<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended March 31, 1998
Commission File Number 2-89530
FLORIDA EAST COAST INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-2349968
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Malaga Street, St. Augustine, FL 32085-1048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (904) 829-3421
1650 Prudential Drive, Jacksonville, FL 32207
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ____X____ No _________
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at March 31, 1998
Common Stock, $6.25 par value 9,071,590 shares
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FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
March 31 December 31
1998 1997
(Unaudited)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 41,355 $ 30,845
Short-term investments 1,507 258
Accounts receivable, net 27,589 31,045
Materials and supplies 11,377 11,789
Other 7,918 7,987
-------- --------
Total current assets 89,746 81,924
Other investments 70,249 72,041
Properties, less accumulated depreciation and
amortization 672,020 663,672
Other assets and deferred charges 9,529 7,853
-------- --------
$841,544 $825,490
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,810 $ 20,580
Income taxes 8,603 4,630
Accrued property taxes 3,583 1,008
Accrued casualty and other reserves 5,230 5,143
Other accrued liabilities 2,366 3,005
-------- --------
Total current liabilities 41,592 34,366
Deferred income taxes 134,591 133,884
Reserves and other long-term liabilities 8,383 8,365
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 2,856
Retained earnings 601,513 594,132
Accumulated other comprehensive income 4,018 3,296
Less:
Treasury stock at cost (199,771 shares) (9,355) (9,355)
-------- --------
Total shareholders' equity 656,978 648,875
-------- --------
$841,544 $825,490
======== ========
(See accompanying notes)
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Dollars in thousands except per share amounts)
(Unaudited)
QUARTER ENDED MARCH 31
1998 1997
---- ----
OPERATING REVENUES:
Transportation $ 46,808 $ 44,403
Realty - Land Sales 269 5,892
- Rents & Other 9,680 9,143
-------- ---------
Total revenues 56,757 59,438
OPERATING EXPENSES:
Transportation 33,018 31,033
Realty 6,609 5,569
Realty Sales 71 6,413
General and Administrative 6,805 5,331
-------- ---------
Total expenses 46,503 48,346
Operating profit 10,254 11,092
OTHER INCOME (EXPENSE):
Dividends 131 95
Interest income 1,336 1,305
Interest expense (86) (91)
Gains on sales and other disposition of properties 191 95
Other (net) 1,445 889
-------- --------
Total other income 3,017 2,293
Income before income taxes 13,271 13,385
INCOME TAXES:
Current 4,727 5,425
Deferred 257 (405)
-------- --------
Total income taxes 4,984 5,020
-------- --------
Net income $ 8,287 $ 8,365
Retained earnings:
Balance at beginning of year 594,132 557,621
Cash dividends (906) (905)
-------- --------
Balance at end of period $601,513 $565,081
======== ========
Per Share Data:
Cash dividends $ 0.10 $ 0.10
======== ========
Earnings per common share $ 0.91 $ 0.92
======== ========
(See accompanying notes)
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
QUARTER ENDED MARCH 31
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 8,287 $ 8,365
Adjustments to reconcile net income to cash generated:
Depreciation and amortization 6,539 5,974
Gain on disposition of assets (191) (95)
Realized gains on investments (1,286) (544)
Deferred taxes 257 (405)
Changes in operating assets and liabilities:
Accounts receivable 3,456 3,388
Other current assets 481 569
Other assets and deferred charges (1,676) (1,592)
Accounts payable 1,230 (1,053)
Income taxes payable 3,973 5,421
Estimated property taxes 2,575 2,592
Other current liabilities (552) (1,216)
Reserves and other long-term liabilities 18 (8)
-------- --------
Net cash generated by operating activities 23,111 21,396
Cash flows from investing activities:
Purchases of properties (15,022) (16,366)
Purchases of investments:
Available-for-sale (6,295) (5,128)
Held-to-maturity 0 (5,983)
Maturities and redemption of investments:
Available-for-sale 9,295 6,253
Held-to-maturity 0 1,980
Proceeds from disposition of assets 327 1,432
-------- --------
Net cash used in investing activities (11,695) (17,812)
Cash flows from financing activities:
Payment of dividends (906) (905)
-------- --------
Net cash used in financing activities $ (906) $ (905)
Net increase in cash and cash equivalents 10,510 2,679
Cash and cash equivalents at beginning of quarter 30,845 23,602
-------- --------
Cash and cash equivalents at end of quarter $ 41,355 $ 26,281
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the quarter for income taxes $ 11 $ 134
======== ========
Cash paid during the quarter for interest $ 86 $ 91
======== ========
(See accompanying notes)
FLORIDA EAST COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
normal recurring accruals) considered necessary to present fairly the
financial position as of March 31, 1998 and December 31, 1997, and the
results of operations and cash flows for the three-month periods ended
March 31, 1998 and March 31, 1997.
2. The results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected
for the full year.
3. The Company has retained certain self-insurance risks with respect to
losses for third-party liability, property damage and group health
insurance coverage provided employees. The Company is the defendant
and plaintiff in various lawsuits resulting from its operations. In the
opinion of management, adequate provision has been made in the financial
statements for the estimated liability which may result from disposition
of such lawsuits.
The Company is subject to proceedings arising out of environmental laws
and regulations, which primarily relate to the disposal and use of fuel
and oil in the transportation business. It is the Company's policy
to accrue and charge against earnings environmental cleanup costs when
it is probable that a liability has been incurred and an amount can be
reasonably estimated.
The Company is currently a party to, or involved in legal proceedings
directed at the cleanup of four Superfund sites. The Company has accrued
its allocated share of the total estimated cleanup costs for these four
sites. Based upon management's evaluation of the other potentially
responsible parties, the Company does not expect to incur additional
amounts even though the Company has joint and several liability. Other
proceedings involving environmental matters, such as alleged discharge of
oil or waste material into water or soil, are pending against the
Company.
It is difficult to quantify future environmental costs because of many
issues relating to actions by third parties or changes in
environmental regulation. However, based on information presently
available, management believes that the ultimate disposition of
currently known matters will not have a material effect on the financial
position or liquidity of the Company in any one period. Environmental
liabilities of $2.0 million for both March 31, 1998 and December 31,
1997, respectively, will be paid over an extended period, and the timing
of such payments cannot be predicted with any confidence.
Gran Central Corporation, a wholly-owned subsidiary of the Company,
entered into an agreement with the State of Florida Department of
Transportation to furnish all land necessary for the construction of the
N.W. 106th Street Interchange on the Homestead Extension of the Florida
Turnpike and to subsidize the Department for 15 years to cover
any annual operating deficit related to the interchange which is not
covered by toll revenues. The maximum assessment amount over the 15
years would be approximately $9.3 million with no annual assessment to
exceed $1.1 million. No assessments have been made to date.
4. The revenue recognition policies are:
Transportation Revenues: Revenues are substantially recognized upon
completion of transportation services at destination.
Realty Land Sales: Revenue is recognized upon closing of sales contracts
for sale of land or upon settlement of legal proceedings such as
condemnations.
Rental Income: Revenue is recognized upon completion of rental and lease
contracts. The Company uses the straight-line basis for recording the
revenues over the life of the lease contract.
5. Because a large percentage of the Company's properties are long-lived,
asset replacement will be at a higher cost and will take place over many
years. The acquisition of new assets will result in higher depreciation
charges and, in the case of realty, higher taxes and operating costs.
Generally accepted accounting principles require the use of historical
costs in preparing financial statements. This approach disregards the
effect of inflation on the replacement cost of property and equipment.
The Company is a capital-intensive company and has approximately $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 reported on the
basis of historical costs.
6. The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", effective January
1, 1998. This Statement establishes standards for reporting and display
of comprehensive income and its components. Comprehensive income for the
three months ended March 31, 1998 and 1997 was $9,009 and $7,906,
respectively. This amount differs from net income due to changes in the
net unrealized holding gains generated from available-for-sale securities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Florida East Coast Industries, Inc.'s (FECI) operating revenues for the quarter
ended March 31, 1998 reflected a decrease of approximately $2.7 million when
compared to the quarter ended March 31, 1997. Operating costs in the first
quarter 1998 decreased approximately $1.8 million when compared to the first
quarter 1997. As a result, operating profits decreased by approximately $.8
million when comparing first quarter 1998 with first quarter 1997.
The decrease of approximately $2.7 million in operating revenues was primarily
attributable to the decrease in realty revenues related to realty sales of
approximately $5.6 million offset by increases in transportation revenues,
realty rents and other revenues of approximately $2.4 million and $.5 million,
respectively.
The decrease of $1.8 million in operating costs was primarily attributed to a
decrease in realty segment's realty sales of approximately $6.3 million offset
by increases in transportation costs of approximately $2.0 million; realty
operating costs of approximately $1.0 million, and general and administrative
costs of approximately $1.5 million.
ANALYSIS
Revenues - Transportation revenues increased approximately $2.4 million or 5.4%
when comparing first quarter 1998 with first quarter 1997. The number of
shipments handled by the rail segment increased by approximately 3,425
shipments or 3.1% in the first three months of 1998 compared to same period
1997. This increase of 3.1% was comprised of increases in rock shipments of
4.6%; automotive shipments of 20.3%, and intermodal shipments of 3.3% offset
by a decline in all other carload shipments of 10.6%.
Realty revenues declined by approximately $5.1 million in the first three months
of 1998 versus 1997. This was primarily attributed to the decline in realty
sales revenues of $5.6 million. Sales of realty properties in the first quarter
of 1997 were principally comprised of a single disposition of approximately
$4.8 million. Realty income, other than realty sales, increased approximately
$.5 million.
Operating Costs - Operating costs increased $1.8 million in the first quarter
1998 versus same period 1997. This increase was comprised of a decrease in
realty sales of approximately $6.3 million offset by increases in transportation
costs of approximately $2.0 million; realty operating costs of approximately
$1.0 million, and general and administrative costs of $1.5 million. The decrease
in realty sales of approximately $6.3 million is primarily attributable to the
single disposition of property in the first quarter 1997 of approximately $6.0
million.
Transportation costs increased approximately $2.0 million. This increase was
comprised of increases of approximately $.6 million in fringe benefits primarily
related to health insurance accruals; $.7 million in casualty and insurance;
$.3 million in property taxes, and $.4 million in other transportation costs.
Realty operating costs increased approximately $1.0 million. This increase was
comprised of approximately $.4 million in property management expenses; $.5
million in depreciation expense, and $.1 million in other realty operating
costs.
General and administrative costs increased approximately $1.5 million. This
increase was comprised of $.4 million in fringe benefits primarily related to
health insurance accruals; $.5 million for computer-related services; $.3
million for casualty and insurance, and $.3 million for other administrative
expenses.
Other Income - Other income increased approximately $.7 million in first quarter
1998 when compared to same period 1997. This increase is primarily attributable
to $.6 million related to the capital gains from sales of securities in the
Company's investment portfolio, and a net of $.1 million in other income less
interest expense.
Net Income - Net income remained approximately the same for the first three
months of 1998 when compared to the first three months of 1997.
Recent Events - On April 15, 1998, the Board of Directors of Florida East Coast
Industries, Inc. determined that it would be in the best interest of the
Company and its shareholders to seek approval at its Annual Meeting to be held
on May 20, 1998, of a 4-for-1 stock split to holders of record on the record
date of June 1, 1998, and to increase the authorized number of shares of the
Company's Common Stock from 9,360,000 shares to 50,000,000 shares to facilitate
the split and provide shares for other corporate purposes.
Registrant has no foreign operations.
LIQUIDITY AND CAPITAL RESOURCES
FECI's principal sources of liquidity include cash generated by operations;
earnings on invested cash; and earnings on its investment portfolio,
consisting largely of U.S. Treasury securities with maturities less than
twelve months.
Current cash generations are used for capital expenditures in the
transportation and realty sectors and for payment of dividends. The
investment portfolio is informally dedicated to major real estate development.
Cash and short-term investments increased $11.8 million to $42.9 million at
March 31, 1998 from $31.1 million at year-end. The investment portfolio
decreased $1.8 million to $70.2 million at March 31, 1998 from $72.0
million at year-end 1997. The Company's working capital position changed
from a ratio of 2.4 to 1.00 at year-end 1997 to a ratio of 2.2 to 1.00 at
March 31, 1998.
There was no significant change in debt, reserves, or other liabilities
during the three-month period and capital projects at March 31, 1998
amounted to approximately $47.2 million authorized and outstanding from
$34.0 million authorized and outstanding at December 31, 1997. Of the $47.2
million of capital projects, approximately 59% represents development
projects.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no other legal or regulatory proceedings pending or known to be
contemplated which, in the opinion of the General Attorney of the Registrant,
are other than normal and incidental to the kinds of businesses conducted by
the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLORIDA EAST COAST INDUSTRIES, INC.
(Registrant)
Date: May 13, 1998 /s/ T. N. Smith
_____________________________________
Vice President, Secretary & Treasurer
Date: May 13, 1998 /s/ J.R. Yastrzemski
_________________________________
Comptroller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 DEC-31-1997
<CASH> 41,355 30,845
<SECURITIES> 1,507 258
<RECEIVABLES> 27,589 31,045
<ALLOWANCES> 0 0
<INVENTORY> 11,377 11,789
<CURRENT-ASSETS> 89,746 81,924
<PP&E> 930,017 916,593
<DEPRECIATION> (258,997) (252,921)
<TOTAL-ASSETS> 841,544 825,490
<CURRENT-LIABILITIES> 42,334 34,366
<BONDS> 0 0
<COMMON> 57,946 57,946
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 841,544 825,490
<SALES> 56,757 250,520
<TOTAL-REVENUES> 59,774 261,155
<CGS> 0 0
<TOTAL-COSTS> 46,503 198,198
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 13,271 62,957
<INCOME-TAX> 4,984 22,822
<INCOME-CONTINUING> 8,287 40,135
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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<NET-INCOME> 8,287 40,135
<EPS-PRIMARY> 0.91 4.43
<EPS-DILUTED> .0 .0
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