<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to _____________
Commission File Number 2-89530
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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, FLORIDA 32084
----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (904) 829-3421
--------------
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 JUNE 30, 2000
----- ----------------------------
Common Stock-no par value 36,449,060 shares
Collateral Trust 5% Bonds $11,724,050
<PAGE> 2
FLORIDA EAST COAST INDUSTRIES, INC.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX PAGE NUMBERS
----- ------------
Consolidated Condensed Balance Sheets -
June 30, 2000, and December 31, 1999 2
Consolidated Condensed Statements of Income -
Three Months and Six Months Ending
June 30, 2000, and 1999 3
Consolidated Statements of Cash Flows -
Six Months Ending June 30, 2000, and 1999 4
Notes to Consolidated Condensed Financial Statements 5-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Second Quarter 2000 versus Second Quarter 1999
and Six Months 2000 versus Six Months 1999 11-15
Changes in Financial Condition, Liquidity and Capital Resources 16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16-17
ITEM 5. OTHER INFORMATION 17-20
<PAGE> 3
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
------- -----------
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 12,461 15,715
Short-term investments 56,250 46,433
Accounts receivable (net) 26,922 25,130
Materials and supplies 4,652 5,565
Other current assets 6,239 6,408
------- -------
Total current assets 106,524 99,251
OTHER INVESTMENTS -- 40,404
PROPERTIES, LESS ACCUMULATED DEPRECIATION AND AMORTIZATION 820,906 742,177
OTHER ASSETS AND DEFERRED CHARGES 31,591 29,046
------- -------
TOTAL ASSETS 959,021 910,878
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 51,496 31,880
Income taxes 5,379 2,409
Accrued casualty and other liabilities 2,019 2,533
Other accrued liabilities 11,450 4,547
------- -------
Total current liabilities 70,344 41,369
DEFERRED INCOME TAXES 134,031 133,444
ACCRUED CASUALTY AND OTHER LONG-TERM LIABILITIES 12,672 11,624
SHAREHOLDERS' EQUITY:
Common stock, no par value; 50,000,000 shares authorized; 37,248,144 shares
issued and 36,449,060 shares outstanding
at June 30, 2000, and 37,194,244 shares issued
and 36,395,160 outstanding at December 31, 1999, respectively 65,586 64,049
Retained earnings 687,323 671,269
Accumulated other comprehensive income-unrealized gain (loss) on securities (net) -- 317
Restricted stock deferred compensation (1,580) (1,839)
Treasury stock at cost (799,084 shares) (9,355) (9,355)
------- -------
Total shareholders' equity 741,974 724,441
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 959,021 910,878
======= =======
</TABLE>
(See accompanying notes)
2
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FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(dollars in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
---------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues 65,299 61,715 130,458 172,080
Operating expenses (54,497) (50,106) (107,413) (135,632)
Special charges -- (7,487) -- (7,487)
---------------------------- ----------------------------
Operating profit 10,802 4,122 23,045 28,961
Other income 498 2,036 4,503 3,992
Special charges to other income -- (762) -- (762)
---------------------------- ----------------------------
Other income (net) 498 1,274 4,503 3,230
Income before income taxes 11,300 5,396 27,548 32,191
Provision for income taxes (4,267) (1,837) (9,673) (11,875)
---------------------------- ----------------------------
Net income 7,033 3,559 17,875 20,316
============================ ============================
Earnings per share-basic & diluted $0.19 $0.10 $0.49 $0.56
Average shares outstanding, basic 36,357,525 36,286,360 36,352,689 36,286,360
Average shares outstanding, diluted 36,779,168 36,468,483 36,752,291 36,416,117
</TABLE>
(See accompanying notes)
3
<PAGE> 5
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 17,875 20,316
Adjustments to reconcile net income to cash
generated by operating activities:
Depreciation and amortization 17,214 14,263
Loss (gain) on sales and other disposition of properties (1,217) (10,471)
Purchase of trading investments (net) (9,817) (11,709)
Realized (gain) loss on investments (439) (949)
Deferred taxes 709 4,055
Stock compensation plans 259 180
Changes in operating assets and liabilities:
Accounts receivable (1,792) 2,227
Other current assets 1,082 3,068
Other assets and deferred charges (2,779) 3,019
Accounts payable 19,616 (1,673)
Income taxes payable 2,970 (5,635)
Other current liabilities 6,903 9,263
Accrued casualty and other long-term liabilities 534 408
------- -------
Net cash generated by operating activities 51,118 26,362
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of properties (96,408) (52,407)
Purchases of investments:
Available-for-sale -- (33,977)
Maturities and redemption of investments:
Available-for-sale 40,404 57,061
Proceeds from disposition of assets 1,916 47,510
------- -------
Net cash used in/provided by investing activities (54,088) 18,187
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 1,537 --
Payment of dividends (1,821) (1,819)
------- -------
Net cash used in financing activities (284) (1,819)
NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (3,254) 42,730
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 15,715 14,450
------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR 12,461 57,180
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes 5,918 13,585
======= =======
Cash paid for interest 284 140
======= =======
</TABLE>
(See accompanying notes)
4
<PAGE> 6
FLORIDA EAST COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. General
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements reflect all accruals and adjustments considered necessary
to present fairly the financial position as of June 30, 2000, and the results of
operations and cash flows for the six-month periods ended June 30, 2000, and
June 30, 1999. Results for interim periods may not necessarily be indicative of
the results to be expected for the year. These interim financial statements
should be read in conjunction with the Company's 1999 Annual Report on Form 10-K
for the year ended December 31, 1999, filed with the Securities and Exchange
Commission.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
On October 27, 1999, the St. Joe Company (St. Joe) and Florida East Coast
Industries, Inc. (the Company or FECI) announced they have agreed to undertake a
recapitalization of the Company to facilitate a pro rata tax-free spin-off to
St. Joe's shareholders of St. Joe's 54 percent equity interest in the Company.
The recapitalization, exchange and spin-off are subject to a number of
conditions, including the receipt of an Internal Revenue Service ruling
concerning the tax-free status of the proposed spin-off. On March 8, 2000, FECI
shareholders, including a majority of the shares not held by St. Joe or its
affiliates, approved the recapitalization pursuant to a Plan of Merger and
amendments to FECI's Articles of Incorporation.
Note 2. Special Charges
In the second quarter 1999, the Company incurred special charges of
approximately $8.2 million related to a work force reduction, including
curtailment of a supplemental executive retirement plan first adopted in late
1998, and inventory reductions arising from a modification to the Company's
inventory management practices.
Note 3. Accrued Casualty and Other Long-Term Liabilities
The Company maintains comprehensive liability insurance for bodily injury and
property claims for risks with respect to losses for third-party liability and
property damage, but maintains a significant self-insured retention for these
exposures. The Company is a 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 matters.
The Company is subject to proceedings arising out of historic disposal of fuel
and oil used in the railway business. It is the Company's policy to accrue
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.
Florida East Coast Railway (FECR), the Company's rail subsidiary, is presently
involved in proceedings initiated by the United States Environmental Protection
Agency (USEPA) for the
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remediation of three sites, in which USEPA has named FECR a potentially
responsible party (PRP). On the first site, the USEPA has alleged that FECR
caused certain materials, including waste oil, to be disposed of at the site
over a period of years. The USEPA has offered all named PRPs an opportunity to
participate in its new pilot allocation program. This program is similar to
binding arbitration. Since FECR is participating in this program, its share of
the liability for the remediation will be fixed. Based on the allocator's
decisions to date, FECR believes that its liability for the remediation of the
site will not be material.
On the second site, FECR was contacted by the USEPA during 1996 seeking
reimbursement of costs associated with the remediation of a site in Hialeah,
Florida, part of which includes an FECR right-of-way. An individual operated a
business on this site for a number of years. The building slightly encroached
upon FECR's right-of-way. Upon discovering the encroachment, FECR 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 from FECR on the grounds that FECR was an "owner" of the site.
FECR had no involvement in the contamination, but has been named as a PRP solely
as a result of its ownership of the encroached property. The ultimate cost, if
any, is not expected to be material.
On the third site, active settlement negotiations are underway between the PRP
group and USEPA. FECR expects its contributions to be minimal.
The Company has accrued its estimated share of the total estimated cleanup costs
for these sites. Based upon management's evaluation of the other PRPs, the
Company does not expect to incur additional amounts, even though the Company may
have joint and several liability.
FECR is investigating sites where contaminants from historic railroad operations
may have migrated off-site through the movement of groundwater or contaminated
soil. FECR, if required as a result of the investigation, will develop an
appropriate plan of remediation, with possible alternatives including natural
attenuation and groundwater pumping and treatment. Historic railroad operations
at the Company's main rail facilities have resulted in soil and groundwater
impacts. In consultation with the Florida Department of Environmental Protection
(FDEP), the Company operates and maintains groundwater treatment systems at its
primary facilities.
During the installation of conduits on a site recently acquired by the Company's
telecommunications subsidiary, EPIK Communications Incorporated (EPIK), EPIK
discovered a number of underground storage tanks from a prior land use. It has
removed all the tanks. Field investigation indicates some contamination of soil
and groundwater. EPIK is vigorously pursuing relief against PRPs, including a
large petroleum and gasoline service company. Based on the information currently
available, the Company does not believe the costs of remediation, even if borne
by the Company, will be material.
It is difficult to quantify future environmental costs as many issues relate to
actions by third parties or changes in environmental regulations. 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.
Flagler Development Company (Flagler) (formerly 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
6
<PAGE> 8
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
assessment or related accruals to this agreement have been necessary to date.
Note 4. Comprehensive Income
Comprehensive income for the three months ended June 30, 2000, and 1999, was
$7.2 and $2.9 million, respectively. Comprehensive income for the six months
ended June 30, 2000, and 1999, was $17.6 and $19.1 million, respectively. These
amounts differ from net income due to changes in the net unrealized holding
gains/losses generated from available-for-sale securities.
Note 5. Earnings Per Share
The weighted-average number of shares of common stock was used in the
calculations for earnings per share. The diluted weighted-average number of
shares includes the net shares that would be issued upon the exercise of stock
options and restricted shares (using the treasury stock method).
Note 6. Dividends
On May 16, 2000, the Company declared a dividend of $.025 (2 1/2 cents) per
share on its outstanding common stock, payable June 14, 2000, to shareholders of
record June 3, 2000.
Note 7. Other Income
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
(dollars in thousands) 6/30/00 6/30/99 6/30/00 6/30/99
------- ------- ------- -------
Dividend Income 135 8 2,567 12
Interest Income 709 1,026 2,034 2,336
Interest Expense (146) (51) (284) (140)
Gain (Loss) on Investments -- 584 (164) 949
Other (net) (200) (293) 350 73
------- ------- ------- -------
498 1,274 4,503 3,230
======= ======= ======= =======
Other (net) for the three months ended June 30, 2000, included a $0.8 million
settlement of prior years' state taxes (non-income related).
Note 8. Credit Revolver
The Company has a $200 million revolving agreement with a syndicate of financial
institutions. The Company's revolving credit agreement contains various
covenants which, among other things, requires the maintenance of certain
financial ratios related to fixed charge coverage and maximum leverage,
establishes minimum levels of net worth, establishes limitations on
indebtedness, certain types of payments, including dividends, liens and
investments, and limits the use of proceeds of asset sales. The above covenants
provide specific exclusion of EPIK's financial results and also provide for
exclusion of certain financing and investing activities at Flagler.
No amounts were outstanding on the credit revolver as of June 30, 2000.
7
<PAGE> 9
Note 9. Segment Information
Under the provisions of SFAS 131, the Company has four reportable operating
segments. These are railway, realty, telecommunications and trucking segments.
The railway segment provides rail freight transportation along the East Coast of
Florida between Jacksonville and Miami. The realty segment is engaged in the
development, leasing, management, operation and selected sale of its commercial
and industrial property. EPIK, based in Orlando, Florida, is a provider of
wholesale telecommunications private line services (bandwidth) and dark fiber.
The trucking segment provides truckload transportation for a wide range of
general commodities throughout the Midwest and southeastern United States.
The Company's railway segment generates revenues from leases to other
telecommunications companies for the installation of fiber optic and other
facilities on the railroad right-of-way, which are included in the
telecommunications segment.
The Company evaluates the railway and trucking segments' performance based on
operating profit or loss from operations before other income and income taxes.
Operating profit is operating revenue less directly traceable costs and
expenses. The Company evaluates the realty segment based on operating profit and
EBITDA. The Company evaluates the telecommunications segment's performance,
specifically EPIK's, based on EBITDA and more broadly (i.e., the segment
inclusive of passive fiber leases) by operating profit or loss from operations
before other income and income taxes. EPIK's operations are currently start-up
in nature and as such, are expected to generate losses during this timeframe.
EBITDA is defined as earnings before interest expense, income taxes,
depreciation and amortization. EBITDA, as a measure of operating cash flow, is
considered a key financial performance indicator.
Intersegment revenues for transactions between the railway and trucking segments
are based on quoted rates, which are believed to approximate the cost that would
have been incurred had similar services been obtained from an unrelated third
party.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately as each business
requires different technology and marketing strategies.
8
<PAGE> 10
INFORMATION BY INDUSTRY SEGMENT:
(dollars in thousands)
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
6/30/00 6/30/99 6/30/00 6/30/99
------- ------- ------- -------
OPERATING REVENUES
------------------
Railway (a) 41,794 42,088 83,610 81,827
Trucking 7,935 7,418 15,488 14,557
Realty:
Flagler Realty Rental (b) 13,567 11,412 25,940 24,091
Flagler Realty Sales 112 -- 1,460 50,405
Other Rental 780 757 1,500 1,433
Other Sales 415 -- 422 --
--------------------------------------------
Total Realty 14,874 12,169 29,322 75,929
Telecommunications:
EPIK Communications 383 -- 629 --
Fiber Leases 1,579 1,182 3,850 2,206
--------------------------------------------
Total Telecommunications 1,962 1,182 4,479 2,206
--------------------------------------------
Total Revenues (segment) 66,565 62,857 132,899 174,519
Intersegment Revenues (1,266) (1,142) (2,441) (2,439)
--------------------------------------------
Total Revenues (consolidated) 65,299 61,715 130,458 172,080
OPERATING EXPENSES
------------------
Railway (c) 31,618 38,367 62,920 69,030
Trucking (d) 8,184 7,196 15,812 14,433
Realty:
Flagler Realty Rental 11,293 8,746 22,190 17,550
Flagler Realty Sales 68 11 483 39,090
Other Rental 109 100 219 199
Other Sales -- -- -- --
--------------------------------------------
Total Realty 11,470 8,857 22,892 56,839
Telecommunications:
EPIK Communications 3,190 589 5,223 589
Fiber Leases 74 63 142 125
--------------------------------------------
Total Telecommunications 3,264 652 5,365 714
Corporate General &
Administrative (e) 1,227 3,663 2,865 4,542
--------------------------------------------
Total Expenses (segment) 55,763 58,735 109,854 145,558
Intersegment Expenses (1,266) (1,142) (2,441) (2,439)
--------------------------------------------
Total Expenses (consolidated) 54,497 57,593 107,413 143,119
9
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THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
6/30/00 6/30/99 6/30/00 6/30/99
------- ------- ------- -------
OPERATING PROFIT (LOSS)
-----------------------
Railway 10,176 3,721 20,690 12,797
Trucking (249) 222 (324) 124
Realty 3,404 3,312 6,430 19,090
Telecommunications (1,302) 530 (886) 1,492
Corporate General &
Administrative (1,227) (3,663) (2,865) (4,542)
--------------------------------------------
Segment & Consolidated
Operating Profit 10,802 4,122 23,045 28,961
Other Income (net) 498 1,274 4,503 3,230
--------------------------------------------
Income before Taxes 11,300 5,396 27,548 32,191
Provision for income taxes (4,267) (1,837) (9,673) (11,875)
--------------------------------------------
Net Income 7,033 3,559 17,875 20,316
============================================
EBITDA
------
EBITDA from Flagler
operating properties rents 9,040 7,570 17,097 16,382
EBITDA (loss) from Flagler
land rents/holding costs (738) (514) (1,467) (1,190)
Equity pickups on partnership
rents 74 -- 13 --
less: unallocated corporate
overhead (1,310) (932) (2,822) (2,035)
------ ----- ------ -------
EBITDA from Flagler rental
properties, net of overheads 7,066 6,124 12,821 13,157
EBITDA (loss) from Flagler
real estate sales, net of
overheads 44 (11) 977 11,315
------ ----- ------ -------
Total EBITDA - Flagler 7,110 6,113 13,798 24,472
------ ----- ------ -------
EBITDA from other rental 681 665 1,302 1,251
EBITDA from other real estate
sales 415 -- 422 --
------ ----- ------ -------
Total EBITDA - real estate
segment 8,206 6,778 15,522 25,723
====== ===== ====== =======
(a) Included intersegment revenues of $1,231 and $1,071 for the three months
ended June 30, 2000, and 1999, and $2,372 and $2,228 for the six months
ended June 30, 2000, and 1999, respectively.
(b) Included intersegment revenues of $35 and $71 for the three months ended
June 30, 2000, and 1999, and $69 and $211 for the six months ended June 30,
2000, and 1999, respectively.
(c) Included intersegment expenses of $7 and $52 for the three months ended
June 30, 2000, and 1999, and $22 and $64 for the six months ended June 30,
2000, and 1999, respectively.
(d) Included intersegment expenses of $1,231 and $1,071 for the three months
ended June 30, 2000, and 1999, and $2,372 and $2,228 for the six months
ended June 30, 2000, and 1999, respectively.
(e) Included intersegment expenses of $28 and $19 for the three months ended
June 30, 2000, and 1999, and $47 and $147 for the six months ended June 30,
2000, and 1999, respectively.
10
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Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
This "Management's Discussion and Analysis" contains forward-looking statements
within the meaning of Section 21E of the Securities and Exchange Act of 1934, as
amended. These forward-looking statements represent the Company's present
expectations or beliefs concerning future events. The Company cautions that such
statements are necessarily based on certain assumptions which are subject to
risks and uncertainties, including, but not limited to, changes in general
economic conditions and changing competition which could cause actual results to
differ materially from those indicated. Important factors that could cause such
differences include, but are not limited to, contractual relationships, industry
competition, regulatory developments, natural events, such as weather
conditions, floods and earthquakes, forest fires, the effects of adverse general
economic conditions, changes in the real estate markets and interest rates, fuel
prices, changes in telecommunications technology and the ultimate outcome of
environmental investigations or proceedings and other types of claims and
litigation.
Results of Operations
Consolidated Results
Second Quarter and Six Months
The Company reported net income for the second quarter ended June 30, 2000, of
$7.0 million ($0.19 per share), compared to net income of $3.6 million ($0.10
per share) for the same period in 1999. Exclusive of 1999 special charges
($5.1 million), net income fell $1.7 million. These quarterly results include a
$2.4 million (20.6 percent) increase in FECI's operating profit offset by $3.2
million in "start-up" costs associated with investments in the Company's
subsidiaries, EPIK Communications Incorporated, Flagler Development Company and
International Transit, Inc., ($2.6 million, $0.4 million and $0.2 million,
respectively), that will be catalysts for unlocking future value. Net income for
the six-month period ended June 30, 2000, was $17.9 million ($0.49 per share),
compared to $20.3 million ($0.56 per share) for the same period last year. Prior
year results included the opportunistic sale of two industrial parks in Miami
with an impact to net income of $6.5 million ($0.18 per share), and the
previously mentioned special charges with an impact to net income of $5.1
million ($0.14 per share).
Railway
Second Quarter
Second quarter 2000 revenues from rail operations decreased a modest 0.7 percent
to $41.8 million from $42.1 million in 1999. Overall revenue was influenced by
decreased intermodal traffic (5.2 percent) offset by unit volume growth in
aggregates (2.4 percent to 29.0 thousand units), autos/auto parts (3.4 percent
to 6.1 thousand units), general merchandise rail carloadings (4.0 percent to
10.4 thousand units), and rents from customer use of equipment (25.0 percent).
Non-intermodal growth continues to outpace prior year's quarterly results as the
U.S. and Florida economies remain strong. Intermodal revenues, while down over
prior year, showed
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improvement with the smallest quarterly decline (3.7 thousand units or 5.5
percent) in eight quarters.
TRAFFIC
Three Months ended June 30, 2000
(dollars and units in thousands)
Commodity Units Percentage(%) Amt. of Revenue Percentage(%)
--------- ----- ------------- --------------- -------------
Intermodal
TOFC/COFC 66.5 59.3 15,380 38.3
Rail Carloads
Crushed stone 29.1 26.0 12,789 31.9
Construction materials 1.7 1.5 1,068 2.7
Vehicles 6.1 5.4 4,734 11.8
Foodstuffs 2.0 1.8 1,565 3.9
Chemicals 1.1 1.0 1,187 3.0
Paper 2.3 2.1 2,081 5.2
Other 3.3 2.9 1,313 3.2
----- ----- ------ -----
Total 112.1 100.0 40,117 100.0
===== ===== ====== =====
Excluding special charges of $5.5 million in the second quarter of 1999,
operating expenses decreased $1.3 million (3.9 percent) to $31.6 million.
Railway's operating ratio improved to 75.7 percent for the quarter, compared to
78.1 percent and 78.2 percent in the second quarter of 1999 and 1998,
respectively, excluding special charges from 1999 results. The Railway continues
to reduce expenses across the board as evidenced by reduced labor and benefits
($0.6 million), fleet maintenance ($0.5 million) and insurance costs ($0.2
million). These savings were accomplished despite higher fuel costs of $0.8
million.
Six Months
Six months' revenues from rail operations increased $1.8 million to $83.6
million from $81.8 million in 1999. A strong Florida economy has resulted in
unit volume growth increases in aggregate (4.8 percent), auto/auto parts (7.3
percent), general merchandise rail carloadings (2.0 percent), and rents from
customers' use of equipment (43.0 percent). Intermodal volumes have experienced
a 6.3 percent year-to-date decrease.
Even with a 64 percent year-to-year increase in the cost of fuel, some $2.5
million for the six months, the Railway's operating expenses decreased by $0.6
million or 1.0 percent for the first six months over 1999 (excluding special
charges). The Railway's operating ratio improved to 75.3 percent, compared to
77.7 percent in 1999 (excluding special charges) and 79.5 percent in 1998.
Decreased expenses in labor and benefits ($1.3 million), fleet maintenance ($0.5
million), insurance ($0.4 million), car hire ($0.3 million) and pension expense
($0.3 million) were offset by the increased cost of fuel.
Realty
Second Quarter
Realty rental and sales revenues from both Flagler and railroad realty
operations were $14.9 million for the second quarter 2000, compared to $12.2 for
the same period last year. Increases over prior year were primarily related to
Flagler's rental operations. Rental revenues generated by
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<PAGE> 14
Flagler increased 19 percent from $11.4 million for second quarter 1999 to $13.6
million for second quarter 2000.
At the end of the second quarter, Flagler held 51 finished buildings with 5.3
million square feet with a 91 percent occupancy rate. "Same store" properties,
including 46 buildings with 4.7 million square feet, (all in service prior to
January 1, 1999), were 92 percent occupied at June 30, 2000, compared to 89
percent at June 30, 1999. "Same store" rental revenues increased $0.4 million
during the second quarter 2000 to $10.9 million. Increases were principally due
to occupancy improvements. Four 100 percent operating properties, with 511,000
square feet, were placed in service during second and third quarters of 1999 and
were 82 percent occupied at June 30, 2000. One 101,000-square foot build-to-suit
property was placed in service during May 2000. These new properties generated
$2.5 million in second quarter revenues. Since second quarter 1999, properties,
including 260,000 square feet, were sold and contributed to a decrease in rental
revenue of $0.6 million when comparing second quarter 2000 to 1999.
During second quarter 2000, Flagler commenced construction of two "Class A"
office buildings (Jacksonville and Weston) with a total of 235,000 square feet.
At the conclusion of the second quarter 2000, Flagler had nine buildings with a
total of 1.2 million square feet in various stages of development (310,000
square feet in lease-up period; 333,000 square feet under construction; 586,000
square feet in predevelopment).
Second quarter realty rental and sales operating expenses (after depreciation
and amortization) for both Flagler and railroad realty operations increased from
$8.9 million in second quarter 1999 to $11.5 million in second quarter 2000.
"Same store" expenses (before depreciation and amortization) increased by $0.4
million over 1999. Expenses related to new properties completed in 1999 and 2000
(before depreciation and amortization) were $0.6 million in second quarter 2000
up from $0.1 million in prior year. "Sold store" expenses (before depreciation
and amortization) were $0.2 million in second quarter 1999, with no
corresponding expenses for 2000. Asset management fees/corporate overhead and
depreciation increased by $1.5 million. These costs are determined by the value
of and/or additions to the portfolio, along with transition costs associated
with Flagler's new management team.
Realty operations generated overall EBITDA of $8.2 million for second quarter
2000, compared to $6.8 million in 1999. Individually, Flagler generated EBITDA
of $7.1 million for second quarter 2000, compared to second quarter 1999 EBITDA
of $6.1 million. The increase in EBITDA is primarily attributable to
improvements in rental operations due to continued strong leasing in existing
space and the lease up of new space partially offset by increases in overhead
costs.
Six Months
Realty rental and sales revenues from both Flagler and railroad realty
operations were $29.3 million for the six-month period ended June 30, 2000,
compared to $75.9 million for the same period 1999. Realty revenues included
1999 sales of real estate, including two business parks, of $50.4 million.
During the first six months 2000, realty revenues included sales of undeveloped
land that generated $1.9 million in revenues. Rental revenues increased from
$25.5 million in 1999 to $27.4 million in 2000. Increases in rental revenue of
$4.7 million related to "same store" ($0.9 million increase) and new property
($3.8 million increase) rental activity offset decreases of $2.8 million from
prior year related to properties sold in first quarter 1999.
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<PAGE> 15
Year-to-date realty rental and sales operating expenses (after depreciation and
amortization) for both Flagler and railroad realty operations decreased from
$56.8 million in 1999 to $22.9 million in 2000. The decreases are principally
related to the 1999 cost of sales ($39.1 million) on the previously mentioned
business park dispositions. "Same store" expenses (before depreciation and
amortization) increased by $0.8 million over 1999. Expenses (before depreciation
and amortization) related to new properties completed in 1999 and 2000 were $1.2
million in 2000 up from $0.1 million in prior year. Expenses on properties sold
(before depreciation and amortization) were $0.9 million in 1999, with $0.1
million in corresponding expenses for 2000. Asset management fees/corporate
overhead and depreciation increased by $3.3 million from $8.4 million in 1999 to
$11.7 million in 2000.
Telecommunications
Second Quarter
During the second quarter, EPIK increased staffing for operations, customer
implementation and sales support, and installed an additional 40,000 strand
miles of Lucent Truewave RS fiber on its Florida Footprint(TM) network.
Additionally, EPIK secured 33,790 square feet of collocation and transmission
facilities for customer equipment, and began development of a 26,000-square foot
collocation facility in Jacksonville, Florida. EPIK's ability to provision
bandwidth (lit capacity) was aided by the completion of two Master Service
Agreements (MSAs); one with a national telecommunications carrier enabling EPIK
to offer services across approximately 17,000 route miles, and the second
allowing EPIK to offer services to over 20 central offices and carrier hotels
within a major metropolitan area. In addition, EPIK formed a coalition of 15
other carriers to lead the development of the new national class Internet
Network Access Point, NAP of the Americas, proposed to be located in downtown
Miami.
During the quarter, EPIK continued to sell long-term leases for dark fiber and
collocation, and began to provision bandwidth (lit capacity). As of June 30,
2000, the sales backlog for these categories totaled $73.0 million.
Telecommunications revenues from passive fiber leases for the quarter increased
by 33.6 percent from the same period a year ago, rising to $1.6 million.
Increased operating expenses at EPIK correlate directly to the execution of its
business plan of providing valuable services to its customer base throughout the
Florida Footprint(TM).
Six Months
During the first six months of the year, EPIK continued rapid development of its
Florida Footprint(TM) carriers' carrier network. EPIK laid over 110,000 strand
miles of Lucent Truewave RS fiber in its conduit system. Transactions completed
during the past six months with other telecommunications carriers enabled EPIK
to extend its dark fiber network by 6,770 route miles and to offer lit services
across approximately 17,000 route miles. Other network developments include
increasing the total number of points of presence (POPs) in Florida to twelve
and the finalization of plans for the activation of OC-192 bandwidth services
across the entire southeastern network consisting of the Florida Footprint(TM)
and the Company's geographically diverse path to Atlanta currently under
development.
14
<PAGE> 16
Telecommunications revenues from passive fiber leases for the quarter increased
by 74.5 percent from the same period a year ago, rising to $3.9 million,
inclusive of a $0.8 million settlement of a dispute with a telecom company over
amounts due for installation on FECR's property.
Increased operating expenses versus 1999 reflect the acceleration of EPIK's
start-up, including the successful hiring of experienced telecom professionals
to execute the business plan.
Trucking
Second Quarter
During the second quarter, ITI increased operating revenues by 7.0 percent over
prior year's quarter to $7.9 million. This increase reflects improved sales
efforts resulting in additional customer accounts. Traffic interchanged with
FECR improved by 15.0 percent in the quarter. Second quarter expenses include
transition costs ($0.2 million) for the new management team, along with
increased fuel costs ($0.2 million), resulting in operating losses for the
quarter.
Six Months
During the first six months of the year, ITI increased operating revenues by 6.4
percent from the same period a year ago, rising to $15.5 million. Year-to-date
expenses include transition costs ($0.2 million) for the new management team,
along with increased fuel costs ($0.3 million), resulting in operating losses
for the first six months.
Corporate Expenses
Second Quarter & Six Months
Corporate expenses for second quarter 2000 and 1999 were $1.2 million and $3.7
million, and for the six months ended June 30, 2000, and 1999, were $2.9 million
and $4.5 million, respectively. Corporate expenses for 1999 included special
charges of approximately $2.0 million, which represented the separation of
Company management employees, and the curtailment of benefits for the executive
retirement plan.
Other Income
Second Quarter
Other Income (excluding 1999 special charges of $0.8 million) decreased $1.5
million to $0.5 million compared to second quarter 1999. Interest income from
invested funds has decreased as invested funds are used for the Company's
capital programs, and Other (net) includes a $0.8 million settlement of prior
years' state taxes (non-income related).
Six Months
Other Income (excluding 1999 special charges of $0.8 million) increased
approximately $1.5 million to $4.5 million in the six months ended June 30,
2000. This is the result of divided income of $2.4 million from a TTX dividend
offset by a $0.8 million settlement of prior years' state taxes (non-income
related), and reduced gains on sales of investments of $1.1 million.
15
<PAGE> 17
Financial Condition, Liquidity and Capital Resources
FECI's principal sources of liquidity include cash generated from operations,
earnings on invested cash, and earnings on its investment portfolios. Also, the
Company maintains a $200 million revolving credit agreement with a syndicate of
financial institutions. Cash required for capital expenditures in the railway,
telecommunications and realty segments, for payment of dividends, acquisitions,
or potential repurchase of shares of the Company's common stock is or will be
funded, in part, from these resources.
The Company's investment portfolio, including cash and investments, decreased
approximately $33.9 million to $68.7 million at June 30, 2000, from $102.6
million on December 31, 1999. This decrease was primarily attributable to
capital expenditures of $96.4 million. The largest property additions were
related to EPIK's continued build-out of its network.
The Company's current ratio was 2.4 to 1.00 on December 31, 1999, and 1.5 to
1.00 on June 30, 2000. The current year ratio reflects the decrease in the
Company's liquid assets as they are used to fund capital expenditures.
Management believes that the cash generated from operations, the Company's
liquid resources, and borrowing capacity, if appropriate, will be sufficient to
fund the costs of operations, all anticipated capital expenditures, and other
obligations of the Company.
PART II
Item 1
Legal Proceedings
There are no new legal or regulatory proceedings pending or known to be
contemplated which, in Management's opinion, are other than normal and
incidental to the kinds of businesses conducted by the Company.
Item 4
Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 16, 2000. Of the 36,419,939
shares of common stock entitled to vote, 35,065,485 shares were present, in
person or by proxy.
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<PAGE> 18
All Directors of the Company are elected annually, and the following were so
elected at this Annual Meeting:
Number of Votes Cast
--------------------
Director For Against
-------- --- -------
Robert W. Anestis 35,028,091 37,394
Jacob C. Belin 35,022,580 42,905
Richard S. Ellwood 35,026,351 39,134
J. Nelson Fairbanks 35,025,076 40,409
David M. Foster 35,023,941 41,544
Allen C. Harper 35,026,691 38,794
Adolfo Henriques 35,002,542 62,943
Gilbert H. Lamphrere 35,023,558 41,927
Peter S. Rummell 35,023,035 42,450
Winfred L. Thornton 34,999,171 66,314
Proposal No. 2: Approval of the Amended Florida East Coast Industries, Inc.'s
Stock Incentive Plan:
Number of Votes Cast
--------------------
For Against Abstain
--- ------- -------
33,616,195 1,406,848 42,442
Item 5
Other Information
Starting with the second quarter of 2000, Railway's traffic volumes and revenues
are presented in the Management Discussion and Analysis. This historical
supplemental information is provided for comparative purposes.
TRAFFIC
Three Months ended March 31, 2000
(dollars and units in thousands)
Commodity Units Percentage(%) Amt. of Revenue Percentage(%)
--------- ----- ------------- --------------- -------------
Intermodal
TOFC/COFC 66.0 58.9 15,273 38.5
Rail Carloads
Crushed stone 29.5 26.3 12,161 30.7
Construction materials 1.4 1.2 834 2.1
Vehicles 6.5 5.8 4,975 12.5
Foodstuffs 2.0 1.8 1,553 3.9
Chemicals 1.1 1.0 1,124 2.8
Paper 2.2 2.0 2,097 5.3
Other 3.4 3.0 1,660 4.2
----- ----- ------ -----
Total 112.1 100.0 39,677 100.0
===== ===== ====== =====
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<PAGE> 19
Three Months ended March 31, 1999
(dollars and units in thousands)
Commodity Units Percentage(%) Amt. of Revenue Percentage(%)
--------- ----- ------------- --------------- -------------
Intermodal
TOFC/COFC 71.2 62.1 16,062 42.0
Rail Carloads
Crushed stone 27.4 23.9 10,737 28.1
Construction materials 1.4 1.2 759 2.0
Vehicles 5.8 5.1 4,354 11.4
Foodstuffs 2.2 1.9 1,730 4.5
Chemicals 1.1 1.0 1,304 3.4
Paper 2.3 2.0 2,042 5.3
Other 3.2 2.8 1,255 3.3
----- ----- ------ -----
Total 114.6 100.0 38,243 100.0
===== ===== ====== =====
Three Months ended June 30, 1999
(dollars and units in thousands)
Commodity Units Percentage(%) Amt. of Revenue Percentage(%)
--------- ----- ------------- --------------- -------------
Intermodal
TOFC/COFC 70.2 61.3 16,252 39.9
Rail Carloads
Crushed stone 28.4 24.8 12,353 30.4
Construction materials 1.4 1.2 807 2.0
Vehicles 5.9 5.2 4,818 11.8
Foodstuffs 2.1 1.8 1,610 4.0
Chemicals 1.0 0.9 1,152 2.8
Paper 2.1 1.8 1,873 4.6
Other 3.4 3.0 1,837 4.5
----- ----- ------ -----
Total 114.5 100.0 40,702 100.0
===== ===== ====== =====
Three Months ended September 30, 1999
(dollars and units in thousands)
Commodity Units Percentage(%) Amt. of Revenue Percentage(%)
--------- ----- ------------- --------------- -------------
Intermodal
TOFC/COFC 71.3 62.4 16,130 40.9
Rail Carloads
Crushed stone 27.9 24.4 12,049 30.6
Construction materials 1.3 1.2 812 2.0
Vehicles 5.6 4.9 4,446 11.3
Foodstuffs 1.9 1.7 1,488 3.8
Chemicals 1.0 0.9 1,191 3.0
Paper 2.2 1.9 2,016 5.1
Other 3.0 2.6 1,298 3.3
----- ----- ------ -----
Total 114.2 100.0 39,430 100.0
===== ===== ====== =====
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<PAGE> 20
Three Months ended December 31, 1999
(dollars and units in thousands)
Commodity Units Percentage(%) Amt. of Revenue Percentage(%)
--------- ----- ------------- --------------- -------------
Intermodal
TOFC/COFC 74.6 63.4 16,859 42.0
Rail Carloads
Crushed stone 26.6 22.6 11,215 28.0
Construction materials 1.3 1.1 817 2.0
Vehicles 7.0 6.0 5,359 13.4
Foodstuffs 2.0 1.7 1,548 3.9
Chemicals 1.0 0.8 1,105 2.8
Paper 2.1 1.8 1,905 4.7
Other 3.1 2.6 1,299 3.2
----- ----- ------ -----
Total 117.7 100.0 40,107 100.0
===== ===== ====== =====
Three Months ended March 31, 1998
(dollars and units in thousands)
Commodity Units Percentage(%) Amt. of Revenue Percentage(%)
--------- ----- ------------- --------------- -------------
Intermodal
TOFC/COFC 82.9 68.6 17,352 45.6
Rail Carloads
Crushed stone 23.6 19.5 9,055 23.8
Construction materials 1.5 1.2 886 2.3
Vehicles 5.4 4.5 4,532 12.0
Foodstuffs 2.7 2.2 1,927 5.0
Chemicals 0.7 0.6 812 2.1
Paper 1.9 1.6 1,836 4.8
Other 2.2 1.8 1,686 4.4
----- ----- ------ -----
Total 120.9 100.0 38,086 100.0
===== ===== ====== =====
Three Months ended June 30, 1998
(dollars and units in thousands)
Commodity Units Percentage(%) Amt. of Revenue Percentage(%)
--------- ----- ------------- --------------- -------------
Intermodal
TOFC/COFC 81.7 66.6 17,289 43.9
Rail Carloads
Crushed stone 26.9 21.9 11,173 28.4
Construction materials 1.4 1.2 833 2.1
Vehicles 5.4 4.4 4,207 10.7
Foodstuffs 2.1 1.7 1,595 4.0
Chemicals 0.6 0.5 766 2.0
Paper 1.8 1.5 1,707 4.3
Other 2.7 2.2 1,793 4.6
----- ----- ------ -----
Total 122.6 100.0 39,363 100.0
===== ===== ====== =====
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<PAGE> 21
Three Months ended September 30, 1998
(dollars and units in thousands)
Commodity Units Percentage(%) Amt. of Revenue Percentage(%)
--------- ----- ------------- --------------- -------------
Intermodal
TOFC/COFC 78.6 66.4 16,976 44.6
Rail Carloads
Crushed stone 26.5 22.4 10,874 28.6
Construction materials 1.4 1.2 809 2.1
Vehicles 5.2 4.4 3,996 10.5
Foodstuffs 2.0 1.7 1,502 3.9
Chemicals 0.6 0.5 711 1.9
Paper 1.8 1.5 1,663 4.4
Other 2.3 1.9 1,556 4.0
----- ----- ------ -----
Total 118.4 100.0 38,087 100.0
===== ===== ====== =====
Three Months ended December 31, 1998
(dollars and units in thousands)
Commodity Units Percentage(%) Amt. of Revenue Percentage(%)
--------- ----- ------------- --------------- -------------
Intermodal
TOFC/COFC 83.4 66.5 18,094 44.3
Rail Carloads
Crushed stone 26.2 20.9 10,585 25.9
Construction materials 1.5 1.1 877 2.1
Vehicles 6.5 5.2 5,228 12.8
Foodstuffs 2.0 1.6 1,541 3.8
Chemicals 0.6 0.5 714 1.8
Paper 2.1 1.7 1,900 4.7
Other 3.1 2.5 1,886 4.6
----- ----- ------ -----
Total 125.4 100.0 40,825 100.0
===== ===== ====== =====
SIGNATURE
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)
/s/ Mark A. Leininger
Date: 8/10/00 ----------------------------------------------
Mark A. Leininger, Vice President & Controller
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