assets (1,599) 308 713
Other assets and deferred charges 75 4,137 (1,311)
Accounts payable 2,388 (2,729) 54
Accrued property taxes 628 179 (1,491)
Other current liabilities 4,250 141 (1,932)
Reserves and other long-term liabilities (952) (1,251) 2,471
------- ------- -------
Net cash generated by operating activities 52,363 49,782 60,105
------- ------- -------
Cash Flows from Investing Activities:
Purchases of properties (55,633) (70,602) (49,274)
Purchases of investments:
Available-for-sale (21,928) (35,800) (58,349)
Held-to-maturity (12,386) (31,247) (17,364)
Maturities and redemption of investments:
Available-for-sale 18,291 27,968 12,799
Held-to-maturity 27,798 54,839 49,847
Proceeds from disposition of assets 7,674 4,491 6,633
------- ------- -------
Net cash used in investing activities (36,184) (50,351) (55,708)
------- ------- -------
Cash Flows from Financing Activities:
Payment of dividends (3,627) (3,616) (3,600)
------- ------- -------
Net cash used in financing activities (3,627) (3,616) (3,600)
------- ------- -------
Net Increase (Decrease) in Cash and Cash
Equivalents 12,552 (4,185) 797
Cash and Cash Equivalents at Beginning of Year 11,050 15,235 14,438
------- ------- -------
Cash and Cash Equivalents at End of Year $23,602 $11,050 $15,235
======= ======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $13,450 $13,810 $14,312
======= ======= =======
Cash paid for interest $ 600 $ 639 $ 0
======= ======= =======
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
1. Nature of Business
The principal operations of Florida East Coast Industries, Inc. (the
"Company") and its subsidiaries primarily relate to the transportation of goods
by rail and to the development, leasing, management and sale of real estate.
Both the Transportation and Realty operations are located within the state of
Florida.
2. Majority Stockholder
The Nemours Foundation, which is funded by the Alfred I. duPont
Testamentary Trust, owns approximately 5% of the Company's common stock. The
Trust owns approximately 69% of St. Joe Corporation's common stock which
owns, through a subsidiary, approximately 54% of the Company's common stock.
The Company's payment of dividends was the only significant transaction with
St. Joe Corporation or its affiliates in 1996, 1995 or 1994.
3. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries, all but one of which are wholly-
owned. All significant intercompany transactions and balances have been
eliminated in consolidation.
Revenue Recognition
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.
Transportation Properties
Transportation properties are stated at historical cost and are
depreciated and amortized on the straight-line method at rates established by
the Surface Transportation Board (STB). Gains and losses on normal
retirements of these items are credited or charged to accumulated depreciation.
Miscellaneous physical property consists principally of non-depreciable real
property.
Real Estate Properties
Real estate properties are stated at historical cost. Depreciation is
computed using the straight-line method over estimated asset lives of 15 years
for land improvements and 18 to 40 years for buildings.
Materials and Supplies
New materials and supplies are stated principally at average cost which
is not in excess of replacement cost. Used materials are stated at an amount
which does not exceed estimated realizable value.
Earnings Per Share
Earnings per common share are based on the weighted average number of
shares of common stock outstanding during the year (9,051,987 in 1996, 9,039,279
in 1995, and 9,000,000 in 1994).
Cash and Cash Equivalents
For purposes of cash flows, cash and cash equivalents include cash on
hand, bank demand accounts, money market accounts, and overnight repurchase
agreements having original maturities of less than three months.
Income Taxes
The Company follows the asset and liability method of accounting for
income taxes in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." Under Statement 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Investments
Investments consist principally of municipal bonds, common stocks,
redeemable prefered stocks and U.S. Government obligations. The Company
classifies its debt and marketable equity securities in one of three
categories: trading, available-for-sale or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near-term. Held-to-maturity securities are those securities in which the
Company has the ability and intent to hold until maturity. All other
securities not included in trading or held-to-maturity are classified as
available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, which represents
the adjustment for the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses on trading securities are included in
earnings. Unrealized holding gains and losses, net of the related tax effect
on available-for-sale securities, are excluded from earnings and are reported
as a separate component of shareholders' equity until realized.
A decline in the market value of any available-for-sale or held-to-
maturity security below cost that is deemed other than temporary is charged to
earnings resulting in the establishment of a new cost basis for the security.
Realized gains and losses for securities classified as available-for-sale
and held-to-maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," which requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the asset's carrying amount. This Standard also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company has historically reserved for losses related to the impairment
of long-term assets. The adoption of this Standard in 1996 had no material
effect on the Company's financial statements.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
4. Acquisitions
On March 30, 1995, the Company purchased 80% of the outstanding stock of
International Transit, Inc. (ITI), a regional truckload carrier, through the
issuance of treasury stock. This non-cash transaction has been excluded from
the Statements of Cash Flows. ITI's gross revenues for 1996 and 1995 were
$25.2 million and $19.1 million, respectively. ITI's income is not material
to the consolidated financial statements. ITI's operations have been
included in the consolidated financial statements since the date of purchase.
5. Properties
Properties consist of (in thousands):
1996 1995
Transportation Properties:
Road $321,294 $311,593
Equipment 198,544 197,777
Miscellaneous Physical Property 2,269 5,435
Construction in Progress 2,465 5,673
-------- --------
524,572 520,478
Less Accumulated Depreciation & Amortization 205,979 196,244
-------- --------
$318,593 $324,234
======== ========
Real Estate Properties:
Land and Land Improvements $164,558 $125,582
Buildings 169,272 141,091
Construction in Progress 17,103 43,655
-------- --------
350,933 310,328
Less Accumulated Depreciation & Amortization 33,507 25,922
-------- --------
$317,426 $284,406
======== ========
Real estate properties having a net book value of $196.7 million at
December 31, 1996 are leased under non-cancelable operating leases with
expected aggregate rentals of $106.2 million which are due in years 1997-2001
in the amounts of $32.1, $26.5, $20.9, $15.8 and $10.9 million, respectively.
6. Investments
Other investments, including certain held-to-maturity investments which
mature within one year, are held as a development fund created to accumulate
capital expected to be required for future improvement of the Company's real
estate properties.
Investments at December 31, 1996 consist of (in thousands):
Unrealized Unrealized
Carrying Fair Holding Holding
Cost Value Value Gain (Loss)
-----------------------------------------------
Short-term investments
Held-to-maturity
U.S. Government securities $ 4,969 $ 4,969 $ 4,961 $ 0 $ (8)
Tax exempt municipals 1,004 1,004 1,005 1 0
-----------------------------------------------
$ 5,973 $ 5,973 $ 5,966 $ 1 $ (8)
-----------------------------------------------
Other Investments
Available-for-sale
U.S. Government securities
Maturing in 1 to 5 years $ 293 $ 290 $ 290 $ 0 $ (3)
Tax exempt municipals
Maturing in 1 to 5 years 10,499 10,820 10,820 321 0
Maturing in 5 to 10 years 19,726 20,336 20,336 610 0
Maturing in more than 10 years 4,281 4,265 4,265 0 (16)
Equity securities 11,866 14,053 14,053 2,187 0
-----------------------------------------------
$46,665 $49,764 $49,764 $ 3,118 $ (19)
Held-to-maturity
U.S. Government securities
Maturing in 1 to 5 years $ 7,023 $ 7,023 $ 7,092 $ 69 $ 0
Tax exempt municipals
Maturing in 1 to 5 years 7,079 7,079 7,121 42 0
Mortgage-backed securities
Maturing in 1 to 5 years 0 0 400 400 0
Other corporate debt securities
Maturing in 5 to 10 years 788 788 1,290 502 0
-----------------------------------------------
$14,890 $14,890 $15,903 $ 1,013 $ 0
-----------------------------------------------
$61,555 $64,654 $65,667 $ 4,131 $ (19)
-----------------------------------------------
Investments at December 31, 1995 consist of (in thousands):
Unrealized Unrealized
Carrying Fair Holding Holding
Cost Value Value Gain (Loss)
-----------------------------------------------
Short-term investments
Held-to-maturity
U.S. Government securities $10,864 $10,864 $10,995 $ 131 $ 0
Tax exempt municipals 2,135 2,135 2,106 0 (29)
-----------------------------------------------
$12,999 $12,999 $13,101 $ 131 $ (29)
-----------------------------------------------
Other Investments
Available-for-sale
U.S. Government securities
Maturing in 1 to 5 years $ 303 $ 306 $ 306 $ 3 $ 0
Tax exempt municipals
Maturing in 1 to 5 years 6,968 7,181 7,181 213 0
Maturing in 5 to 10 years 20,093 20,953 20,953 860 0
Maturing in more than 10 years 5,610 5,820 5,820 210 0
Equity securities 10,114 11,685 11,685 1,831 (260)
-----------------------------------------------
$43,088 $45,945 $45,945 $ 3,117 $ (260)
-----------------------------------------------
Held-to-maturity
U.S. Government securities
Maturing within 1 year
to 5 years $16,923 $16,923 $17,067 $ 144 $ 0
Tax exempt municipals
Maturing in 1 to 5 years 5,556 5,556 5,688 132 0
Mortgage-backed securities
Maturing in 1 to 5 years 14 14 554 540 0
Other corporate debt securities
Maturing in 5 to 10 years 788 788 1,239 451 0
-----------------------------------------------
$23,281 $23,281 $24,548 $ 1,267 $ 0
-----------------------------------------------
$66,369 $69,226 $70,493 $ 4,384 $ (260)
-----------------------------------------------
7. Collateral Trust 5% Bonds
There are outstanding at December 31, 1996 and 1995, $12,414,500 and
$12,646,550, respectively, of the Company's Collateral Trust 5% Bonds (the
"Bonds") due in 2001. Direct obligations of the U.S. Government, the cash
flows from which approximately coincide as to timing and amount with the
scheduled interest and principal payments on the Bonds, are held in trust for
the purpose of making such payments. Accordingly, the Bonds are considered to
be extinguished.
8. Income Taxes
Total income tax expense for the years ended December 31, 1996, 1995 and
1994 was allocated as follows (in thousands):
1996 1995 1994
-------------------------
Income from continuing operations $17,703 $15,915 $21,067
Shareholders' equity, for recognition of
unrealized holding gain (loss) on investments
available-for-sale 93 1,657 (1,115)
-------------------------
$17,796 $17,572 $19,952
=========================
Income tax expense attributable to income from continuing operations
differed from the amounts computed by applying the statutory federal income
tax rate to pretax income as a result of the following:
1996 1995 1994
-------------------------
Amount computed at statutory federal rate $16,855 $14,894 $19,485
Effect of dividends received exclusion and
tax free interest (908) (835) (700)
State taxes (net of federal benefit) 1,688 1,513 1,979
Other (net) 68 343 303
-------------------------
$17,703 $15,915 $21,067
=========================
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1996, 1995 and 1994 are as follows:
1996 1995 1994
---------------------------
Deferred tax assets:
Accrued casualty and other reserves $ 5,200 $ 5,458 $ 5,395
Amortization of fiber optic income 367 490 612
Unrealized holding loss on investments
available-for-sale 0 0 555
Other 277 637 285
----------------------------
Total deferred tax asset $ 5,844 $ 6,585 $ 6,847
----------------------------
Deferred tax liabilities:
Properties, principally due to
differences in depreciation $101,462 $102,730 $ 99,361
Deferred gain on land sales 29,030 29,114 29,183
Deferred profit on bonds extinguished 1,430 1,642 1,846
Unrealized holding gain on investments
available-for-sale 1,195 1,102 0
Other 2,158 1,183 1,099
----------------------------
Total deferred tax liabilities $135,275 $135,771 $131,489
----------------------------
Net deferred tax liabilities $129,431 $129,186 $124,642
============================
There was no valuation allowance provided for deferred tax assets as of
December 31, 1996 and 1995 as the Company believes the results of future
operations will generate sufficient taxable income to realize the deferred tax
assets.
Included in other current assets are deferred tax assets of $3,478 and
$3,782 at December 31, 1996 and 1995, respectively.
9. Segment Information
The Company operates principally in two industries: Transportation and
Realty. Transportation operations consist primarily of railroad-related
activities and some trucking operations. Realty operations are involved in
real estate development, rentals and related management and operations of
properties. Operating revenues represent sales to unaffiliated customers, as
reported in the Company's Consolidated Statements of Income and Retained
Earnings. Operating profit is operating revenue less directly traceable costs
and expenses.
Identifiable assets by industry are those assets that are used in the
Company's operations in each industry.
Information by industry segment follows (in thousands):
1996 1995 1994
--------------------------------
Operating Revenue:
Transportation $172,958 $171,016 $160,731
Realty 35,073 30,091 38,813
--------------------------------
$208,031 $201,107 $199,544
================================
Operating Profit:
Transportation $ 25,304 $ 23,663 $ 26,139
Realty 12,302 10,965 20,416
--------------------------------
$ 37,606 $ 34,628 $ 46,555
================================
Identifiable Assets:
Transportation $367,989 $361,862 $357,670
Realty 406,487 289,727 251,348
Corporate 15,205 104,621 113,476
--------------------------------
$789,681 $756,210 $722,494
================================
Capital Expenditures:
Transportation $ 14,597 $ 26,572 $ 21,259
Realty 41,036 44,030 28,015
--------------------------------
$ 55,633 $ 70,602 $ 49,274
================================
Depreciation:
Transportation $ 15,853 $ 16,644 $ 16,740
Realty 7,653 5,648 5,007
--------------------------------
$ 23,506 $ 22,292 $ 21,747
================================
10. Commitments and Contingencies
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 four Superfund sites. The Company has accrued its
allocated share of the total estimated cleanup costs for these 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 $2.0 million and $2.5
million for 1996 and 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 subsidize
any annual operating deficit of the Department for 15 years 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.
11. Retirement Plans
The Company sponsors two 401(k) plans for its salaried and hourly wage
employees. Contributions are at the employees' discretion with upper limits
of 6% of compensation before taxes and 10% after taxes.
401(k) Plan for Salaried Employees
The amounts of matching contributions by the Company for this plan covering
the years 1996, 1995 and 1994 were approximately $351,000, $350,000 and
$350,000, respectively. The expenses associated with this plan were
approximately $12,000, $13,000 and $11,000 in 1996, 1995, and 1994,
respectively. In 1996, the Company matched the employees' contributions $1 for
$1 up to the first $1,200 and then $.25 for each $1 contributed up to 6% of
employees' contributions.
401(k) Plan for Hourly Wage Employees and/or Employees Covered by
Collective Bargaining Agreement
This is a non-contributory plan and was instituted in April 1995. The
expenses associated with this plan were approximately $4,200 in 1996.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
With respect to each Executive Officer of the Registrant, there are set
forth below as of December 31, 1996, (1) his name; (2) his age; (3) his
positions and offices with the Registrant; (4) the date on which he first held
office; and (5) a brief account of his business experience during the last five
years. Each Executive Officer has been elected to hold such positions and
offices until the next annual election of Directors and Officers of the
Registrant, which is to be held on May 21, 1997. To the best knowledge of
the Registrant, none of the persons named had any arrangement or understanding
with any other person pursuant to his election, and none of the persons named
have any family relationship with any other such person.
Name, Age, Positions, and Date First Held Such Positions and Offices and
Offices Business Experience for the Past Five Years
_________________________ ______________________________________________
Winfred L. Thornton (68) Chairman and CEO of Registrant. Prior to May
Chairman, Chief Executive 1995, Chairman, CEO and President of Registrant
Officer and Director for more than five years.
Carl F. Zellers, Jr. (64) President and COO of the Registrant since
President, Chief Operating May 1995. President of Gran Central
Officer and Director Corporation for more than five years.
President of Florida East Coast Railway
Company since June 10, 1992.
T. Neal Smith (56) May 15, 1992 elected Vice President and
Vice President & Secretary Secretary. Formerly Treasurer and Assistant
Secretary for more than five years.
J. Richard Yastrzemski (53) Comptroller of Registrant for more than five
Comptroller years.
Gregory P. West (37) May 15, 1992 elected Treasurer and Assistant
Treasurer & Assistant Secretary Secretary. Formerly Material Inventory and
Accounting Manager for the Registrant.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item is contained in the Registrant's
1997 Proxy Statement which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Information required under this item is contained in the Registrant's
1997 Proxy Statement which is incorporated herein by reference.
(b) SECURITY OWNERSHIP OF MANAGEMENT
Information required under this item is contained in the Registrant's
1997 Proxy Statement which is incorporated herein by reference.
(c) CHANGES IN CONTROL
The Company knows of no contractual arrangements which may, at a
subsequent date, result in a change of control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The financial statements and schedules listed in the accompanying
Index to Financial Statements and Financial Statement Schedules are
filed as part of this Annual Report.
2. EXHIBITS
The Exhibits listed on the accompanying Index to Exhibits are
filed as part of this Annual Report.
(b) REPORTS ON FORM 8-K
None.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
[ITEM 14(a)]
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Income and Retained Earnings for each of the three
years in the period ended December 31, 1996
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report
Supplementary Information:
Quarterly Financial Data (Unaudited)
Financial Statement Schedules:
II-Valuation and Qualifying Accounts
III-Real Estate and Accumulated Depreciation
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
consolidated financial statements or the notes thereto.
Financial statements and schedules of Florida East Coast Industries, Inc.
(not consolidated) are omitted since it is primarily a holding company and
all subsidiaries included in the consolidated financial statements being
filed, in the aggregate, do not have minority equity interests and/or
indebtedness to any person other than the Company or its consolidated
subsidiaries in amounts which together exceed five percent of the total
assets as shown by the consolidated balance sheet at the end of any year
covered by this Report.
INDEX TO EXHIBITS
(ITEM 13[a] 3.)
S-K
Item 601 Documents
- -------- ------------
(3) (a) Articles of Incorporation*
(3) (b) By-Laws*
(21) Subsidiaries of Florida East Coast Industries, Inc.
(24) Power of Attorney
(10) Change of Control Severance Plan
*Incorporated herein by reference to Exhibits filed in connection with Florida
East Coast Industries, Inc.'s Registration Statement on Form S-14 as filed
with the Securities and Exchange Commission on February 17, 1984 (File No.
2-89530).
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized on
February 19, 1997.
FLORIDA EAST COAST INDUSTRIES, INC.
(Registrant)
By: s/s T.N. Smith, Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
s/s W.L. Thornton*
Chairman, Chief Executive Officer, and Director - 3/15/97
s/s C.F. Zellers, Jr.*
President, Chief Operating Officer, and Director - 3/15/97
s/s J. Nelson Fairbanks*
Director - 3/15/97
s/s J.C. Belin*
Director - 3/15/97
s/s D.M. Foster*
Director - 3/15/97
s/s R.E. Nedley*
Director - 3/15/97
s/s J.H. Mercer, Jr.*
Director - 3/15/97
s/s A.C. Harper*
Director - 3/15/97
s/s J. J. Parrish, III*
Director - 3/15/97
s/s G. P. West*
Treasurer - 3/15/97
s/s J.R. Yastrzemski*
Comptroller - 3/15/97
BY: s/s T. Neal Smith*
Attorney-in-Fact
*Such signature has been affixed pursuant to Power of Attorney.
<PAGE>
FLORIDA EAST COAST INDUSTRIES, INC.
SCHEDULE II (CONSOLIDATED) - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands)
Balance at Additions
Beginning Charged Balance at
of Year to Expense Payments End of Year
---------- ---------- -------- -----------
RESERVES INCLUDED IN LIABILITIES
1996
Casualty & other reserves $11,221 $6,205 $6,650 $10,776[a]
1995
Casualty & other reserves $11,605 $4,742 $5,126 $11,221[a]
1994
Casualty & other reserves $14,143 $2,584 $5,122 $11,605[a]
[a] Includes $5,038, $5,226 and $5,400 in current liabilities at December 31,
1996, December 31, 1995 and December 31, 1994, respectively. The
remainder is included in "Reserves and Other Long-Term Liabilities."
<PAGE>
FLORIDA EAST COAST INDUSTRIES, INC.
SCHEDULE III (CONSOLIDATED) - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
Initial Cost to Company
Description Encumbrances Land
- ----------- ------------ ----
Duval County
Office Buildings (8) -0- $ 1,153
Office/Showroom/Warehouses (8) -0- 1,502
Office/Warehouses (2) -0- 0
Land w/Infrastructure -0- 6,593
Unimproved Land & Misc. Assets -0- 915
St. Johns County
Unimproved Land -0- 2,631
Flagler County
Unimproved Land -0- 3,218
Volusia County
Unimproved Land -0- 3,651
Brevard County
Office/Showroom/Warehouse (1) -0- 73
Land w/Infrastructure -0- 3,633
Unimproved Land -0- 4,846
Indian River County
Unimproved Land -0- 1
St. Lucie County
Unimproved Land -0- 593
Martin County
Land w/Infrastructure -0- 1,734
Unimproved Land -0- 2,704
Putnam County
Unimproved Land -0- 2
Palm Beach County
Office/Showroom/Warehouse (1) -0- 113
Rail Warehouses (2) -0- 449
Cross Docks (4) -0- 117
Land w/Infrastructure -0- 1,251
Unimproved Land -0- 1,501
Broward County
Rail Warehouse (1) -0- 85
Land w/Infrastructure -0- 999
Unimproved Land -0- 1,193
Manatee County
Unimproved Land -0- 14
Dade County
Cross Dock (1) -0- 137
Double Front Load Warehouse (1) -0- 768
Rail Warehouses (6) -0- 808
Office/Showroom/Warehouses (5) -0- 1,003
Office/Warehouses (5) -0- 1,462
Front Load Warehouses (8) -0- 1,943
Office/Service Center (1) -0- 285
Transit Warehouse (1) -0- 3
Land w/Infrastructure -0- 7,970
Unimproved Land & Misc. Assets -0- 10,326
Orange County
Land w/Infrastructure -0- 0
-------
TOTALS $63,676
Initial Cost to Company
Costs
Capitalized
Buildings & Subsequent to
Description Improvements Acquisition
- ----------- ------------ -------------
Duval County
Office Buildings (8) $6,200 $ 55,732
Office/Showroom/Warehouses (8) 0 20,393
Office/Warehouses (2) 0 11,708
Land w/Infrastructure 0 8,201
Unimproved Land & Misc. Assets 0 673
St. Johns County
Unimproved Land 0 406
Flagler County
Unimproved Land 0 1,183
Volusia County
Unimproved Land 0 403
Brevard County
Office/Showroom/Warehouse (1) 0 2,198
Land w/Infrastructure 0 0
Unimproved Land 0 190
Indian River County
Unimproved Land 0 0
St. Lucie County
Unimproved Land 0 0
Martin County
Land w/Infrastructure 0 2,416
Unimproved Land 0 231
Putnam County
Unimproved Land 0 (2)
Palm Beach County
Office/Showroom/Warehouse (1) 0 2,984
Rail Warehouses (2) 0 4,253
Cross Docks (4) 0 3,786
Land w/Infrastructure 0 0
Unimproved Land 0 0
Broward County
Rail Warehouse (1) 0 1,708
Land w/Infrastructure 0 122
Unimproved Land 0 68
Manatee County
Unimproved Land 0 87
Dade County
Cross Dock (1) 0 1,018
Double Front Load Warehouse (1) 0 6,275
Rail Warehouses (6) 0 28,252
Office/Showroom/Warehouses (5) 0 18,474
Office/Warehouses (5) 0 18,604
Front Load Warehouses (8) 0 28,751
Office/Service Center (1) 0 2,589
Transit Warehouse (1) 0 286
Land w/Infrastructure 0 29,843
Unimproved Land & Misc. Assets 0 5,496
Orange County
Land w/Infrastructure 0 7,626
------ ---------
TOTALS $6,200 $263,954
Carried at Close of Period
Land & Bldgs. &
Description Land Improv. Improv. Total
- ----------- ------------ -------- -----
Duval County
Office Buildings (8) $ 10,386 $ 52,699 $ 63,085
Office/Showroom/Warehouses (8) 4,515 17,380 21,895
Office/Warehouses (2) 3,834 7,874 11,708
Land w/Infrastructure 14,794 0 14,794
Unimproved Land & Misc. Assets 1,412 176 1,588
St. Johns County
Unimproved Land 3,037 0 3,037
Flagler County
Unimproved Land 4,401 0 4,401
Volusia County
Unimproved Land 4,054 0 4,054
Brevard County
Office/Showroom/Warehouse (1) 438 1,833 2,271
Land w/Infrastructure 3,633 0 3,633
Unimproved Land 5,036 0 5,036
Indian River County
Unimproved Land 1 0 1
St. Lucie County
Unimproved Land 593 0 593
Martin County
Land w/Infrastructure 4,150 0 4,150
Unimproved Land 2,935 0 2,935
Putnam County
Unimproved Land 0 0 0
Palm Beach County
Office/Showroom/Warehouse (1) 599 2,498 3,097
Rail Warehouses (2) 557 4,145 4,702
Cross Docks (4) 1,261 2,642 3,903
Land w/Infrastructure 1,251 0 1,251
Unimproved Land 1,501 0 1,501
Broward County
Rail Warehouse (1) 405 1,388 1,793
Land w/Infrastructure 1,121 0 1,121
Unimproved Land 1,261 0 1,261
Manatee County
Unimproved Land 101 0 101
Dade County
Cross Dock (1) 137 1,018 1,155
Double Front Load Warehouse (1) 1,985 5,058 7,043
Rail Warehouses (6) 8,119 20,941 29,060
Office/Showroom/Warehouses (5) 5,765 13,712 19,477
Office/Warehouses (5) 5,410 14,656 20,066
Front Load Warehouses (8) 9,901 20,793 30,694
Office/Service Center (1) 757 2,117 2,874
Transit Warehouse (1) 3 286 289
Land w/Infrastructure 37,813 0 37,813
Unimproved Land & Misc. Assets 15,766 56 15,822
Orange County
Land w/Infrastructure 7,626 0 7,626
-------- -------- ---------
TOTALS $164,558 $169,272 $333,830
Life on Which
Depreciation in
Date First Latest Income
Accumulated Started or Statement is
Description Depreciation Acquired Computed
- ----------- ------------ ---------- ---------------
Duval County
Office Buildings (8) $ 7,992 1985 3 to 40 years
Office/Showroom/Warehouses (8) 4,797 1987 3 to 40 years
Office/Warehouses (2) 605 1994 3 to 40 years
Land w/Infrastructure 355
Unimproved Land & Misc. Assets 152
St. Johns County
Unimproved Land 0 Various
Flagler County
Unimproved Land 0 Various
Volusia County
Unimproved Land 0 Various
Brevard County
Office/Showroom/Warehouse (1) 509 1983 3 to 40 years
Land w/Infrastructure 0 Various
Unimproved Land 0 Various
Indian River County
Unimproved Land 0 Various
St. Lucie County
Unimproved Land 0 Various
Martin County
Land w/Infrastructure 84 Various
Unimproved Land 0 Various
Putnam County
Unimproved Land 0 Various
Palm Beach County
Office/Showroom/Warehouse (1) 865
Rail Warehouses (2) 1,257
Cross Docks (4) 1,034
Land w/Infrastructure 0
Unimproved Land 0
Broward County
Rail Warehouse (1) 621 1986 3 to 40 years
Land w/Infrastructure 0 Various
Unimproved Land 0 Various
Manatee County
Unimproved Land 0 Various
Dade County
Cross Dock (1) 262 1987 3 to 40 years
Double Front Load Warehouse (1) 977 1993 3 to 40 years
Rail Warehouses (6) 3,614 1988 3 to 40 years
Office/Showroom/Warehouses (5) 3,465 1988 3 to 40 years
Office/Warehouses (5) 2,884 1990 3 to 40 years
Front Load Warehouses (8) 3,241 1991 3 to 40 years
Office/Service Center (1) 228 1994 3 to 40 years
Transit Shed (1) 54 Various 3 to 40 years
Land w/Infrastructure 455 Various 3 to 40 years
Unimproved Land & Misc. Assets 56 Various 3 to 40 years
Orange County
Land w/Infrastructure 0 1995
-------
TOTALS $33,507
Notes:
(A) The aggregate cost of real estate owned at December 31, 1996 for
federal income tax purposes is approximately $258,360,000.
(B) Reconciliation of real estate owned (in thousands of dollars):
1996 1995 1994
---- ---- ----
Balance at Beginning of Year $266,673 $241,674 $214,747
Amounts Capitalized 67,589 25,523 28,015
Amounts Retired or Adjusted (432) (524) (1,088)
--------------------------------
Balance at Close of Period $333,830 $266,673 $241,674
(C) Reconciliation of accumulated depreciation (in thousands of dollars):
1996 1995 1994
---- ---- ----
Balance at Beginning of Year $ 25,922 $ 20,274 $ 15,291
Depreciation Expense 7,653 5,648 5,007
Amounts Retired or Adjusted (68) 0 (24)
--------------------------------
Balance at Close of Period $ 33,507 $ 25,922 $ 20,274
<PAGE>
21. Listing of parent and subsidiaries
Parent - Florida East Coast Industries, Inc.
Subsidiaries - Florida East Coast Railway Company
Florida East Coast Highway Dispatch Company
Florida East Coast Inspections, Inc.
Florida East Coast Deliveries, Inc.
Railroad Concrete Crosstie Corporation
Railroad Track Construction Company
Operations Unlimited, Inc.
Florida Express Carrier, Inc.
Gran Central Corporation
Dade County Land Holding Company, Inc.
International Transit, Inc.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each of the undersigned Directors of
Florida East Coast Industries, Inc., a Florida corporation ("Corporation"),
which is about to file with the Securities and Exchange Commission, Washington,
DC 20549, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1996, hereby constitutes and appoints Winfred L. Thornton and T.N. Smith as
his true and lawful attorneys-in-fact and agent, and each of them with full
power to act, without the other in his stead, in any and all capacities, to
sign the 1996 Annual Report of Florida East Coast Industries, Inc., on Form
10-K and to file on behalf of the Corporation such Annual Report and
amendments with all exhibits thereto, and any and all other information and
documents in connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and agent, and each
of them, full power and authority to do and perform any and all acts and things
requisite and ratifying and confirming all that each said attorneys-in-fact
and agent or any one of them, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the date
indicated below:
s/s Winfred L. Thornton, Chairman, s/s T.N. Smith, Vice President
CEO, and Director and Secretary
s/s J. Nelson Fairbanks, Director s/s J.C. Belin, Director
s/s A.C. Harper, Director s/s D.M. Foster, Director
s/s J.H. Mercer, Jr., Director s/s J.J. Parrish, III, Director
s/s R.E. Nedley, Director s/s C.F. Zellers, Jr., President,
COO, and Director
Dated: March 15, 1997
Master for
Florida East Coast Industries, Inc., Gran Central Corporation
and Florida East Coast Railway Company
"Change of Control Severance Plan"
Section 1. General.
Florida East Coast Industries, Inc. ("FECI"), Gran Central Corporation
("GCC") and Florida East Coast Railway Company ("FECRR"), have each adopted
a Change of Control Severance Plan pursuant to which each of the "Eligible
Employees" of each Company, as defined below, will, at any time within two
years following the date of consummation of a change of control as described
in the next sentence (a "Change of Control"), be entitled to receive the
benefits described in Section 3 below if his or her employment is terminated
under the circumstances described in Section 2(B) below. For purposes of
this plan, a "Change of Control" shall mean the occurrence of any of the
following events:
(A) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Act")), other than
the present majority owner, St. Joe Industries, Inc. or St. Joe Corporation,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act)
directly or indirectly, of securities representing more than fifty percent
(50%) of the total voting power represented by FECI's then outstanding voting
securities; or
(B) A change in the composition of the Board of Directors of FECI, as a
result of which fewer than a majority of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either (i) are directors of FECI
as of the date hereof, or (ii) are elected, or nominated for election, to the
Board of Directors of FECI with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors of
FECI); or
(C) FECI merges or consolidates with any other corporation, including St.
Joe Corporation or any other St. Joe subsidiary, or FECI adopts, and the stock-
holders approve, if necessary, a plan of complete liquidation of FECI, or FECI
sells or disposes of all of a substantial portion of FECI's assets; or
(D) With respect to GCC, FECI sells, distributes or otherwise disposes of
securities of GCC representing more than 50% of the voting power represented by
GCC's then outstanding voting securities to any person.
"Eligible Employees" are those executive officers and salaried employees
which are listed individually and made a part of each company's "Change of
Control Severance Plan". Normal attrition between the date of the adoption of
this Plan and the date of consummation of a Change in Control may result in
deletions from and additions to these lists and such deletions and additions
changes due solely to normal attrition may be made without further action of
the Board.
Section 2. Resignation and Termination.
a. If an Eligible Employee's employment with the Company is terminated
(i) by reason of his or her voluntary resignation that is not for Good Reason
(as described in paragraph b(i) below, (ii) by reason of his or her death,
retirement or disability or (iii) for "Cause" (as defined below), such Eligible
Employee shall not be entitled to receive severance payments under the Plan.
"Cause" shall mean (1) the willful and continued failure of the Eligible
Employee to substantially perform his or her duties or (2) willful engaging in
conduct that is demonstrably and materially injurious to the employer.
b. If, during the two year period following the date of consummation of a
Change in Control, (i) an Eligible Employee voluntarily terminates his or her
employment following any one of the circumstances described in 1., 2., or 3.
below (such a termination, a "Termination for Good Reason") or (ii) an Eligible
Employee's employment is terminated without Cause ((i) and (ii) being referred
to herein as a "Triggering Event"), the Eligible Employee shall be entitled to
receive the benefits described in Section 3 below:
1. A reduction in annual base salary below that in effect on the day
preceding the consummation of the Change in Control; or
2. Failure to agree to pay those relocation expenses which would have been
paid if the Eligible Employee had been covered by the protection offered by the
"New York Dock" provisions; or
3. Failure to provide life insurance, medical insurance, 401-K retirement
plan and other benefits that are, on the whole, not materially less favorable
to the Eligible Employee than those enjoyed on the day preceding the
consummation of the Change in Control.
Section 3. Benefits.
Upon the occurrence of a Triggering Event, in lieu of any further payments
of salary and benefits, the Eligible Employee (i) subject to the limitations
set forth in Section 4 and 5 below, shall be entitled to receive a severance
payment of the amount determined as provided below (the "Severance Payment")
and paid as provided in Section 6 and (ii) will be provided for a period of one
year from the date of termination with medical insurance benefits not
materially less favorable than those enjoyed on the day preceding the
consummation of the Change in Control:
a. Executive Officers
The greater of:
(i) Two and one-half times such Executive Officer's annual base salary
as in effect on the day preceding the consummation of the Change in Control; or
(ii) The sum of:
(a) The product determined by multiplying the amount of two weeks
of such Executive Officer's base salalry on the day preceding the consummation
of the Change of Control by the nearest whole number of years of such Executive
Officer's service on the day preceding the consummation of the Change of
Control; plus
(b) The result determined by dividing such Executive Officer's
yearly compensation on the day preceding the consummation of the Change of
Control by 3,000 and multiplying such amount by two weeks of such Executive
Officer's base salary on the day preceding the consummation of the Change of
Control; plus
(c) The product determined by multiplying the amount of two weeks
of such Executive Officer's base salary on the day preceding a Change of
Control by the lesser of (a) number of whole years such Executive Officer is
over age 40 on the day preceding consummation of the Change in Control and (b)
the number of whole years of such Executive Officers' service on the day
preceding the consummation of the Change of Control.
b. Salaried Employees
The sum of:
(i) The product determined by multiplying one and one-half weeks of such
Salaried Employee's base salary by the nearest whole number of years of such
Salaried Employee's service on the day preceding the consummation of the Change
of Control; plus
(ii) The result determined by dividing such Salaried Employee's yearly
compensation on the day preceding the consummation of the Change of Control by
3,000 and multiplying such by one and one-half weeks of such Salaried Employee's
base salary on the day preceding the consummation of the Change of Control;
plus
(iii) The product determined by multiplying the amount of one and one-half
weeks of such Salaried Employee's base salary on the day preceding the
consummation of the Change of Control by the lesser of (a) the number of whole
years such Salaried Employee is over age 40 on the day preceding the
consummation of the Change of Control and (b) the number of whole years of
such Salaried Employees' service on the day preceding the consummation of the
Change of Control.
Section 4. Excise Tax.
If the Company would be required under Section 3 to pay to any Eligible
Employee an amount under the Plan that (a) would result in the imposition of an
excise tax on an Eligible Employee pursuant to Section 4999 of the Internal
Revenue Code of 1986 (the "Code") or (b) would not be deductible pursuant to
Section 280G of the Code, then the amount payable to such Eligible Employee
shall be reduced to 2.99 times such Eligible Employee's "Base Amount" (as
defined in Section 280G of the Code).
Section 5. Plan Cap.
In no event shall the total amount of severance payments that FECI, GCC,
and FECRR shall be required to pay under Section 3 exceed $960,000, $962,000
and $10,078,000, respectively, (the "Maximum Amount"). If any Company would,
but for this Section 5, be required to pay severance payments that would exceed
its Maximum Amount, the amount that each Eligible Employee would otherwise be
entitled to receive shall be proportionately reduced.
Section 6. Severance Payment Procedures.
Upon the occurrence of a Triggering Event with respect to an Eligible
Employee, each Company shall pay such Eligible Employee 72% of the Severance
Payment. The balance of such Severance Payment, after the adjustments, if any,
required by Sections 4 and 5, shall be paid to the Eligible Employee on the
two year anniversary of the Change of Control.
At any time prior to the consummation of a Change in Control, the Board
may amend this Plan in any respect without the consent or approval of any
Eligible Employees. Following the consummation of a Change in Control, the
Plan may be amended by the Board (a) if such amendment does not materially and
adversely affect any Eligible Employee or (b) if such amendment does materially
and adversely affect any Eligible Employee, only with the prior written consent
of the Eligible Employee so affected.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 23,602 11,050
<SECURITIES> 5,973 12,999
<RECEIVABLES> 32,203 28,589
<ALLOWANCES> 0 0
<INVENTORY> 11,237 10,223
<CURRENT-ASSETS> 80,818 70,079
<PP&E> 878,591 830,806
<DEPRECIATION> (239,486) (222,166)
<TOTAL-ASSETS> 789,681 756,210
<CURRENT-LIABILITIES> 39,615 32,069
<BONDS> 0 0
<COMMON> 57,946 57,946
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 789,681 756,210
<SALES> 208,031 201,107
<TOTAL-REVENUES> 218,583 209,031
<CGS> 0 0
<TOTAL-COSTS> 170,425 166,479
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 48,117 42,552
<INCOME-TAX> 17,703 15,915
<INCOME-CONTINUING> 30,414 26,637
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 30,414 26,637
<EPS-PRIMARY> 3.36 2.95
<EPS-DILUTED> .0 .0
</TABLE>
