Report to Shareholders:
I am proud to begin my first report to you as Chairman and Chief Executive
Officer with good news. In 1997, the Company recorded an almost 32% increase
in net income to a figure of $40.1 million primarily as result of an increase
in operating profit. I know that you will join me in thanking all of our
employee team who worked so hard to gain this result, and our loyal freight
customers and realty tenants for their contributions to this success.
I do not want to bore you with the redundancy of repeating what you will read
elsewhere in this report as to details of income, cash flow, etc., but rather
would like to share my thoughts concerning (1) the Company's disposition
efforts over the last two years; (2) the Company's future strategy; and (3)
our relationship with the majority shareholder, St. Joe Corporation.
All of you are aware that the disposition process evolved from a first effort
to negotiate a satisfactory split-up of the Company under a so-called "Morris
Trust" type transaction to a second effort to negotiate a transaction which
would have resulted in the Company being 100% owned by St. Joe Corporation.
You know, of course, that negotiations ended in November without a transaction
having been accomplished. You will note I refrain from using the term "failure"
with respect to the disposition efforts as I think the effort yielded
significant benefits, though it did not result in change of ownership. For
example, it highlighted the mystique surrounding many assets owned by the
Company and the difficulties of valuing them. It caused the Company to examine
its assets, employees, operations, policies and strategies in a depth not
previously done, thus enabling a better determination of what the Company is
and wants to be. Finally, it highlighted the difficulties inherent in being
a publicly-traded, majority-owned corporation seeking to develop a transaction
in which the majority owner would become the sole owner of part or all of the
Company's assets.
With respect to the future, I think the Company's fundamental strategy requires
no change. By fundamental strategy, I mean operating the Railway in an
efficient, profitable, safe fashion, and developing Realty's inventory of land
properties by continuing to add infrastructure and commercial/industrial
building product. Our 1997 results present a solid endorsement for this
strategy.
A more aggressive approach to the use of the Railway's right-of-way and
operating properties should enhance this base strategy. Without doubt, the
Railway's right-of-way represents a major contributor to the above-mentioned
mystique and is without question a unique asset. For example, the mainline
right-of-way begins in Jacksonville and ends in Miami, generally following very
closely the routes of U.S. 1 and Interstate 95 through some of the most
intensely developed and populated area of the United States. Historically, the
Railway has selfishly guarded this corridor against construction of non-rail
structures. Technological advances, such as fiber optic and cellular telephone
systems, have resulted in opportunities for use of the right-of-way for
purposes, other than rail infrastructures, without interfering with rail
operations. These opportunities have in the last several years resulted in some
revenues being received in the form of leases, and more active opportunities
are presently receiving intense study and may include, for example, the
construction and lease of cellular towers and the ownership of a fiber optic
system to be marketed to others. Another approach to realizing value includes
the possible relocation of transportation infrastructures from properties
having higher and better use opportunities to properties of lesser value and
these, too, will be studied for feasibility.
Future strategies contemplate a more aggressive approach to growing the Realty
segment by accelerating development of owned properties; by searching for and
pursuing purchase of attractive, existing projects and/or permitted properties;
by actively seeking joint venture partners to both broaden our market and to
spread risk; and by employing a prudent use of leverage to accelerate growth
and improve returns.
We will attempt to grow the Transportation segment by exploring a return of
passenger operations to the Railway; by seeking growth of rail/intermodal
freight business; by entering into partnership with customers and rail
connections in innovative agreements which promise consistent, reliable,
economic service; and by seeking ways of expanding rail/intermodal operations
into areas not presently served by utilizing the Company's 100%-owned
International Transit, Inc. (ITI), a common motor carrier subsidiary, as the
link between our rail terminals and shippers' docks.
I previously mentioned thoughts with respect to relations with St. Joe
Corporation. In this connection, it is a fact the Company has had St. Joe as a
majority owner since emerging from receivership in 1961, and we have had the
same Chief Executive Officer for most of that period. These facts are
mentioned merely as background to my belief that there has never been an
abuse of St. Joe's exercise of control, but control, when exercised, has been
for the proportionate benefit of all shareholders. As a 54% owner, St. Joe
shares an economic interest in seeing the Company achieve continuing success and
shareholder value growth and is now in an even better position to assist in
those goals than in the past.
St. Joe underwent a dramatic change in its management structure with a new Chief
Executive Officer, Mr. Peter Rummell, being elected in early 1997. Mr. Rummell
has extensive real estate development experience and has assembled a team of
professionals to assist him in setting a new direction for St. Joe. The Company
has utilized the services of some St. Joe personnel in the past through various
sharing agreements, and it is my intent to explore an expansion of this
relationship by negotiating an appropriate asset management arrangement relating
to Gran Central's assets. This team of professionals is capable of making
significant improvements in the management of the Realty segment. Of course,
any such arrangement will reserve the authority to make materially-strategic
decisions to Gran Central, while giving the Company access to St. Joe's
expertise.
When I started this message, I must admit I had no idea where it would lead but,
after beginning, my thoughts began to flow toward things I would like to know
as a non-management shareholder. These have included a review of the disposition
process; review of future strategy; and review of relationship with the majority
shareholder. Perhaps, I can sum up by saying that we enjoyed a relatively good
year in 1997, which we owe thanks for to our employees, transportation customers
and tenants. We have a business strategy that we think will be successful and
resources available, both internally and through our majority owner, that should
be utilized prudently as we attempt to increase shareholder value.
Your patience and concern over the past couple of years are sincerely
appreciated. I am particularly thankful for the contributions made by our Board
members during this period and for the future contributions they will be asked
to make as I strive to enhance the Company's value for all shareholders.
Finally, I cannot end this report without acknowledging the retirement of Win
Thornton from active management of the Company in May 1997. He could and should
write a book covering his experiences with FEC, which began with his charge to
bring a Railway suffering from thirty years in receivership to a Railway capable
of meeting shippers' requirements in an economic, efficient and safe manner.
He never wavered in this charge even through the difficulties of a strike
lasting many years. He has every right to be extremely proud of the condition
of the plant and the balance sheet passed me for management, and I can only
hope my stewardship will be the equal of his. He is principally responsible
for the success you have enjoyed as shareholders and for giving our employees
a safe work environment with wages and benefits promising a good quality of
life. Win will continue as a Director of the Company, thus we will not
lose the benefit of his future counsel. Thanks, Mr. Thornton, for a job well
done!
Carl F. Zellers, Jr.
Chairman and Chief Executive Officer
FIVE-YEAR SPOTLIGHT RESUME (Consolidated)
(Dollars in thousands except for items marked*) (Unaudited)
Years Ended December 31
1997 1996 1995 1994 1993
--------------------------------------------
Operating Revenues:
Transportation $184,986 $172,958 $171,016 $160,731 $159,884
Realty-Land Sales 26,901 982 2,830 16,100 2,320
-Rents & Other 38,633 34,091 27,261 22,713 18,892
------------------------------------------------
Total Revenues 250,520 208,031 201,107 199,544 181,096
------------------------------------------------
Operating Expenses 198,198 170,425 166,479 152,989 147,958
------------------------------------------------
Operating Profit 52,322 37,606 34,628 46,555 33,138
Other Income 10,635 10,511 7,924 9,117 5,103
------------------------------------------------
Income before income taxes and
cumulative effect of change in
accounting principle 62,957 48,117 42,552 55,672 38,241
Income Taxes 22,822 17,703 15,915 21,067 17,462
------------------------------------------------
Income before cumulative
effect of change in
accounting principle 40,135 30,414 26,637 34,605 20,779
Cumulative effect of change
in accounting principle for
income taxes 0 0 0 0 1,504
------------------------------------------------
Net Income $ 40,135 $ 30,414 $ 26,637 $ 34,605 $ 22,283
==============================================================================
Retained earnings at year-end $594,132 $557,621 $530,834 $507,813 $476,808
*Per Share Data:
Cash Dividends $ 0.40 $ 0.40 $ 0.40 $ 0.40 $ 0.40
------------------------------------------------
Income before cumulative
effect of change in
accounting principle $ 4.43 $ 3.36 $ 2.95 $ 3.85 $ 2.31
Cumulative effect of change in
accounting principle for
income taxes 0 0 0 0 0.17
-----------------------------------------------
Net Income $ 4.43 $ 3.36 $ 2.95 $ 3.85 $ 2.48
Wages, Payroll Taxes, Health and Welfare Benefits: (thousands)
Wages-(Includes ITI
for 1995-97) $46,980 $ 45,560 $ 44,925 $ 48,119 $ 49,649
Payroll Taxes 10,009 9,683 10,137 11,551 12,481
Health and Welfare Benefits 5,827 4,784 5,366 4,994 5,173
------------------------------------------------
Total $62,816 $ 60,027 $ 60,428 $ 64,664 $ 67,303
==============================================================================
*Average Number of Employees 1,178(1) 1,347(1) 1,248(1) 1,319 1,463
*Average Wage per Employee $39,881 $ 39,496 $ 42,215 $ 36,482 $ 33,936
(1)-Includes ITI employees since purchase of ITI in 1995.
The Items Below Pertain to Railway Operations Only (Not Consolidated)
Revenue Ton-Miles(thousands) 4,348,000 4,098,000 4,122,000 4,388,000 4,257,000
*Freight Revenue Per Ton-Mile $ 0.0357 $ 0.0352 $ 0.0345 $ 0.0338 $ 0.0342
*Miles of Road Operated at
Year-End 442 442 442 442 442
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, 1997.
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.)
One Malaga Street, St. Augustine, FL 32084
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (904) 829-3421
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, 1998, the aggregate market value
of the voting stock held by non-affiliates of the Registrant was $423,209,934.
The number of shares of the Registrant's common stock, $6.25 par value, is
9,271,361 shares issued and 9,071,590 shares outstanding at February 3, 1998,
with 199,771 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 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
approximately 47% of rail traffic revenues.
ITI is a common motor carrier providing truckload service throughout most of
the southeastern United States, 80% of 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. The Company acquired the
remaining 20% ownership of ITI in July 1997.
Realty: Registrant owns 100% of the stock of Gran Central Corporation
(GCC).
GCC is engaged in the development, leasing, 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, 1997, the Registrant employed approximately
1,215 employees, including 1,177 in Transportation, 34 in Realty and 4 in
Corporate. Approximately 700 Transportation employees are covered by
collective bargaining agreements.
Recent Events:
The Company announced on May 5, 1997 that it received a proposal from St. Joe
Corporation in which St. Joe offered to merge FECI with a wholly-owned
subsidiary of St. Joe by purchasing all the outstanding shares of the Company.
On November 21, 1997, St. Joe announced the withdrawal of its outstanding offer.
On March 2, a Trackage Agreement with South Central Florida Express Railroad and
the Transportation segment of the Company (Railway) was signed. The purpose
of this Agreement was to provide for cost reduction in the near future with a
future potential growth in the revenue base.
Registrant has no foreign operations.
Item 2. PROPERTIES
Transportation: Transportation properties include rail right-of-way
between Jacksonville and Miami and between Ft. Pierce and Lake Harbor and
operating properties at major terminals throughout the system. Operating
properties include significant switching and classification yards,
trailer/container loading and unloading facilities, an automotive marshaling
yard and maintenance facilities.
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 185 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 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 2,633 freight
cars, 1,141 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 18,747 acres of land at year-
end 1997, including approximately 447 acres developed with buildings; 789
acres developed with an infrastructure ready to receive buildings, and
approximately 16,414 acres of undeveloped properties, including 1,097 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 1,531 acres
St. Johns 3,386 "
Putnam 87 "
Flagler 3,464 "
Volusia 3,584 "
Brevard 2,481 "
Orange 85 "
Indian River 5 "
St. Lucie 610 "
Martin 660 "
Palm Beach 197 "
Broward 61 "
Dade 1,699 "
Manatee 897 "
----------
Total 18,747 "
At year-end 1997, Realty also owned fifty-nine (59) buildings as detailed
below:
No. of Rentable Year
Location Bldgs. Type Square Ft. Built
- -------- ------ ---- ---------- -----
duPont Center
Jacksonville, FL 2 Offices 163,000 1987-88
Gran Park at
Interstate South 1 Service Center 35,000 1997
Jacksonville, FL 5 Office/Showroom/
Warehouses 225,000 1987-89
Gran Park at the 3 Office/Showroom/
Avenues Warehouses 172,000 1992-97
Jacksonville, FL 3 Offices 242,000 1992-95
2 Office/Warehouses 301,000 1994-96
Gran Park at 1 Office/Showroom/
Jacksonville Warehouse 148,000 1997
Jacksonville, FL 1 Front Load
Warehouse 99,000 1997
1 Rail Building 108,000 1997
Gran Park at
Deerwood 3 Offices 385,000 1995-97
Jacksonville, FL
Gran Park at 1 Office/Showroom/
Riviera Beach, FL Warehouse 62,000 1987
Lewis Terminals 2 Rail Warehouses 176,000 1982-87
2 Cross Dock
Warehouses 74,000 1987-91
Gran Park-McCahill 2 Rail Warehouses 468,000 1992-94
Miami, FL 1 Front Load
Warehouse 91,000 1996
2 Office Warehouses 319,000 1997
Gran Park at Miami 5 Office/Showroom/
Miami, FL Warehouses 369,000 1988-94
6 Office/Warehouses 588,000 1990-97
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 31,000 1975
Pompano Beach, FL 1 Rail Warehouse 54,000 1987
-- ---------
TOTALS 59 5,596,000
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
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 Superfund site in Hialeah, Florida,
part of which includes a right-of-way. 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, the
ultimate costs are not expected to be material.
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).
In January 1998, the same plaintiffs instituted a new class action against St.
Joe, the Company and its directors in an action styled Kahn v. St. Joe
Corporation, Thornton, Belin, Nedley, Zellers, Fairbanks, Foster, Harper,
Mercer, Parrish and Florida East Coast Industries, Inc., Case No. 98-00025 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 the Company in connection with (1) the February
26, 1996 announcement by the Company that it was considering the sale of its
real estate subsidiary, GCC, to St. Joe and the sale of its railroad subsidiary,
FEC, to a third party, (2) St. Joe's May 5, 1997 offer to purchase all
outstanding shares of the Company's Common Stock not owned by St. Joe at $102
per share and (3) St. Joe's November 21, 1997 withdrawal of such offer.
According to the complaint, by St. Joe withdrawing its offer, St. Joe is
allegedly attempting to coerce the Company's minority shareholders to sell
their shares to St. Joe at an inadequate price. The action seeks, among other
things, to certify the litigation as a class action, to appoint a receiver to
assume control of the Company for the purpose of liquidating it and to enjoin
St. Joe from squeezing out minority shareholders at an inadequate price. By
agreement of the parties to these two actions, a stipulation of dismissal with
prejudice against the named plaintiffs was filed on March 6, 1998 with respect
to both actions.
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:
1997
----
Quarter Ended Dec. 31 Sept. 30 June 30 March 31
High $116 $114 1/4 $111 3/4 $101 3/4
Low $92 5/8 $106 1/8 $86 $86 1/4
Dividends $.10 $.10 $.10 $.10
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
c. The total number of holders of record of Florida East Coast Industries,
Inc.'s common stock as of December 31, 1997 was approximately 674.
ITEM 6. SELECTED FINANCIAL DATA
Financial Review
Selected Financial Data
(Dollars in thousands except per share amounts*)
(Unaudited)
Years Ended December 31
1997 1996 1995
---- ---- ----
Revenues:
Operating Revenues $250,520 $208,031 $201,107
Other Income 10,635 10,511 7,924
-------- -------- --------
Total Revenues and
Other Income $261,155 $218,542 $209,031
Income before cumulative
effect of change in
accounting principle $ 40,135 $ 30,414 $ 26,637
Cumulative effect of
change in accounting
principle for income
taxes 0 0 0
-------- ------- -------
Net Income $ 40,135 $ 30,414 $26,637
======== ======= =======
Per Share Data
Cash Dividend $ 0.40 $ 0.40 $ 0.40
======== ======= =======
Income before cumulative
effect of change in
accounting principle $ 4.43 $ 3.36 $ 2.95
Cumulative effect of
change in accounting
principle for income
taxes $ 0.00 $ 0.00 $ 0.00
-------- ------- -------
Net Income Per Common
Share $ 4.43 $ 3.36 $ 2.95
At year-end:
Total Assets $825,490 $789,681 $756,210
Working Capital $ 47,558 $ 41,203 $ 38,010
Shareholders' Equity $648,875 $608,796 $581,860
*Average Number of Employees 1,178(1) 1,347(1) 1,248(1)
*Average Wage per Employee $ 39,881 $ 39,496 $ 42,215
(1)-Includes ITI employees since purchase of ITI in 1995.
The Items Below Pertain to Railway Operations Only (Not Consolidated)
Revenue Ton-Miles
(thousands) 4,348,000 4,098,000 4,122,000
*Freight Revenue Per
Ton-Mile $ 0.0357 $ 0.0352 $ 0.0345
*Miles of Road Operated
at Year-End 442 442 442
Revenues: 1994 1993
---- ----
Operating Revenues $199,544 $181,096
Other Income 9,117 5,103
-------- --------
Total Revenues and
Other Income $208,661 $186,199
Income before cumulative effect of
change in accounting principle $ 34,605 $ 20,779
Cumulative effect of change in
accounting principle for income
taxes $ 0 $ 1,504
-------- --------
Net Income $ 34,605 $ 22,283
======== ========
Per Share Data
Cash Dividend $ 0.40 $ 0.40
Income before cumulative effect of
change in accounting principle $ 3.85 $ 2.31
Cumulative effect of change in
accounting principle for income
taxes $ 0.00 $ 0.17
-------- --------
Net Income Per Common Share $ 3.85 $ 2.48
At year-end:
Total Assets $722,494 $688,445
Working Capital $ 39,750 $ 42,552
Shareholders' Equity $552,268 $523,038
*Average Number of Employees 1,319 1,463
*Average Wage per Employee $ 36,482 $ 33,936
The Items Below Pertain to Railway Operations Only (Not Consolidated)
Revenue Ton-Miles (thousands) 4,388,000 4,257,000
*Freight Revenue Per Ton-Mile $ 0.0338 $ 0.0342
*Miles of Road Operated at Year-End 442 442
Quarterly Financial Data (Unaudited)
(Dollars in thousands except per share amounts)
1997
----
Dec. 31 Sept. 30 June 30 March 31
Operating Revenues $59,168 $60,907 $71,007 $59,438
Other Income $ 2,529 $ 2,797 $ 3,013 $ 2,296
Operating Expenses $45,536 $44,485 $59,831 $48,346
Net Income $10,896 $12,011 $ 8,863 $ 8,365
Net Income Per Common Share $ 1.20 $ 1.33 $ 0.98 $ 0.92
1996
----
Dec. 31 Sept. 30 June 30 March 31
Operating Revenues $55,458 $51,123 $51,487 $49,963
Other Income $ (609) $ 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
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, 1997. 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
a significant increase in 1997. Revenue increases in 1996, when compared to
1995, improved by 3.4%, whereas revenue increases in 1997, when compared to
1996, improved by approximately 20.4%.
Operating revenues in 1997 increased by $42.5 million or 20.4% from 1996.
This $42.5 million consisted of increases of $12.0 million in transportation
revenues, $25.9 million in sales of realty property, and $4.6 million in realty
rental income. When comparing 1996 operating revenues with 1995, operating
revenues increased by $6.9 million or 3.4%. The 1996 increases consisted 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 increase in transportation revenues of $12.0 million was primarily
attributable to significant increases in shipments of rock, intermodal and
other carload traffic. The transportation rail segment of the Company derives
its revenues from four major classifications of traffic; shipments of rock,
intermodal (containers and trailers), automotive and automotive-related parts,
and all other commodity-type carload shipments. Brief discussions of the
increases in the volumes of the four classifications are presented below
comparing 1997 with 1996 and 1996 with 1995.
Comparing the number of shipments in 1997 with 1996, rock shipments
increased by approximately 4,300 or 4.8%. The increase represented the continued
growth in construction along the East Coast of Florida and surrounding areas.
When comparing the number of rock shipments in 1996 with 1995, the increase
amounts to approximately 2,000 shipments or 2.4%.
The number of intermodal shipments in 1997 increased significantly over
1996 by approximately 28,600 or 9.1%. This increase in intermodal traffic was
comprised of increases in container shipments of approximately 9,100 and
trailer shipments of approximately 19,500. Intermodal traffic in 1996, when
compared to 1995, decreased by approximately 5,400 or 1.7%. The composition of
this 1996 decrease was approximately 9,900 decrease in trailer shipments
offset by an increase in container shipments of 4,500.
Automotive and automotive-related traffic decreased in 1997, when
compared to 1996, by approximately 600 shipments or 3.2%. The decrease is
partially related to recent changes in the operations of rental car business
whereby rental cars are being retained for extended periods prior to being
resold. In comparing 1996 with 1995, automotive traffic improved by
approximately 1,500 shipments or 9.3%.
All other carload traffic increased in 1997 over 1996 by approximately
3,200 shipments or 9.7%. A recent trend in this type of traffic has been a
movement from shipments by truck to shipment by rail. When comparing 1996
with 1995 for this classification of traffic, all other carload traffic
decreased approximately 1,200 shipments or 3.5%.
The composite increase in traffic for 1997 versus 1996 was approximately
35,500 shipments or 7.8%. Comparing 1996 with 1995, the composite of traffic
decreased by approximately 3,000 shipments or 1%. The significant increase in
traffic in 1997 was also reflective of the strong economy existing during 1997.
Sales of rental properties in 1997, when compared to 1996, increased by
$25.9 million. This increase was comprised of four separate dispositions of
property in the first nine months of 1997 of approximately $23.7 million.
Realty rental income in 1997 versus 1996 increased by approximately $4.5
million or 13.3%. This increase resulted from additional leasable space of
approximately one million square feet being added to inventory from the
construction of new buildings.
At year-end, there were two new buildings under construction which, upon
completion, will add approximately .2 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 $27.8 million or 16.3% in 1997 when compared to
1996. This increase of $27.8 million reflects increases of $3.1 million in
management of realty properties, $22.2 million in cost of realty property sales,
and $5.3 million in general and administrative expenses offset by a decrease of
$2.8 million in transportation costs.
The increase of $3.1 million in the management of realty properties
consisted of increases of approximately $1.1 million in depreciation, $1.1
million in property taxes and $.9 million in other costs. The increase of
$22.2 million in cost of realty property sold is directly attributable to the
property sales during the year. The increase of $5.3 million in general and
administrative expense is primarily attributable to: approximately $3.5 million
increase associated with the possible disposition of the Company and its
affiliates; approximately $.6 million increase associated with the trucking
subsidiary; approximately $.4 million increase associated with the realty
subsidiary; approximately $.6 million associated with the outsourcing of
services by the Information Services Department of the Company, and $.2 million
for other expenses. The outsourcing of services by the Information Services
Department was primarily attributed to the reduction in personnel in that
Department because of the potential sale of the Company. The decrease of $2.8
million in transportation costs is primarily attributable to a reduction in
casualty and insurance costs of approximately $2.5 million. This difference is
related to the 1996 comparative figures for casualty and insurance which
included an accrual for an adverse legal judgment against the Company regarding
an asbestos case of approximately $2.2 million. This judgment was appealed and,
in 1997, a reversal of the judgment in favor of the Company was declared. When
comparing 1996 operating expenses with 1995, operating expenses increased
approximately $3.9 million or 2.4%. This increase was 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.
Other income increased by approximately $.1 million in 1997 when compared
to 1996. This increase was comprised of increases in dividends of approximately
$.1 million; interest income of approximately $.3 million; other income of
approximately $.7 million; a decrease in interest expense of approximately $.2
million offset by a decrease in gains on sales and other disposition of
properties of $1.2 million. The decrease in gains on sales and other disposition
of properties is primarily attributable to the 1996 sale of fiber optic conduit.
Other income increased by $2.6 million in 1996 compared to 1995. This increase
was primarily attributable to an increase in gains on sales and other
dispositions of properties of approximately $1.6 million representing the sale
of fiber optic conduit discussed above, and an increase in other income of
approximately $1.5 million primarily representing capital gains from sales of
securities.
Income taxes increased by approximately $5.1 million in 1997 over 1996.
This increase is the result of the increase in income before income taxes of
$14.8 million. Income taxes increased by $1.8 million in 1996 from 1995 as a
result of an increase in income before taxes of approximately $5.6 million.
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 1997 increased by $1.1 million when compared to
1996. This change is represented primarily by increases of $1.5 million in
cash, cash equivalents and short-term investments, $.5 million in materials
and supplies, $.2 million in other current assets offset by a decrease in
accounts receivable of $1.1 million. Large liquid reserves are maintained to
meet the Company's commitment to realty construction and development.
Other investments increased by $7.4 million in 1997 from 1996 to a
total of $72.0 million. Other investments include approximately $56.9 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 1997 and currently, the Company has five major realty
development projects in progress: Gran Park at Jacksonville, Gran Park at the
Avenues, Gran Park at Deerwood (all in Jacksonville), Gran Park at Miami and
Gran Park at Orlando.
Construction activities in these parks contributed significantly to the
$27.7 million increase in properties from 1996 to 1997. The additions in 1997
amounted to approximately one million square feet of leasable space represented
by eight new buildings placed in service.
Total current liabilities in 1997 decreased approximately $5.3 million
when compared to 1996. This change was primarily attributable to decreases of
$2.1 million in accounts payable, $3.0 million each in accrued property taxes,
and $.2 million in other accrued liabilities.
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 2.0 in 1996 and 2.4 in 1997. 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, 1997, the Company had authorized approximately $34.0
million for capital expenditures, of which 64.6% 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.
The Company is aware of the issues associated with the existing computer
systems as they relate to the year 2000. The "year 2000" problems are pervasive
and complex as virtually all computer operations will be affected in some way
by the rollover of the two digit year value at 00. The issue is whether computer
systems will properly recognize data sensitive information when the year
changes to 2000.
The Company is utilizing both internal and external resources to identify,
correct or reprogram and test the systems for the year 2000 compliance. It is
anticipated that all systems will be in compliance before December 31, 1999.
Verbal confirmations, assuring compliance, have been received from the Company's
primary processing vendors. The Company is in the process of developing a formal
plan of documenting such compliance confirmations from its vendors.
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, operating and investing
activities exclusively generated the sources of funds throughout the year.
To date, these sources have been sufficient to fund the purchases
and construction of properties and pay dividends.
Net income for 1997 increased approximately $9.7 million when compared to
1996, and 1996 increased approximately $3.8 million when compared to 1995.
The changes in net cash generated by operating activities from 1996 to
1997 and from 1995 to 1996 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 $1.7, $2.9 and $1.3 million for the years 1997,
1996 and 1995, respectively.
The purchases of properties for 1997, 1996 and 1995 amounted to $59.1
million, $55.6 million and $70.6 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 $917
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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997 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
February 4, 1998
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands except per share amounts)
Years ended December 31
1997 1996 1995
Operating Revenues:
Transportation $184,986 $172,958 $171,016
Realty - Land Sales 26,901 982 2,830
- Rents & Other 38,633 34,091 27,261
-------- -------- --------
Total Revenues 250,520 208,031 201,107
-------- -------- --------
Operating Expenses:
Transportation 126,475 129,289 129,618
Realty 22,503 19,440 16,535
Realty Sales 22,592 352 490
General and Administrative 26,628 21,344 19,836
-------- -------- --------
Total Expenses 198,198 170,425 166,479
-------- -------- --------
Operating Profit 52,322 37,606 34,628
Other Income (Expense):
Dividends 495 399 440
Interest Income 5,124 4,800 5,359
Interest Expense (385) (600) (639)
Gains on sales and other disposition of prop 1,728 2,926 1,280
Other (net) 3,673 2,986 1,484
-------- -------- --------
Total Other Income 10,635 10,511 7,924
-------- -------- --------
Income before income taxes 62,957 48,117 42,552
Income Taxes: (Note 8)
Current 22,720 17,551 13,028
Deferred 102 152 2,887
-------- -------- --------
Total Income Taxes 22,822 17,703 15,915
-------- -------- --------
Net Income 40,135 30,414 26,637
-------- -------- --------
Retained earnings:
Balance at beginning of year $557,621 $530,834 $507,813
Cash dividends (3,624) (3,627) (3,616)
-------- -------- --------
Balance at Year-end $594,132 $557,621 $530,834
======== ======== ========
Per share data:
Cash dividends $ 0.40 $ 0.40 $ 0.40
-------- -------- --------
Earnings per common share $ 4.43 $ 3.36 $ 2.95
======== ======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(Dollars in thousands except per share amounts)
1997 1996
Assets
Current Assets:
Cash and cash equivalents $ 30,845 $ 23,602
Short-term investments (Note 6) 258 5,973
Accounts receivable, net 31,045 32,203
Materials and supplies 11,789 11,237
Other current assets (Note 8) 7,987 7,803
-------- --------
Total current assets 81,924 80,818
Other Investments (Note 6) 72,041 64,654
Properties, Less Accumulated Depreciation and
Amortization (Note 5) 663,672 636,019
Other Assets and Deferred Charges 7,853 8,190
-------- --------
Total Assets $825,490 $789,681
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 20,580 $ 22,705
Income taxes 4,630 4,652
Accrued property taxes 1,008 3,981
Accrued casualty and other reserves (Note 10) 5,143 5,038
Other accrued liabilities 3,005 3,239
-------- --------
Total current liabilities 34,366 39,615
Deferred Income Taxes (Note 8) 133,884 132,909
Reserves and Other Long-Term Liabilities (Note 10) 8,365 8,361
Commitments and Contingencies (Note 10)
Shareholders' Equity:
Common stock, $6.25 par value; 9,360,000 shares authorized;
9,271,361 shares issued and 9,071,590 shares
outstanding 57,946 57,946
Capital surplus 2,856 1,598
Retained earnings 594,132 557,621
Net unrealized gain on investments available-
for-sale (Note 6) 3,296 1,904
Treasury stock at cost (199,771 and 219,374 shares) (9,355) (10,273)
-------- --------
Total shareholders' equity 648,875 608,796
-------- --------
Total Liabilities and Shareholders' Equity $825,490 $789,681
======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
1997 1996 1995
Cash Flows from Operating Activities:
Net Income $40,135 $30,414 $26,637
Adjustments to reconcile net income to cash
generated:
Depreciation and amortization 24,098 23,506 22,292
Gain on disposition of assets (1,728) (2,926) (1,280)
Deferred taxes 102 152 2,887
Changes in operating assets and liabilities:
Accounts receivable, net 1,158 (3,614) (1,541)
Other current assets (746) (1,599) 308
Other assets and deferred charges 2,513 75 4,137
Accounts payable (2,125) 2,388 (2,729)
Accrued property taxes (2,973) 628 179
Other current liabilities (151) 4,250 141
Reserves and other long-term liabilities 4 (911) (1,249)
------- ------- -------
Net cash generated by operating activities 60,287 52,363 49,782
------- ------- -------
Cash Flows from Investing Activities:
Purchases of properties (59,093) (55,633) (70,602)
Purchases of investments:
Available-for-sale (20,147) (21,928) (35,800)
Held-to-maturity (7,997) (12,386) (31,247)
Maturities and redemption of investments:
Available-for-sale 14,247 18,291 27,968
Held-to-maturity 14,500 27,798 54,839
Proceeds from disposition of assets 9,070 7,674 4,491
------- ------- -------
Net cash used in investing activities (49,420) (36,184) (50,351)
------- ------- -------
Cash Flows from Financing Activities:
Payment of dividends (3,624) (3,627) (3,616)
------- ------- -------
Net cash used in financing activities (3,624) (3,627) (3,616)
------- ------- -------
Net Increase (Decrease) in Cash and Cash
Equivalents 7,243 12,552 (4,185)
Cash and Cash Equivalents at Beginning of Year 23,602 11,050 15,235
------- ------- -------
Cash and Cash Equivalents at End of Year $30,845 $23,602 $11,050
======= ======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $23,637 $13,450 $13,810
Cash paid for interest $ 385 $ 600 $ 639
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
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. The rail segment of the Company operates only within the state of
Florida with the majority of its revenues derived from interline traffic from
two connecting rail carriers. Approximately one-third of the traffic is
derived from the Company's five largest customers.
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 as of
December 31, 1997. The Trust is a majority shareholder of St. Joe
Corporation's common stock which owns, through a subsidiary, approximately
54.0% of the Company's common stock. Significant transactions with St. Joe
Corporation and its affiliates were the Company's payment of dividends, and the
sharing of personnel in the areas of environmental, legal and real estate for
1997, 1996 and 1995. Also in 1997, the Company engaged St. Joe Corporation
to manage its day-to-day operations of its realty segment, Gran Central
Corporation (GCC). Presently, the Company is negotiating an Asset Management
Agreement for GCC properties.
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 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 for financial reporting
purposes. 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 (9,061,789 in 1997,
9,051,987 in 1996, and 9,039,279 in 1995). The Company adopted Statement of
Financial Accounting Standard No. 128, "Earnings Per Share" in 1997. The
adoption of this Standard had no impact on the Company's calculation of
earnings per share due to its simple capital structure (i.e., no potential
common stock).
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 preferred 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. Since the adoption of this Standard in 1996, the Company
experienced no material effect on the Company's financial statements.
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 $917 million (original cost)
invested in such assets as of December 31, 1997. The replacement costs of
these assets, as well as the related depreciation expense, would be
substantially greater than the amounts represented on the basis of historical
costs.
4. Acquisitions
In July 1997, the Company purchased the remaining 20% 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 1997
and 1996 were $26.9 million and $25.2 million, respectively. ITI's income is
not material to the consolidated financial statements.
5. Properties
Properties consist of (in thousands):
1997 1996
Transportation Properties:
Road $326,103 $321,294
Equipment 194,310 198,544
Miscellaneous Physical Property 2,269 2,269
Construction in Progress 6,395 2,465
-------- --------
529,077 524,572
Less Accumulated Depreciation & Amortization 213,230 205,979
-------- --------
$315,847 $318,593
======== ========
Real Estate Properties:
Land and Land Improvements $171,408 $164,558
Buildings 194,124 169,272
Construction in Progress 21,984 17,103
-------- --------
387,516 350,933
Less Accumulated Depreciation & Amortization 39,691 33,507
-------- --------
$347,825 $317,426
======== ========
Real estate properties having a net book value of $217.1 million at
December 31, 1997 are leased under non-cancelable operating leases with
expected aggregate rentals of $106.4 million which are due in years 1998-2002
in the amounts of $30.5, $26.1, $21.7, $17.8 and $10.3 million, respectively.
6. Investments
Other investments are held as a development fund created to accumulate
capital expected to be required for future improvement of the Company's real
estate properties. During 1997, the Company transferred substantially all of
its held-to-maturity securities to available-for-sale in support of the
Company's real estate development plans. Unrealized gains or losses
at the time of transfer were not material to the financial statements.
Investments at December 31, 1997 consist of (in thousands):
Unrealized Unrealized
Carrying Fair Holding Holding
Cost Value Value Gain (Loss)
-----------------------------------------------
Short-term investments
Available-for-sale
U.S. Government securities $ 258 $ 258 $ 258 $ 0 $ 0
-----------------------------------------------
$ 258 $ 258 $ 258 $ 0 $ 0
-----------------------------------------------
Other Investments
Available-for-sale
U.S. Government securities
Maturing in 1 to 5 years $ 7,969 $ 8,020 $ 8,020 $ 51 $ 0
Maturing in 5 to 10 years 600 621 621 21 0
Tax exempt municipals
Maturing in 1 to 5 years 19,750 20,158 20,158 408 0
Maturing in 5 to 10 years 18,326 19,304 19,304 978 0
Maturing in more than 10 years 3,408 3,388 3,388 0 (20)
Other debt securities 788 1,690 1,690 902 0
Equity securities 15,826 18,860 18,860 3,034 0
------------------------------------------------
$66,667 $72,041 $72,041 $ 5,394 $ (20)
------------------------------------------------
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 within 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)
-----------------------------------------------
7. Collateral Trust 5% Bonds
There are outstanding at December 31, 1997 and 1996, $12,185,100 and
$12,414,500, 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, 1997, 1996 and
1995 was allocated as follows (in thousands):
1997 1996 1995
-------------------------
Income from continuing operations $22,822 $17,703 $15,915
Shareholders' equity, for recognition of
unrealized holding gain (loss) on investments
available-for-sale 883 93 1,657
-------------------------
$23,705 $17,796 $17,572
=========================
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:
1997 1996 1995
-------------------------
Amount computed at statutory federal rate $22,035 $16,855 $14,894
Effect of dividends received exclusion and
tax-free interest (914) (908) (835)
State taxes (net of federal benefit) 2,238 1,688 1,513
Other (net) (537) 68 343
-------------------------
$22,822 $17,703 $15,915
=========================
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1997, 1996 and 1995 are as follows:
1997 1996 1995
---------------------------
Deferred tax assets:
Accrued casualty and other reserves $ 5,096 $5,200 $ 5,458
Amortization of fiber optic income 245 367 490
Other 415 277 637
-----------------------------
Total deferred tax asset $ 5,756 $ 5,844 $ 6,585
-----------------------------
Deferred tax liabilities:
Properties, principally due to
differences in depreciation $101,610 $101,462 $102,730
Deferred gain on land sales 28,933 29,030 29,114
Deferred profit on bonds extinguished 1,201 1,430 1,642
Unrealized holding gain on investments
available-for-sale 2,078 1,195 1,102
Other 2,350 2,158 1,183
-----------------------------
Total deferred tax liabilities $136,172 $135,275 $135,771
-----------------------------
Net deferred tax liabilities $130,416 $129,431 $129,186
============================
There was no valuation allowance provided for deferred tax assets as of
December 31, 1997 and 1996 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 $3,468 and
$3,478 at December 31, 1997 and 1996, 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):
1997 1996 1995
--------------------------------
Operating Revenue:
Transportation $184,986 $172,958 $171,016
Realty 65,534 35,073 30,091
--------------------------------
$250,520 $208,031 $201,107
================================
Operating Profit:
Transportation $ 37,277 $ 25,304 $ 23,663
Realty 15,045 12,302 10,965
--------------------------------
$ 52,322 $ 37,606 $ 34,628
================================
Identifiable Assets:
Transportation $395,695 $367,989 $361,862
Realty 422,851 406,487 289,727
Corporate 6,944 15,205 104,621
--------------------------------
$825,490 $789,681 $756,210
================================
Capital Expenditures:
Transportation $ 13,287 $ 14,597 $ 26,572
Realty 45,806 41,036 44,030
--------------------------------
$ 59,093 $ 55,633 $ 70,602
================================
Depreciation:
Transportation $ 15,367 $ 15,853 $ 16,644
Realty 8,731 7,653 5,648
--------------------------------
$ 24,098 $ 23,506 $ 22,292
================================
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
estimated 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 amounted to $2.0 million
for 1997, as well as 1996. Environmental liabilities 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 NW 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. No assessments related to this
Agreement have been made.
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 1997, 1996 and 1995 were approximately $334,000, $351,000 and
$350,000, respectively. The expenses associated with this plan were
approximately $13,000, $12,000 and $13,000 in 1997, 1996 and 1995,
respectively. In 1997, 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 $6,400 in 1997 and
$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 Director and Executive Officer of the Registrant,
there are set forth below as of December 31, 1997, (1) his name; (2) his age;
(3) his positions and offices with the Registrant, as well as principal
occupation or employment; (4) the date on which he first held office; and (5)
a brief account of his business experience during the last five years. Each
Director and 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 20, 1998. 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, Offices and
Offices Business Experience for the Past Five Years
_________________________ ______________________________________________
Jacob C. Belin (83) Former Chairman of the Board, St. Joe Paper
Director since 1984 Company. Director, St. Joe Corporation. Trustee,
Alfred I. duPont Trust.
J. Nelson Fairbanks (62) President and Director, U.S. Sugar Corporation.
Director since 1989
David M. Foster (63) Attorney, Rogers, Towers, Bailey, Jones & Gay
Director since 1995 for more than five years. Director, SunTrust
Bank of North Florida, N.A. Director, Gate
Petroleum and subsidiaries.
Allen C. Harper (53) Chairman/CEO, Esslinger-Wooten-Maxwell, Inc.,
Director since 1994 Realtors. Chairman and President, First Reserve,
Inc. Director, Tri-County Railroad Authority.
Chairman, First American Railways, Inc.
Director, Vacation Breaks USA, Inc.
John H. Mercer, Jr. (84) Retired President, John Mercer Terminal
Director since 1984 Warehouse Company.
J.J. Parrish, III (44) President, Jesse J. Parrish, Inc. President
Director since 1993 and Director, Nevins Fruit Company, Inc.
Director and Vice Chairman, Parrish Medical
Center. Director, Barnett Bank of Central
Florida.
W.L. Thornton (69) Prior to May 21, 1997, Chairman of the Board
Director since 1984 and Chief Executive Officer, Industries. Prior
to May 1995, Chairman and President, Industries.
Director, St. Joe Corporation. Trustee, Alfred
I. duPont Trust.
Carl F. Zellers, Jr. (65) May 21, 1997 elected Chairman, President
Chairman, President, Chief and Chief Executive Officer. Prior to May 21,
Executive Officer 1997, President and COO of the Registrant.
Director since 1984 Prior to May 1995, Vice President, Industries.
President, Gran Central Corporation, for
more than five years. President of Florida
East Coast Railway for more than five years.
T. Neal Smith (57) May 21, 1997 elected Treasurer.
Vice President, Secretary May 15, 1992 elected Vice President and
and Treasurer Secretary. Formerly Treasurer and Assistant
Secretary for more than five years.
J. Richard Yastrzemski (54) Comptroller of Registrant for more than five
Comptroller years.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual compensation for the Company's
highest paid Executive Officers during 1997, as well as the total compensation
paid to those executives for the past three (3) years:
Summary Compensation Table
All other
Salary Bonus Compensation(1)
Name and Principal Position Year ($) ($) ($)
W.L. Thornton, Chairman 1997(2) 15,417(4) 6,000(4) 9,112
and CEO 1996 36,000(4) 4,000(4) 9,984
1995 36,000(4) 9,960
C.F. Zellers, Jr., Chairman 1997(3) 215,250 30,000 11,206
President and CEO 1996 157,500 17,500 8,706
1995 157,500 8,342
T.N. Smith, Vice President 1997 95,000 5,625 3,600
Secretary and Treasurer 1996 90,000 10,000 2,040
1995 90,000 2,244
(1) Includes amounts paid for life insurance premiums, personal use of
vehicles, matching contributions to 40l(K) Plan and directors' fees.
(2) Mr. Thornton retired effective May 21, 1997.
(3) Mr. Zellers was President and COO in 1995, 1996 and until May 21, 1997.
Mr. Zellers' salary from January 1-May 21, 1997 was $160,000 per annum, and
from May 21-December 31, 1997 was $250,000 per annum.
(4) Under arrangement approved by the Board of Directors of both FECI and St.
Joe Corporation, Mr. Thornton's salary and expenses were paid by St. Joe,
with FECI reimbursing St. Joe for 20% of his salary and expenses common to
both companies. Expenses incurred for the exclusive benefit of either FECI or
St. Joe in connection with his services as Chairman were borne 100% by the
benefited company. The salary shown in this table represents only the Company's
proportion of Mr. Thornton's salary. This arrangement was discontinued after
Mr. Thornton's retirement effective May 21, 1997.
Compensation Committee Report
The Compensation Committee is responsible for reviewing and approving the
compensation policies and programs for the Company's Executive Officers named
in the Summary Compensation Table. The Compensation Committee members are all
independent non-employee directors and have no interlocking relationships as
defined by the Securities and Exchange Commission and were chosen because of
their business backgrounds and to ensure that the interests of the shareholders
are being served as it relates to all matters of executive compensation. This
report covers the actions of the Committee regarding the compensation of the
Executive Officers for 1997 and prospectively for 1998.
In reviewing performance for 1997 to determine appropriate performance based
bonuses, the Committee used a discretionary process. The key factors that the
Committee considered in making their determination included the attainment of
certain performance measures such as operating profits, revenue increases,
expense decreases and individual performance.
As noted in the Summary Compensation Table, Mr. Thornton retired from position
of Chairman and Chief Executive Officer on May 21, 1997, and Mr. Zellers was
elected to the new post of Chairman, President and Chief Executive Officer on
this same date. Given Mr. Zellers' contributions to successfully meet the
above-mentioned performance measures, and the further contributions given the
Special Committee's disposition project, the Committee elected to provide a
bonus of $100,000 (40%) of base Chief Executive Officer's salary to Mr. Zellers.
In addition, Mr. Zellers' base salary was increased to $275,000 effective
January 1, 1998.
Bonuses were paid to the other Executive Officers based on the same criteria as
for the Chief Executive Officer. These bonuses amounted to approximately 30%
of base salary. In addition, the base salaries of these Executive Officers were
increased effective January 1, 1998 by approximately 12%.
In late-1997, the Committee authorized a reexamination of the Company's
compensation philosophy as a necessary step in more closely aligning the
compensation of the Executive Officers and other management employees with
company performance and the interests of the shareholders. The study is not
yet completed, but the main tenets of a revised compensation philosophy are
expected to include:
Base salaries at the median of comparable companies that generate value from
the management and operation of substantial assets, including both
transportation and realty.
Provide for a competitive but conservative annual incentive based on Company
and individual performance.
Provide for the granting of stock options in order to align the interest of the
executives with shareholders.
The latter of these will, of course, require shareholder approval.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code generally limits the Company's tax
deduction to $1,000,000 for compensation paid to the Chief Executive Officer
and the four most highly-compensated Executive Officers who are Executive
Officers as of the last day of the applicable year. Exceptions are made,
however, for "performance-based" compensation. For 1997, the Committee
believes that all compensation paid to Executive Officers is fully deductible.
Submitted by the Compensation Committee.
J. Nelson Fairbanks, Chairman
David M. Foster, Member
Allen C. Harper, Member
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of March 1, 1998 with respect to
persons known to Industries to be the beneficial owners of more than 5% of its
outstanding Common Stock:
Nature of Number of Percent of
Names and Addresses Beneficial Ownership Shares Class (1)
Nemours Foundation(2) Sole Voting and 450,224 5.0%
1650 Prudential Drive Dispositive Power
Jacksonville, FL 32207
St. Joe Corporation(3) Sole Voting and 4,902,304(4) 54.0%
1650 Prudential Drive Dispositive Power
Jacksonville, FL 32207
Franklin Resources, Inc.(5) Sole Voting and 1,333,700 14.7%
51 J.F.K. Parkway Dispositive Power
Short Hills, NJ 07078
(1) All percentages shown are rounded to the nearest one-tenth of one percent.
(2) As of March 1, 1998, the following persons were directors of the Nemours
Foundation: Jacob C. Belin, H.H. Peyton, J.F. Porter, W.T. Thompson, Winfred
L. Thornton, and corporate director, Wachovia Bank, N.A., represented by Hugh
M. Durden. In such capacities, these directors collectively share voting and
dispositive power with respect to Industries' Common Stock owned by the Nemours
Foundation and, as such, may be deemed to be beneficial owners of that stock.
(3) As of March 1, 1998, the following persons were directors of St. Joe
Corporation: Jacob C. Belin, Russell Newton, Jack Quindlen, Walter Revell,
Peter Rummell, Chairman, Frank Shaw, Jr., W.L. Thornton and Jack Uible. In
such capacities, all directors collectively share dispositive and voting
power with respect to Industries' Common Stock owned by St. Joe Corporation.
All directors may be deemed to be beneficial owners of Industries' Common
Stock owned by St. Joe Corporation.
(4) By virtue of its ownership of approximately 54.0% of the outstanding
Industries' Common Stock, St. Joe Corporation may be deemed to be not only
an "affiliate" but also a "parent" of Industries.
(5) Messrs. Charles B. Johnson and Rupert H. Johnson, Jr., principal
shareholders of the parent holding company, Franklin Resources, Inc. ("FRI"),
exercise voting control and dispositive power over these securities. FRI and
the principal shareholders may be deemed to be the beneficial owners of
securities held by persons and entities advised by FRI subsidiaries.
(b) SECURITY OWNERSHIP OF MANAGEMENT
Shown below is information concerning the beneficial ownership of Industries'
Common Stock for each director and for all directors and officers as a group
as of March 2, 1998. Under rules of the Commission, "beneficial ownership" is
deemed to include shares for which the individual, directly or indirectly, has
or shares voting and/or dispositive power:
Number of Percent of
Names Nature of Beneficial Ownership Shares Class (1)
J.C. Belin Shared Voting/Dispositive Power 5,352,528(2) 59.0%
J.N. Fairbanks
D.M. Foster
A.C. Harper
J.H. Mercer, Jr. Sole Voting/Dispositive Power 100
J.J. Parrish, III
W.L. Thornton Sole Voting/Dispositive Power 5,955 0.1%
Shared Voting/Dispositive Power 5,352,528(2) 59.0%
C.F. Zellers, Jr. Sole Voting/Dispositive Power 124
11 directors and Sole Voting/Dispositive Power 6,179 0.1%
officers as a group Shared Voting/Dispositive Power 5,352,528(3) 59.0%
(1) All percentages shown are rounded to the nearest one-tenth of one percent.
Where no percentage is shown, the amount of Industries' Common Stock owned by
the beneficial owner listed is less than one-half of one-tenth of one percent
(4,536 shares) of all outstanding Industries' Common Stock.
(2) Includes 4,902,304 shares or 54.0% of Industries' Common Stock owned by St.
Joe Corporation, and 450,224 shares or 5.0% of Industries' Common Stock owned
by the Nemours Foundation.
(3) Includes the 4,902,304 and 450,224 listed as beneficially owned by Messrs.
Belin and Thornton. However, the same number of shares beneficially owned by
these persons is reported only once.
(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
1. Filed November 21, 1997:
Reported the withdrawal of St. Joe Corporation's proposal of May 5,
1997.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
[ITEM 14(a)]
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Income and Retained Earnings for each of the three
years in the period ended December 31, 1997
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1997
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
*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 18, 1998.
FLORIDA EAST COAST INDUSTRIES, INC.
(Registrant)
By: s/s T. Neal Smith, Vice President, Secretary and Treasurer
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 C. F. Zellers, Jr.*
Chairman, President, Chief Executive Officer and Director - 3/15/98
s/s W. L. Thornton*
Director - 3/15/98
s/s J. Nelson Fairbanks*
Director - 3/15/98
s/s J.C. Belin*
Director - 3/15/98
s/s D.M. Foster*
Director - 3/15/98
s/s J.H. Mercer, Jr.*
Director - 3/15/98
s/s A.C. Harper*
Director - 3/15/98
s/s J. J. Parrish, III*
Director - 3/15/98
s/s J.R. Yastrzemski*
Comptroller - 3/15/98
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, 1997, 1996 AND 1995
(Dollars in thousands)
Balance at Additions
Beginning Charged Balance at
of Year to Expense Payments End of Year
---------- ---------- -------- -----------
RESERVES INCLUDED IN LIABILITIES
1997
Casualty & other reserves $10,776 $ 6,596 $ 5,938 $11,434[a]
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]
[a] Includes $5,143, $5,038 and $5,226 in current liabilities at December 31,
1997, December 31, 1996 and December 31, 1995, 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, 1997, 1996 AND 1995
(in thousands)
Initial Cost to Company
Description Encumbrances Land
- ----------- ------------ ----
Duval County
Office Buildings (8) -0- $ 604
Office/Showroom/Warehouses (10) -0- 1,502
Office/Warehouses (2) -0- 0
Front Load Warehouse -0- 0
Rail Warehouses -0- 0
Land w/Infrastructure -0- 6,593
Unimproved Land & Misc. Assets -0- 659
St. Johns County
Unimproved Land -0- 2,631
Flagler County
Unimproved Land -0- 3,218
Volusia County
Unimproved Land -0- 3,098
Brevard County
Office/Showroom/Warehouse (1) -0- 0
Land w/Infrastructure -0- 3,633
Unimproved Land -0- 3,874
Indian River County
Unimproved Land -0- 1
St. Lucie County
Unimproved Land -0- 639
Martin County
Land w/Infrastructure -0- 1,734
Unimproved Land -0- 2,535
Putnam County
Unimproved Land -0- 2
Palm Beach County
Office/Showroom/Warehouse (1) -0- 113
Rail Warehouses (2) -0- 449
Cross Docks (2) -0- 117
Land w/Infrastructure -0- 1,581
Unimproved Land -0- 847
Broward County
Rail Warehouse (1) -0- 85
Land w/Infrastructure -0- 999
Unimproved Land -0- 1,186
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 (8) -0- 1,462
Front Load Warehouses (8) -0- 1,943
Office/Service Center (1) -0- 285
Transit Warehouse (1) -0- 6
Land w/Infrastructure -0- 14,576
Unimproved Land & Misc. Assets -0- 3,757
Orange County
Land w/Infrastructure -0-
-------
TOTALS $60,859
Initial Cost to Company
Costs
Capitalized
Subsequent to
Description Acquisition
- ----------- -------------
Duval County
Office Buildings (8) $ 64,599
Office/Showroom/Warehouses (10) 32,712
Office/Warehouses (2) 11,708
Front Load Warehouse 2,690
Rail Warehouses 2,827
Land w/Infrastructure 11,807
Unimproved Land & Misc. Assets 397
St. Johns County
Unimproved Land 408
Flagler County
Unimproved Land 1,184
Volusia County
Unimproved Land 529
Brevard County
Office/Showroom/Warehouse (1) 0
Land w/Infrastructure 106
Unimproved Land 3
Indian River County
Unimproved Land
St. Lucie County
Unimproved Land 4
Martin County
Land w/Infrastructure 2,416
Unimproved Land 237
Putnam County
Unimproved Land 0
Palm Beach County
Office/Showroom/Warehouse (1) 2,984
Rail Warehouses (2) 4,253
Cross Docks (2) 3,787
Land w/Infrastructure 0
Unimproved Land 28
Broward County
Rail Warehouse (1) 1,708
Land w/Infrastructure 122
Unimproved Land 111
Manatee County
Unimproved Land 87
Dade County
Cross Dock (1) 1,018
Double Front Load Warehouse (1) 6,275
Rail Warehouses (6) 28,251
Office/Showroom/Warehouses (5) 18,475
Office/Warehouses (8) 32,421
Front Load Warehouses (8) 28,633
Office/Service Center (1) 2,705
Transit Warehouse (1) 283
Land w/Infrastructure 32,812
Unimproved Land & Misc. Assets 294
Orange County
Land w/Infrastructure 8,799
--------
TOTALS $304,673
Carried at Close of Period
Land & Bldgs. &
Description Land Improv. Improv. Total
- ----------- ------------ -------- -----
Duval County
Office Buildings (8) $ 11,375 $ 53,828 $ 65,203
Office/Showroom/Warehouses (10) 6,627 27,587 34,214
Office/Warehouses (2) 3,834 7,874 11,708
Front Load Warehouse 598 2,092 2,690
Rail Warehouses 632 2,195 2,827
Land w/Infrastructure 18,400 0 18,400
Unimproved Land & Misc. Assets 725 331 1,056
St. Johns County
Unimproved Land 3,039 0 3,039
Flagler County
Unimproved Land 4,402 0 4,402
Volusia County
Unimproved Land 3,627 0 3,627
Brevard County
Office/Showroom/Warehouse (1) 0 0 0
Land w/Infrastructure 3,739 0 3,739
Unimproved Land 3,877 0 3,877
Indian River County
Unimproved Land 1 0 1
St. Lucie County
Unimproved Land 643 0 643
Martin County
Land w/Infrastructure 4,150 0 4,150
Unimproved Land 2,772 0 2,772
Putnam County
Unimproved Land 2 0 2
Palm Beach County
Office/Showroom/Warehouse (1) 599 2,498 3,097
Rail Warehouses (2) 557 4,145 4,702
Cross Docks (2) 1,262 2,642 3,904
Land w/Infrastructure 1,581 0 1,581
Unimproved Land 875 0 875
Broward County
Rail Warehouse (1) 405 1,388 1,793
Land w/Infrastructure 1,121 0 1,121
Unimproved Land 1,297 0 1,297
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 20,940 29,059
Office/Showroom/Warehouses (5) 5,766 13,712 19,478
Office/Warehouses (8) 9,155 24,728 33,883
Front Load Warehouses (8) 9,783 20,793 30,576
Office/Service Center (1) 873 2,117 2,990
Transit Warehouse (1) 3 286 289
Land w/Infrastructure 46,536 852 47,388
Unimproved Land & Misc. Assets 4,011 40 4,051
Orange County
Land w/Infrastructure 8,799 0 8,799
-------- -------- ---------
TOTALS $171,408 $194,124 $365,532
Depreciable Life
Date Used in Calculation
Accumulated Capitalized or in Latest Income
Description Depreciation Acquired Statement
- ----------- ------------ ---------- ---------------
Duval County
Office Buildings (8) $ 8,030 1985 3 to 40 years
Office/Showroom/Warehouses (10) 5,695 1987 3 to 40 years
Office/Warehouses (2) 990 1994 3 to 40 years
Front Load Warehouse 19
Rail Warehouses 22
Land w/Infrastructure 716
Unimproved Land & Misc. Assets 194
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) 0 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 190 Various
Unimproved Land 0 Various
Putnam County
Unimproved Land 0
Palm Beach County
Office/Showroom/Warehouse (1) 977
Rail Warehouses (2) 1,371
Cross Docks (2) 1,179
Land w/Infrastructure 0
Unimproved Land 0
Broward County
Rail Warehouse (1) 686 1986 3 to 40 years
Land w/Infrastructure 0
Unimproved Land 0
Manatee County
Unimproved Land 0
Dade County
Cross Dock (1) 289 1987 3 to 40 years
Double Front Load Warehouse (1) 1,211 1993 3 to 40 years
Rail Warehouses (6) 4,517 1988 3 to 40 years
Office/Showroom/Warehouses (5) 4,149 1988 3 to 40 years
Office/Warehouses (8) 3,692 1990 3 to 40 years
Front Load Warehouses (8) 4,242 1991 3 to 40 years
Office/Service Center (1) 327 1994 3 to 40 years
Transit Warehouse (1) 63 Various 3 to 40 years
Land w/Infrastructure 1,002 Various 3 to 40 years
Unimproved Land & Misc. Assets 130 Various 3 to 40 years
Orange County
Land w/Infrastructure 0 1995
-------
TOTALS $39,691
Notes:
(A) The aggregate cost of real estate owned at December 31, 1997 for
federal income tax purposes is approximately $258,360,000.
(B) Reconciliation of real estate owned (in thousands of dollars):
1997 1996 1995
---- ---- ----
Balance at Beginning of Year $333,830 $266,673 $241,674
Amounts Capitalized 45,806 67,589 25,523
Amounts Retired or Adjusted (14,104) (432) (524)
-------------------------------
Balance at Close of Period $365,532 $333,830 $266,673
(C) Reconciliation of accumulated depreciation (in thousands of dollars):
1997 1996 1995
---- ---- ----
Balance at Beginning of Year $ 33,507 $ 25,922 $ 20,274
Depreciation Expense 8,731 7,653 5,648
Amounts Retired or Adjusted (2,547) (68) 0
--------------------------------
Balance at Close of Period $ 39,691 $33,507 $ 25,922
<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,
1997, hereby constitutes and appoints Carl F. Zellers, Jr. 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 1997 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 Carl F. Zellers, Jr. Chairman, s/s T.N. Smith, Vice President,
President, Chief Executive Secretary and Treasurer
Officer and Director
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 W.L. Thornton, Director
Dated: March 27, 1998
