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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 2000
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NO. 001-08723
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FLORIDA EAST COAST INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
FLORIDA 59-2349968
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MALAGA STREET, ST. AUGUSTINE, FLORIDA 32084
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 829-3421
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
Class A Common Stock-No par value New York Stock Exchange
(including rights attached thereto)
Class B Common Stock-No par value New York Stock Exchange
(including rights attached thereto)
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 by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Based on the closing prices of March 15, 2001, the aggregate market value of
both classes of common stock held by non-affiliates of the Registrant was
approximately $1.262 billion.
The number of shares of the Registrant's common stock, no par value, is
37,317,281 shares issued and 36,518,197 shares outstanding at March 15, 2001,
with 799,084 shares of treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on May 30, 2001 (the Proxy Statement) are
incorporated in Part III of this Report by reference.
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Forward-Looking Statements
This Form 10-K, including the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations," contains certain
forward-looking statements, within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements include the Company's present
expectations or beliefs concerning future events. Such forward-looking
information may include, without limitation, statements that the Company does
not expect that lawsuits, environmental costs, commitments, contingent
liabilities, labor negotiations or other matters will have a material adverse
effect on its consolidated financial condition, results of operations or
liquidity, other similar expressions concerning matters that are not historical
facts and projections relating to the Company's financial results. These
forward-looking statements are subject to certain risks and uncertainties, which
could cause actual results to differ materially from those anticipated in the
statements. Important factors that could cause such differences include, but are
not limited to, the ability of the Company to complete systems and expand and
enhance its telecommunications network within currently estimated time frames
and budgets; the ability to compete effectively in a rapidly evolving and price
competitive marketplace and to respond to customer demands and industry changes;
the ability to achieve revenues from products and services in the
telecommunications business that are in the early stages of development or
operation; the ability to manage growth; changes in the business strategy;
legislative or regulatory changes; technological changes; volatility of fuel
prices; changing general economic conditions (particularly in the state of
Florida) as it relates to economically sensitive products in freight service and
building rental activities; changes in contractual relationships; industry
competition; natural events such as weather conditions, floods, earthquakes, and
forest fires; and the ultimate outcome of environmental investigations or
proceedings and other types of claims and litigation.
As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition, operating results and stock price.
Readers should not place undue reliance on forward-looking statements,
which reflect management's view only as of the date hereof. The Company
undertakes no obligation to publicly release revisions to these forward-looking
statements that reflect events or circumstances after the date hereof or reflect
the occurrence of unanticipated events.
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PART I
As used throughout this Form 10-K Annual Report, the terms "FECI," the "Company"
and "Registrant" mean Florida East Coast Industries, Inc. and its consolidated
subsidiaries.
ITEM 1. BUSINESS
GENERAL
FECI is a holding company incorporated under the laws of the state of Florida in
1983, engaged, through four wholly owned subsidiaries, in rail and trucking
operations, real estate (ownership, development and management) and
telecommunications. The Company's rail operations connect many of the major
population centers and port facilities of Florida, and provide efficient service
for its customers through multiple competitive connections to the rest of North
America. Florida East Coast Railway (FECR), FECI's rail subsidiary, carries
construction aggregates (crushed stone and sand), automobiles and other rail
carload commodities, as well as intermodal freight. Florida Express Carriers,
Inc. (FLX) is a common and contract motor carrier operating with a
concentration in the Southeast. FLX offers truckload over-the-road service, as
well as intermodal drayage. FLX also offers transportation logistic services and
maintains a brokerage operation. FLX generates revenues from trucking, brokerage
and contract logistic services. The Company, through its real estate subsidiary,
Flagler Development Company (Flagler), has extensive and valuable real estate
holdings in Florida, totaling approximately 16,000 acres, including 5.3 million
sq. ft. of commercial and industrial space in 51 buildings owned by the Company,
408,000-sq. ft. in lease-up, 532,000-sq. ft. under construction, and 883,000-sq.
ft. in pre-development stages. The Company owns unimproved land, including
certain land (773 acres) with relevant development permits authorizing the
construction of 13.6 million sq. ft. of additional industrial and commercial
space and raw land, which has yet to be entitled for development. EPIK
Communications Incorporated (EPIK), a wholly owned subsidiary of FECI, is a new,
rapidly growing provider of wholesale telecommunications private line services
(bandwidth, wave services, IP, collocation and dark fiber) in the Southeast.
Established in May 1999, EPIK has created a high-capacity fiber optic network
along a densely populated corridor reaching 12 metropolitan areas within the
Southeast that comprise nearly 75.0 percent of the region's population. EPIK's
fiber runs along FECR's right-of-way and in conduits on other routes acquired
through asset swaps. EPIK is also expanding its network nationally and is
rapidly deploying next generation technologies that will meet the escalating
demand for telecommunications bandwidth.
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FLORIDA EAST COAST RAILWAY
FECR operates a Class II railroad along 351 miles of mainline track between
Jacksonville and Miami, Florida, serving some of the most densely populated
areas of the state. FECR also owns and operates approximately 276 miles of
branch, switching and other secondary track and 159 miles of yard track, all
wholly within Florida. FECR has the only coastal right-of-way between
Jacksonville and Miami and is the exclusive rail-service provider to the Port of
Palm Beach, Port Everglades (Fort Lauderdale) and the Port of Miami.
The following table summarizes the Company's freight shipments by commodity
group and as a percentage of rail freight revenues:
TRAFFIC
YEAR ENDED DECEMBER 31, 2000
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(dollars and units in thousands)
UNITS PERCENTAGE (%) AMT. OF REVENUE PERCENTAGE (%)
------- -------------- --------------- --------------
COMMODITY
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Intermodal
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TOFC/COFC 269,337 60.4 62,822,775 39.8
Rail Carloads
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Crushed stone 111,921 25.1 47,876,909 30.4
Construction materials 5,974 1.4 3,699,384 2.3
Vehicles 24,579 5.5 18,921,192 12.0
Foodstuffs 7,920 1.8 6,121,285 3.9
Chemicals 4,014 0.9 4,360,357 2.8
Paper 8,610 1.9 8,026,432 5.1
Other 13,527 3.0 5,846,647 3.7
------- ----- ----------- -----
TOTAL 445,882 100.0 157,674,981 100.0
======= ===== =========== =====
FECR connects with Norfolk Southern Railway Company (NS) and with CSX
Transportation, Inc. (CSXT) at Jacksonville and is able to offer its customers
competitive rail connections to the rest of North America. During 2000,
approximately 46.0 percent of FECR's freight revenues were attributable to
traffic that originated on other railroads; approximately 5.0 percent was
attributable to traffic that originated on FECR but bound for other
destinations, and 49.0 percent was attributable to traffic that both originated
and terminated on FECR's system (local traffic). With the exception of haulage
services provided for South Central Florida Express, Inc. (SCFE) described
below, FECR does not receive traffic from one railroad to be passed over its
track to
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another railroad.
Customers are generally given a "through freight" rate, a single figure
encompassing the rail transportation of a commodity from point of origin to
point of destination, regardless of the number of carriers that handles the car.
Rates are developed by the carriers based on the commodity, volume, distance and
competitive market considerations. The entire freight bill is either paid to the
originating carrier (prepaid), or to the destination carrier (collect), and
divided among all carriers which handle the move. The basis for the division
varies and can be based on factors (or revenue requirements) independently
established by each carrier which comprises the through rate, or on a percentage
basis established by division agreements among the carriers. A carrier such as
FECR, which actually places the car at the customer's location and attends to
the customer's daily switching requirements, receives revenue greater than an
amount based simply on mileage hauled.
FECR serves approximately 750 direct rail-served customers, as well as hundreds
of other customers through the Company's intermodal operations. The Company's
five largest customers accounted for approximately 45.0 percent of freight
revenues in 2000. One customer accounted for approximately 18.0 percent of the
Company's rail freight revenues in 2000.
FECR handles rail cars for SCFE between Fort Pierce and Jacksonville for
interchange with CSXT or NS. SCFE is a short-line railroad operating under a
twenty-year Trackage Rights Agreement over a branch line owned by FECR extending
from Fort Pierce to Lake Harbor. A concurrent Car Haulage Agreement is in effect
between Fort Pierce and Jacksonville.
As owner in fee simple of its railroad right-of-way extending along the East
Coast from Jacksonville to Miami, FECR actively manages this and ancillary real
estate assets owned by it to generate miscellaneous rents and right-of-way lease
profits. FECR leases its right-of-way to various tenants for uses including
utility company installations and telecommunications companies' fiber optics
systems pursuant to long-term leases. These revenues are included in the
telecommunications segment. In addition, FECR generates revenues from the grant
of licenses and leases to use railroad property and rights-of-way for outdoor
advertising, parking lots and lateral crossings of wires and pipes by utility
companies. These miscellaneous rents are included in other income.
REAL ESTATE
FECI owns 100.0 percent of the stock of Flagler. Flagler is engaged in the
acquisition, development, leasing, management and sale of real estate.
Flagler owns, operates and leases commercial and industrial properties
throughout Florida. Flagler owned and operated 51 buildings as of December 31,
2000, with approximately 5.3 million sq. ft. of rentable commercial/industrial
space on 431 acres of land. A schedule of these buildings is included in Part 1,
Item 2 of this Report. At December 31, 2000, Flagler's operating properties were
93.0 percent occupied. Flagler's buildings are primarily Class "A" office space
and high-quality commercial/industrial facilities constructed after 1987.
At December 31, 2000, Flagler had 408,000-sq. ft. in lease-up, 532,000-sq. ft.
under construction, and 883,000-sq. ft. in pre-development, for a total of 1.8
million sq. ft., primarily located in the Jacksonville, Orlando and Miami areas.
At the pre-development phase, Flagler has obtained the necessary permits and
invested in engineering, architectural planning and design.
Flagler also owns approximately 14,000 acres of undeveloped land in inventory
for potential future commercial and industrial development, primarily situated
adjacent to FECR's rights-of-way along the eastern coast of Florida. Significant
other holdings are in urban or suburban locations offering opportunities for
development of business parks, office buildings, residential, warehouse and
industrial facilities. The Company believes these holdings will provide
significant growth opportunities.
PROJECTS UNDER DEVELOPMENT
The primary focus of Flagler's development activities has been the Miami, Fort
Lauderdale, Jacksonville
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and Orlando areas, all of which are highly active with local, regional and
national development companies competing for land and tenants. The projects
under development include:
- GRAN PARK AT SOUTHPARK - ORLANDO, FL: Located at the
intersection of John Young Parkway and Beeline Expressway.
Three buildings, totaling 429,000-sq. ft., have been
completed. At December 31, 2000, three buildings, totaling
408,000-sq. ft., were under development, with completions
scheduled for mid-2000. The park has entitlements for an
additional 153,000-sq. ft. of office and call center space.
In 1999, based on the success of SouthPark, Flagler acquired
an additional 90 acres adjacent to the existing park. The land
has entitlements for 1.8 million sq. ft. of office space and 9
acres of retail uses.
- BEACON STATION AT GRAN PARK - MIAMI, FL: Located northwest of
Miami International Airport. Twenty-five buildings, totaling
2.5 million sq. ft., have been completed, including a
101,000-sq. ft. operations center for Union Planters Bank
delivered in 2000. At December 31, 2000, a 300,000-sq. ft.
industrial project for Caterpillar Logistics was under
construction, with completion scheduled for late 2001. The
park has entitlements for an additional 5.0 million sq. ft. of
office, industrial and commercial space. Site preparation is
currently underway for four industrial projects totaling
744,000-sq. ft. Flagler has also developed 540,000-sq. ft. of
industrial space at Beacon Station in a 50/50 joint venture
with Duke-Weeks Realty Corporation.
Flagler owns 540 acres adjacent to this park for future
development.
- BEACON POINTE AT WESTON - WESTON, FL: Located in west Broward
County at I-75 in Weston. In 1998, Flagler purchased 30 acres
with entitlements for 375,000-sq. ft. of office space. Flagler
intends to develop the project in a 50/50 joint venture with
Duke-Weeks Realty Corporation. The first 100,000-sq. ft.
office building was completed in 1999. The second 100,000-sq.
ft. office building is currently under construction, with site
preparation underway for the third 100,000-sq. ft. office
building.
- GRAN PARK AT DEERWOOD - JACKSONVILLE, FL: Located in the most
rapidly expanding area of Jacksonville. Five office buildings,
totaling 653,000-sq. ft., have been completed. At December 31,
2000, one building, totaling 135,000-sq. ft., is under
development, with completion scheduled for mid-2001. The park
has entitlements for an additional 270,000-sq. ft. of office
space.
The following is a summary of the Company's development activity as of December
31, 2000:
NET RENTABLE
STATUS OWNER PROPERTY DESCRIPTION SQUARE FEET START DATE
------ ----- -------------------- ------------ ----------
Lease-up Flagler Gran Park at SouthPark 177,800 May 1999
Lease-up Flagler Gran Park at SouthPark 132,000 Aug. 1999
Lease-up Flagler Gran Park at SouthPark 97,800 Oct. 1999
Under construction Flagler Gran Park at Deerwood North 135,000 June 2000
Under construction Flagler/Duke-Weeks Beacon Pointe at Weston 97,000 April 2000
Under construction Flagler Beacon Station at Gran Park 300,000 Dec. 2000
Pre-development Flagler Beacon Station at Gran Park 160,555 TBD
Pre-development Flagler Beacon Station at Gran Park 182,000 TBD
Pre-development Flagler Beacon Station at Gran Park 200,709 TBD
Pre-development Flagler Beacon Station at Gran Park 42,800 TBD
Pre-development Flagler/Duke-Weeks Beacon Pointe at Weston 97,000 TBD
Pre-development Flagler Beacon Station at Gran Park 200,360 Jan. 2001
---------
TOTAL 1,823,024
=========
In addition, the rapidly growing area of E-Commerce has created a demand for
"high throughput" distribution buildings located near airports and seaports.
This major evolution in distribution patterns is expected to have a positive
impact on the Company's industrial land holdings, particularly those around the
Miami International Airport. Management is currently formulating a strategy to
maximize the value of its
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holdings in view of these significant trends.
FECR owns approximately 1,200 acres of ancillary properties within the state of
Florida. The Company continues to evaluate these holdings and, when appropriate,
engages in activities (sales, development, etc.) that will extract/create value
for the Company.
TELECOMMUNICATIONS
EPIK, a wholly owned subsidiary of FECI, is a new, rapidly growing provider of
wholesale telecommunications private line services (bandwidth, wave services,
IP, collocation and dark fiber) in the Southeast. Established in May 1999, EPIK
has created a high-capacity fiber optic network along a densely populated
corridor reaching 12 metropolitan areas within the Southeast that comprise
nearly 75.0 percent of the region's population. EPIK's fiber runs along FECR's
right-of-way and in conduits on other routes acquired through asset swaps. EPIK
is also expanding its network nationally and is rapidly deploying next
generation technologies that will meet the escalating demand for
telecommunications bandwidth.
When completed, EPIK's high-count fiber and OC-192 Southeast backbone from
Atlanta to Miami will include 1,850 inter-city route miles comprising 255,000
fiber-strand miles. Through swap transactions completed as of December 31,
2000, 70,000 of the 255,000 fiber-strand miles had been used/committed to
develop a long-haul national fiber footprint that covered over 10,000 route
miles. This national fiber footprint will continue to expand through additional
swap transactions, and will thus utilize more of the 255,000 fiber-strand miles
in the Southeast. To complement its long-haul inter-city network, EPIK is
constructing 394 route miles (12,000 fiber miles) of metropolitan networks in
the Southeast with the development of routes in the greater Miami metropolitan
area, Orlando, Jacksonville, Tampa and Atlanta. At December 31, 2000, 11,000
fiber miles were completed on the metro networks.
The Southeast backbone reaches 12 key markets in the Southeast that comprise
nearly 75.0 percent of the region's population. At December 31, 2000, 1,500
route miles (180,000 fiber miles) were installed and active on the Southeast
backbone with only the Jacksonville to Atlanta segment remaining under
construction. EPIK's Southeast network is fully redundant, using both geodiverse
fiber paths and SONET architecture to ensure high levels of reliability. EPIK's
12 long-haul points of presence (POPs) are equipped with Nortel Networks(TM)
Optera(TM) OC-192 dense wavelength division multiplexing (DWDM) equipment to
provide the highest levels of capacity and rapid provisioning. The metropolitan
networks will contain over 40 additional POPs, utilizing a combination of
optical equipment from ONI, Cisco and Nortel. At December 31, 2000, EPIK had
also begun deployment of Juniper Networks OC-192 routers to enable the
provisioning of Internet Protocol services under the enLIGHTened IP service
mark.
EPIK is a "carriers' carrier" providing wholesale bandwidth in the form of
private line and wave services, Internet Protocol (IP) connectivity, collocation
and dark fiber to competitive local exchange carriers (CLECs), Internet service
providers (ISPs), long-distance companies (IXCs), wireless and international
carriers.
Wholesale Services include:
Bandwidth - Private Line
- Transport speeds from DS-3 to OC-192 (the highest commercially
available service speed)
- Accessible, centrally-located points of presence in major
metropolitan areas
- 15-day on-net provisioning
- 4-hour mean time to repair
- Around-the-clock network operations center (NOC)
- Highly reliable geographically diverse SONET ring architecture
Bandwidth - Wave Services
EPIK offers wave-based, unprotected, capacity service delivered at OC-48 or
OC-192 speeds. Leased-line wave services are targeted at data-centric service
providers (e.g., ISPs) desiring unprotected connectivity.
- Reduced time and expense of deploying, managing and
maintaining equipment
- Easily provision and expand service
- Transparent to customers' network management system
- Seamless integration of customers' equipment into existing
network
Enlightened IP Services
Eliminating unnecessary layers of overhead, EPIK provides faster, more efficient
core network capabilities.
- 10 GBPS backbone using best-in-class equipment
- Connectivity using Fast Ethernet (100Mbps), Gigabit Ethernet
(1000 Mbps) and DS-3 to OC-192
- Aggressive SLAs
- Around-the-clock network operations center (NOC)
- Product Options: Dedicated Internet Access and IP Transit
Services
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Collocation
EPIK leases carrier grade collocation space in its points of presence (POP) and
optical amplifier (OPAMP) locations to dark fiber and bandwidth customers.
- Rack and cage space
- Carrier class facilities
- Versatile AC and DC power options tailored to specific
equipment needs
- 24 x 7 x 365 network operations center (NOC)
Dark Fiber
- EPIK leases and sells dark fiber on its network
The telecommunications segment of FECI also includes revenue from long-term
right-of-way leases to other telecommunications carriers.
TRUCKING
FECI also owns 100.0 percent of the stock of Florida Express Carriers, Inc.
(FLX), formerly International Transit, Inc. (ITI). FLX is a common and contract
motor carrier operating throughout the U.S., with a concentration in the
Southeast. FLX offers truckload over-the-road service, as well as intermodal
drayage. FLX also offers transportation logistic services and maintains a
brokerage operation. FLX generates revenues from trucking, brokerage and
contract logistic services. Ownership of FLX enables the Company to provide
coordinated motor/rail intermodal services with FECR to and from southeastern
points.
During the third quarter, FLX restructured its operations. This restructuring
accomplished the relocation of its corporate headquarters from Cincinnati, Ohio
to Jacksonville, Florida, and consolidated certain functions (e.g., dispatching,
billing, etc.) in the Jacksonville, Florida headquarters. Also, the
restructuring realigned FLX's operations to a more Southeastern focused carrier.
These accomplishments more closely align the management team and trucking
operations with FECR, allowing FECR and FLX to provide an array of
transportation alternatives to its freight customers.
During 2000 and 1999, FLX interlined 15,731 and 13,902 intermodal units
(trailers and containers), respectively, with FECR's intermodal facility at
Jacksonville.
FINANCIAL INFORMATION ABOUT FECI'S SEGMENTS
The Company had total segment operating revenues of $281.8 million and an
operating profit of $35.2 million in 2000. The Company's total railroad
operating revenues were $164.8 million; real estate revenues were $75.0 million;
telecommunications revenues were $10.4 million; and trucking revenues were $31.6
million. Segment operating profit (loss) for the railroad was $43.7 million;
$21.0 million for the real estate business; ($14.2 million) for the
telecommunications segment; and ($8.2 million) for trucking (see Note 9, Segment
Information, of the Consolidated Financial Statements and supplementary data set
forth in Part II, Item 8, of this Report on Form 10-K).
SOURCES AND AVAILABILITY OF RAW MATERIALS
All raw materials FECR, Flagler, EPIK and FLX use, including fuel, track
materials and building and network construction materials, are available in
adequate supply from multiple sources.
SEASONALITY
FECR's rail traffic is relatively stable throughout the year with heavier
traffic ordinarily occurring during the first and last quarters of the year. The
Company's real estate, telecommunications and trucking businesses are not
generally seasonal.
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WORKING CAPITAL
At December 31, 2000, the Company's current liabilities exceeded current assets
by $16.5 million. The Company maintains a revolving credit agreement (see Note
16 of the financial statements) with a borrowing capacity of $200.0 million. At
December 31, 2000, $112.0 million was available on this facility to meet current
obligations of the Company. On March 22, 2001, the revolving credit agreement
was restructured into a secured facility with a borrowing capacity of $375.0
million. The December 31, 2000 current liabilities reflect approximately $44.0
million of accounts payable related to the build-out of EPIK's southeastern
network.
CUSTOMERS
RAILWAY
One customer generated about 18.0 percent of the Company's rail revenues in
2000. The Company's business could be adversely affected if its large customers
suffered significant reductions in their businesses, or reduced shipments of
commodities transported by FECR.
REAL ESTATE
The Company is not dependent on any significant customer in the real estate
segment. Flagler's largest commercial tenant occupied approximately 4.0 percent
of leased space in 2000.
TELECOMMUNICATIONS
As a wholesale provider of communication services, EPIK targets other
telecommunications carriers as its customers. In particular, EPIK's sales and
marketing efforts are directed towards IXCs, CLECs, ISPs, and wireless
communications companies such as cellular and PCS providers. EPIK has a limited
number of customers at this time, given its limited history.
During the year 2000, EPIK signed collocation agreements with combined contract
values of over $130 million and dark fiber, capacity and IP Service agreements
with combined contract values of over $35 million. As of December 31, 2000,
one customer represented 47.0 percent of the $131.2 million of collocation
revenue backlog.
TRUCKING
The trucking operation is not dependent on any significant customer. No customer
generates revenues, which exceeds 10.0 percent of the trucking operation's
revenues. The top twenty-five shippers of the trucking operation's customer base
accounts for approximately 70.0 percent of its revenues.
COMPETITION
RAILWAY
Although the Company's railroad is typically the only rail carrier directly
serving its customers, the Company's railroad competes directly with other
railroads that could potentially deliver freight to their markets and customers
via different routes and use of multiple modes of transportation. FECR's primary
rail competition is CSXT. FECR also competes directly with other modes of
transportation, including motor carriers and, to a lesser extent, ships and
barges. Competition is based primarily upon the rate charged and the transit
time required, as well as the quality and reliability of the service provided.
Any improvement in the cost or quality of these alternate modes of
transportation could increase competition from these other modes of
transportation and adversely affect the Company's business.
There is continuing strong competition among rail, water and highway carriers.
Price is usually only one factor of importance as shippers and receivers choose
a transport mode and a specific transportation company with which to do
business. Inventory carrying costs, service reliability, ease of handling, and
the desire to avoid loss and damage during transit are increasingly important
considerations, especially for higher valued finished goods, machinery and
consumer products. Users are increasingly sensitive to transport arrangements,
which minimize problems at successive production stages, even for raw materials,
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semi-finished goods and work-in-process.
Service disruptions and changes in services offered by NS and CSXT as a result
of their acquisition and division of Conrail continue to adversely affect FECR's
intermodal business.
REAL ESTATE
The real estate industry is generally characterized by significant competition.
The Company plans to continue to expand through office and industrial
developments in Florida where the acquisition and/or development of property
would, in the opinion of management, result in a favorable risk-adjusted return
on investment. There are a number of office and industrial developers and real
estate companies that compete with the Company in seeking properties for
acquisition, resources for development and prospective tenants. Competition from
other real estate developments may adversely affect the Company's ability to
attract and retain tenants, rental rates the Company can achieve, and the
expenses of operation. The Company may compete with entities that have greater
financial and other resources than the Company. There can be no assurance that
the existence of such competition could not have a material adverse effect on
the Company's business, operations and cash flow.
TELECOMMUNICATIONS
The wholesale carriers' carrier business is highly competitive and subject to
rapid change. Competition is primarily on the basis of availability, price and
customer service. EPIK competes primarily on the basis of location of its
network, rapid customer provisioning, transmission quality and reliability,
highly responsive customer service and price. EPIK faces substantial competition
from IXCs, other private wholesale carriers such as affiliates of energy
utilities and railroads, Incumbent Local Exchange Carriers (ILECs) and CLECs. In
addition to these entities, potential competitors capable of offering services
similar to those offered by EPIK include microwave carriers, satellite carriers,
wireless telephone system operators, and end-users with private communications
networks. Many of EPIK's existing competitors are large, established companies
with substantially greater financial resources. Major competitors include, but
are not limited to, Level 3, Qwest, Williams, 360Networks, BellSouth, MCI,
Worldcom and AT&T. Additionally, EPIK expects that competition will increase in
the future as additional providers of fiber optic networks enter or expand in
the market.
TRUCKING
The same competitive factors, as noted in Railway above, substantially affect
the Company's trucking operations as well.
REGULATION
RAILWAY
FECR is subject to regulation by the Surface Transportation Board (STB) of the
U.S. Department of Transportation, which succeeded the ICC on January 1, 1996.
The STB has jurisdiction over some rates, routes, conditions of service and the
extension or abandonment of rail lines. The STB also has jurisdiction over the
consolidation, merger or acquisition of control of and by rail common carriers.
The U.S. Department of Transportation, through the Federal Railroad
Administration, regulates the safety of railroad operations, including certain
track and mechanical equipment standards and certain human factor issues.
The relaxation of economic regulation of railroads, begun over a decade ago by
the ICC under the Staggers Rail Act of 1980 (Staggers Act), has continued under
the STB, and additional rail business could be exempted from regulation in the
future. Significant exemptions are TOFC/COFC (i.e., piggyback) business, rail
boxcar traffic, lumber, manufactured steel, automobiles and certain bulk
commodities, such as sand, gravel, pulpwood and wood chips for paper
manufacturing. Transportation contracts on regulated shipments, which no longer
require regulatory approval, effectively remove those shipments from regulation
as well. Over 95.0 percent of FECR's freight revenues come from either exempt
traffic or traffic moving under transportation contracts.
Due, in part, to industry consolidation and certain service issues, efforts were
made in 2000 to re-subject the rail industry to federal economic regulation.
This pressure could continue during 2001. The Staggers
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Act encouraged and enabled rail carriers to innovate and to compete for
business, thereby contributing to the economic health of the nation and to the
revitalization of the industry. Accordingly, the nation's rail carriers can be
expected to vigorously oppose these ongoing efforts to re-impose such economic
regulation.
RAILWAY AND TRUCKING
The Company's transportation operations, both rail and trucking, are also
subject to extensive environmental laws and regulations, including the federal
Clean Air Act (CERCLA), and various other environmental laws and regulations.
Violations of various statutory and regulatory programs can result in civil
penalties, remediation expenses, natural resource damage claims, potential
injunctions, cease and desist orders and criminal penalties. Some environmental
statutes impose strict liability, rendering a person liable for environmental
damage without regard to negligence or fault on the part of such person. In
addition, the Company's present and historic ownership and operation of real
property, including rail yards, in connection with its transportation operations
involve the storage, use or disposal of hazardous substances that may have
contaminated and may in the future contaminate the environment. The Company may
also be liable for the costs of cleaning up a site at which it has disposed
(intentionally or unintentionally of hazardous substances by virtue of, for
example, an accident, derailment or leak), or to which it has transported
hazardous substances it generated, such as waste oil.
The Company is currently involved in various remediations of properties relating
to its transportation operations. In addition, FECR, along with many other
companies, has been named a potentially responsible party in proceedings under
Federal statutes for the clean up of designated Superfund sites (see Item 3,
Legal Proceedings). Based on information presently available, the Company does
not believe that the costs of addressing any known environmental issues relating
to its transportation operations will be material. However, the future cost of
complying with environmental laws and containing or remediating contamination
cannot be predicted with any certainty, and there can be no assurances that such
liabilities or costs would not have a material adverse effect on the Company in
the future.
REAL ESTATE
Development of real property in Florida entails an extensive approval process
involving overlapping regulatory jurisdictions. Real estate projects must
generally comply with the provisions of the Local Government Comprehensive
Planning and Land Development Regulation Act (Growth Management Act). In
addition, development projects that exceed certain specified regulatory
thresholds require approval of a comprehensive Development of Regional Impact
(DRI) application. Compliance with the Growth Management Act and the DRI process
is usually lengthy and costly and can be expected to materially affect the
Company's real estate development activities.
The Growth Management Act requires counties and cities to adopt comprehensive
plans guiding and controlling future real property development in their
respective jurisdictions. After a local government adopts its comprehensive
plan, all development orders and development permits that it issues must be
consistent with the plan. Each such plan must address such topics as future land
use, capital improvements, traffic circulation, sanitation, sewerage, potable
water, drainage and solid wastes. The local government's comprehensive plans
must also establish "levels of service" with respect to certain specified public
facilities and services to residents. Local governments are prohibited from
issuing development orders or permits if facilities and services are not
operating at established levels of service, or if the projects for which permits
are requested will reduce the level of service for public facilities below the
level of service established in the local government's comprehensive plan. If
the proposed development would reduce the established level of services below
the level set by the plan, the development order will require that at the outset
of the project, the developer either sufficiently improve the services to meet
the required level, or provide financial assurances that the additional services
will be provided as the project progresses.
The Growth Management Act is, in some instances, significantly affecting the
ability of developers to obtain local government approval in Florida. In many
areas, infrastructure funding has not kept pace with growth. As a result,
substandard facilities and services are delaying or preventing the issuance of
permits. The Growth Management Act could adversely affect the ability of Florida
developers, including Flagler, to develop real estate projects.
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Continued growth and development of properties in Florida have prompted efforts
to pass legislation to curtail or more intensely regulate such development and
to amend the Growth Management Act.
The DRI review process includes an evaluation of the project's impact on the
environment, infrastructure and government services, and requires the
involvement of numerous federal, state and local governmental, zoning and
community development agencies and authorities. Local government approval of any
DRI is subject to appeal to the Governor and Cabinet by the Florida Department
of Community Affairs, and adverse decisions by the Governor or Cabinet are
subject to judicial appeal.
In addition, a substantial portion of the developable property in Florida,
including certain of the Company's property, is raw land located in areas where
its development may affect the natural habitats of various endangered or
protected wildlife species or in sensitive environmental areas such as wetlands
and coastal areas, which are subject to extensive and evolving federal, state
and local regulation. Accordingly, federal, state and local wildlife protection,
zoning and land use restrictions, as well as community development requirements,
may become increasingly restrictive and, as a result, significant limitations
may be imposed on the Company's ability to develop its real estate holdings in
accordance with their most profitable uses.
The Company's ownership and development of real estate are subject to extensive
and changing federal, state and local environmental laws, the provisions and
enforcement of which may become more stringent in the future. Pursuant to those
laws, the owner or operator of real estate may be required to perform
remediation regardless of whether it caused the contamination. The sale or
development of properties may also be restricted due to environmental concerns,
the protection of endangered species, or the protection of wetlands. In
addition, violations of various statutory and regulatory programs can result in
civil penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. The Company is not
presently aware of any material contamination, or any material adverse
environmental development issues relating to its real estate operations.
However, there can be no assurance that environmental issues will not arise in
the future relating to the real estate operations.
TELECOMMUNICATIONS
EPIK does not believe that its telecommunications offerings are currently
subject to federal or state regulation. Nonetheless, the telecommunications
industry is highly regulated by federal, state, and local authorities, judicial
and legislative actions may increase regulatory requirements, and the scope of
services subject to regulation is not clearly defined and is subject to change.
EPIK, therefore, cannot forecast whether it will be subject to regulation in the
future and can make no assurance that future regulatory, judicial, or
legislative action will not have a material adverse effect on EPIK.
Federal regulation. The Federal Communications Commission (FCC) regulates
interstate telecommunications services. The Communications Act of 1934, as
amended, defines "telecommunications service" to mean the "offering of
telecommunications for a fee directly to the public, or to such classes of users
as to be effectively available directly to the public, regardless of the
facilities used." The FCC has found that telecommunications services include
only those services that are offered on a "common carrier" basis - that is,
services that are provided pursuant to standard rates, terms and conditions to a
broad customer base. In contrast, services that are offered on a "private
carrier" basis are not subject to regulation as telecommunications services.
EPIK believes that it acts as a private carrier because it provides service to a
limited class of customers (e.g., other carriers) on the basis of individually
negotiated terms and conditions and long-term service agreements. Nonetheless,
EPIK has filed an FCC tariff containing rates, terms and conditions for certain
services that EPIK may choose to offer on a common carrier basis in the future.
Although private carriers are generally unregulated, private carriers that serve
end-user customers are required to contribute to the federal universal service
fund. Accordingly, if EPIK offers services only to carriers, it would not have
to contribute to the federal universal service fund. However, to the extent that
EPIK serves non-carriers (e.g., ISPs), even as a private carrier, it will have
to contribute a percentage of its end-user, interstate revenues to that fund.
If EPIK is found to be providing interstate telecommunications services (that
is, to be acting as a common carrier), then several additional regulatory
requirements could apply:
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- - EPIK would not require any prior FCC authorization to provide domestic,
interstate service. It would, however, require prior FCC authorization
to offer international services.
- - EPIK would have to comply with various reporting requirements.
- - EPIK would be required to contribute to other federal funds, including
funds to support the provision of telecommunications relay services to
individuals with hearing disabilities and the administration of
telephone numbering resources.
- - EPIK would be under general obligations to: (1) provide service upon
reasonable request, (2) provide service at just, reasonable and
non-discriminatory rates, terms and conditions, (3) interconnect
directly or indirectly with the networks of other carriers, (4) assure
that its services are accessible to and usable by persons with
disabilities, (5) assure that its network complies with the
requirements of the Communications Assistance for Law Enforcement Act,
(6) limit its use of customer proprietary network information to
provisioning of the services in connection with which that information
was obtained, and (7) be subject to the FCC's complaint process.
Imposition of some or all of these requirements could materially increase EPIK's
costs of doing business and limit its pricing flexibility, and its ability to
respond promptly to customer demands. In addition, if some of EPIK's competitors
remain unregulated, EPIK could be at a material competitive disadvantage.
State regulation. State public utility commissions (PUCs) regulate intrastate
telecommunications services. EPIK does not believe it is subject to significant
state PUC regulation because it acts as a private carrier. For example, Florida
recognizes the private carrier concept. Some other states, however, may not
recognize the private carrier concept or may nonetheless seek to subject EPIK to
regulation. State regulation of intrastate telecommunications services is
similar to FCC regulation of interstate telecommunications services, although
the states vary considerably in the nature and extent of regulation imposed on
regulated entities. For instance, while most states require service providers to
obtain formal prior authorization before initiating service, some do not.
Similarly, while most states require service providers to file tariffs, some do
not. States also may impose universal service contribution requirements and
other rules intended to protect public safety and welfare, ensure the continued
quality of communications services, and safeguard the rights of consumers. The
Company cannot predict whether application of state regulation of EPIK's
services would have a material adverse effect.
Local regulation. Local governments exercise legal authority that may impact
EPIK's business. As an example, local governments typically have the ability to
license public rights-of-way, subject to the limitation that they may not
prohibit the provision of telecommunications services. Regulation of the use of
public rights-of-way may affect the timing in which EPIK is able to provide
service and the costs of doing so.
TRUCKING
The Company's trucking operation is regulated by the United States Department of
Transportation, including the Federal Highway Administration. This regulatory
authority exercises broad powers, generally governing activities such as
authorizations to engage in motor carrier operations, safety and certain
mergers, consolidations and acquisitions.
RISKS
RAILWAY AND TRUCKING
Market Risks. FECR's freight traffic is generally affected by overall economic
conditions, especially those in the state of Florida. Also, the level of state
and federal highway and other public projects can affect the amount of aggregate
loadings FECR's customers request. There can be no assurance that the overall
economy or that of Florida's will continue to experience higher than average
national growth or rebound quickly from any slowdowns.
Fuel Price Risks. FECR's operations require significant amounts of diesel fuel.
Prices of diesel fuel can
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vary greatly. Generally, the increases in fuel price are passed along to
customers through a "fuel surcharge." However, there are no assurances that
these surcharges will cover the entire fuel price increase for a given period,
or that competitive market conditions will effectively allow freight providers
the ability to pass along this cost.
Interchange Carrier Risks. Approximately 46.0 percent of FECR's traffic is
interchanged from CSXT or NS. The ability of these carriers to market and
service southbound traffic into the Florida market will affect the amount of
traffic FECR moves.
REAL ESTATE
Market Risks. There can be no assurance that the U.S. economy, in general, or
the economy of the Southeast in particular, will continue to experience positive
growth rates or that the United States, in general, or the Southeast in
particular, will not be affected by a recession in the future. Certain
significant expenditures associated with the development, management and
servicing of real estate (such as real estate taxes, maintenance costs and debt
payments, if any) would generally not be reduced if an economic downturn caused
a reduction in revenues from the Company's properties.
Development Risks. The Company's real estate development activities require
significant capital expenditures. The Company will be required to obtain funds
for its capital expenditures and operating activities through cash flow from
operations, property sales or financings. There can be no assurances that funds
available from cash flow, property sales and financings will be sufficient to
fund the Company's required or desired capital expenditures for development. If
the Company were unable to obtain sufficient funds, it might have to defer or
otherwise limit certain development activities. Further, any new development, or
any rehabilitation of older projects can require compliance with new building
codes and other regulations. The Company cannot estimate the cost of complying
with such codes and regulations, and such costs can make a new project, or some
otherwise desirable uses of an existing project uneconomic.
Joint Venture Risks. The Company has entered into certain joint venture
relationships and may initiate future joint venture projects as part of its
overall development strategy. A joint venture may involve special risks
associated with the possibility that (i) the venture partner at any time may
have economic or business interests or goals that are inconsistent with those of
the Company, (ii) the venture partner may take actions contrary to the
instructions or requests of the Company, or contrary to the Company's policies
or objectives with respect to its real estate investments, or (iii) the venture
partner could experience financial difficulties. Actions by the Company's
venture partners may have the result of subjecting property owned by the joint
venture to liabilities in excess of those contemplated by the terms of the joint
venture agreement or have other adverse consequences. In addition, the Company's
joint venture partners may dedicate time and resources to existing commitments
and responsibilities.
TELECOMMUNICATIONS
Technological risks. The telecommunications industry is subject to rapid and
significant changes in technology. For example, recent technological advances
permit substantial increases in transmission capacity of both new and existing
fiber. The introduction of new products and services, or the emergence of new
technologies may reduce the cost, or increase the supply of certain services
similar to those provided by EPIK, impairing the competitiveness of EPIK's
offerings. EPIK cannot predict which of many possible future products and
service offerings will be crucial to maintain its competitive position, or what
expenditures will be required to develop profitably and to provide such products
and services.
Competition-related risks. The telecommunications industry is highly
competitive. EPIK faces substantial competition from IXCs, other private
wholesale carriers such as affiliates of energy utilities and railroads, and
CLECs. In addition to these entities, potential competitors capable of offering
services similar to those offered by EPIK include microwave carriers, satellite
carriers, wireless telephone system operators, and end-users with private
communications networks. In the future, EPIK may be subject to more intense
competition due to the development of new technologies, an increased supply of
domestic and international transmission capacity, and consolidation among and
between local and long distance carriers. In addition, as the regional Bell
operating companies gain authority to enter into long distance service markets,
they may rapidly be able to offer competitive services over region-wide fiber
optic networks that already are in
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place.
Regulatory risks. Regulation of the telecommunications industry is changing
rapidly. Existing and future federal, state, and local governmental regulations
will greatly influence the viability of EPIK. Undesirable regulatory changes
could adversely affect EPIK's business, financial condition, competitiveness and
results of operations. For example, while EPIK does not believe that it is
subject to federal or state regulation as a common carrier, EPIK cannot predict
the future regulatory status of its business. The FCC has recognized a class of
private, non-common carriers whose practice it is to make individualized
decisions on what terms and with whom to deal, and EPIK believes it falls into
this class. These carriers may be subject to the FCC's jurisdiction but are not
currently extensively regulated. In addition, some states may not recognize the
private carrier concept and, for this or other reasons, may seek to regulate
EPIK's intrastate services. If EPIK becomes subject to the FCC's or state PUC's
jurisdiction, it will be required to comply with a number of regulatory
requirements including, but not limited to, rate regulation, prior authorization
requirements, reporting requirements and special payments. Additionally, if EPIK
offers services to non-carriers, it will have to contribute to the federal
universal service fund. Compliance with these regulatory requirements may impose
substantial administrative burdens on EPIK. Furthermore, CLECs, ILECs, and IXCs
(which may be both customers and competitors of EPIK) are subject to various
federal and state telecommunications laws and regulations. Changes in those laws
and policies may affect EPIK's business by virtue of the interrelationships
between EPIK and these regulated telecommunications companies. It is difficult
for EPIK to forecast how these changes will affect EPIK.
EMPLOYEES
FECI employed 16 people; FECR employed 787; EPIK employed 180, and FLX employed
143 as of December 31, 2000. Approximately 612 of FECR's employees are
represented by the following labor unions: United Transportation Union (UTU)
(train and engine service employees), Brotherhood of Maintenance of Way
Employees (BMWE) (track maintenance and structures) and International
Brotherhood of Electrical Workers (IBEW) (seven crafts, including agents and
clerical, carmen, maintenance of equipment foremen, roadway shop, signals and
communications, train dispatchers, boilermakers, electricians, machinists,
sheetmetal workers and shop laborers). The Company has recently completed
negotiations regarding changes to labor agreements with all organizations. The
Company considers its working relationship with its unions to be satisfactory.
As of December 31, 2000, Flagler had 22 employees, including a Chief Operating
Officer and other key management members. During 2001, certain additional
positions within Flagler will be filled to facilitate the transition of the real
estate operation.
ITEM 2. PROPERTIES
The Company's material physical properties at December 31, 2000 are listed below
and are grouped by industry segment. All properties shown are owned in fee
simple, except where otherwise indicated.
RAILWAY
FECR owns three connected four-story buildings in St. Augustine, Florida, which
are used by FECI and FECR as corporate headquarters. FECR also owns, in fee
simple, a railroad right-of-way, generally 100 feet wide, along the East Coast
of Florida extending for 351 miles used for its railroad operations and
telecommunications facilities. FECR also owns and operates approximately 276
miles of branch, switching and other secondary track, and 159 miles of yard
track, various rail car marshalling yards, trailer/container and automobile
loading and unloading facilities, signaling system facilities and a number of
operating offices, shops and service house buildings.
On March 2, 1998, FECR entered into a Trackage Agreement with SCFE providing
for, among other things, the exclusive operation and maintenance of 56 miles of
branch mainline.
Tracks, their bridges and the fixed property and signal improvements supporting
the transportation effort are maintained to a level equaling the needs of
service. The mainline and its passing tracks are, in general, constructed of
132-pound per yard continuous welded rail supported on concrete crossties. These
facilities provide a reliable infrastructure for the conduct of a transportation
service suited to the business demands
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of our customers, to include unrestricted movement of double-stacked containers,
tri-level automobiles and heavier axle rail cars.
The branch mainlines, way switching and yard tracks are, for the most part, of
115-pound per yard materials supported by wood ties. These tracks and certain
mainline yard tracks are of a lesser weight of rail supported on wood ties and,
although in suitable condition, are to be improved by the installation of
heavier materials. Programs designed to address this matter may be expected to
extend over several future years.
FECR owns 75 diesel electric locomotives; 2,533 freight cars; 1,077 trailers for
highway revenue service; numerous pieces of rail-mounted and non-rail-mounted
work equipment, and numerous automobiles used in maintenance and transportation
operations. All equipment owned is in good physical condition.
The Railway also owns lands outside of the right-of-way. These holdings include
certain properties in downtown Miami and large rail yards in Jacksonville, Fort
Pierce and Miami.
REAL ESTATE
At year-end 2000, Flagler's commercial and industrial portfolio included 51
buildings aggregating 5.3 million rentable sq. ft. Flagler's income-producing
properties are detailed below:
FLAGLER'S INCOME-PRODUCING PROJECTS
(at December 31, 2000)
RENTABLE OCCUPIED
NO. OF SQUARE SQUARE % YEAR
LOCATION BLDGS. TYPE FEET FEET OCCUPIED BUILT
-------- ------ ---- -------- -------- -------- -------
duPont Center
Jacksonville, FL 2 Office Buildings 160,000 156,000 98 1987-88
Gran Park at Deerwood
Jacksonville, FL 5 Office Buildings 653,000 622,000 95 1996-98
Gran Park at Jacksonville 1 Office Building 125,000 125,000 100 1999
Jacksonville, FL 4 Office/Showroom/Warehouses 441,000 384,000 87 1997-99
1 Front Load Warehouse 99,000 46,000 46 1997
1 Rail Warehouse 108,000 57,000 53 1997
Gran Park at the Avenues 3 Office Buildings 242,000 220,000 91 1992-95
Jacksonville, FL 3 Office/Showroom/Warehouses 173,000 125,000 72 1992-97
2 Office Warehouses 302,000 284,000 94 1994-96
Gran Park at SouthPark 2 Office Buildings 292,000 273,000 93 1998-99
Orlando, FL 1 Office/Showroom/Warehouse 132,000 108,000 82 1998
Beacon Station at Gran Park 1 Office Building 101,000 101,000 100 2000
Miami, FL 5 Office/Showroom/Warehouses 369,000 362,000 98 1988-94
6 Office Warehouses 588,000 583,000 99 1990-97
4 Rail Warehouses 397,000 397,000 100 1989-94
7 Front Load Warehouses 790,000 790,000 100 1991-95
1 Double Front Load Warehouse 239,000 225,000 94 1993
1 Office Service Center 39,000 34,000 87 1994
Pompano Rail Building
Pompano Beach, FL 1 Rail Warehouse 54,000 54,000 100 1987
-- --------- --------- ---
TOTAL-100% OWNED BUILDINGS 51 5,304,000 4,946,000 93
== ========= ========= ===
Note: An additional 638,000-sq. ft. of rentable office and industrial product is
owned in 50/50 partnerships with Duke-Weeks. These properties are located in
Weston, Florida and Miami, Florida.
The Company periodically reviews its inventory of income-producing commercial
and industrial properties and undeveloped properties to determine how best to
maximize their value, including sales. The Company continues to invest in the
development of additional leasable commercial and industrial space, and
currently has 408,000-sq. ft. in lease-up, 532,000-sq. ft. under construction,
and 883,000-sq. ft. in the pre-
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development stage, (see Part I, Item 1, Business, in this Report on Form 10-K).
Flagler's land portfolio includes the following major land holdings:
BALL TRACT
A 2,150-acre tract located in northern St. Johns County along the growing US 1
corridor between Jacksonville and St. Augustine. The property fronts on US 1 to
the west, the Intracoastal Waterway to the east, and lies between two large
announced mixed-use residential and commercial communities not yet under
development. Flagler expects this property to be developed also as a master
planned community incorporating both residential and commercial uses, but must
first seek and obtain various land use approvals from state, regional and local
governmental entities.
LEMBERG NORTH
A 580-acre tract located in northern St. Johns County along the growing US 1
corridor between Jacksonville and St. Augustine. The property fronts along the
western boundary of FECR's mainline which is immediately adjacent to US 1.
Flagler expects to develop the property as a rail-oriented industrial park, but
must first seek and obtain various approvals from state, regional and local
governmental entities.
LEMBERG SOUTH
A 520-acre tract located in northern St. Johns County just west of the growing
US 1 corridor between Jacksonville and St. Augustine. Flagler expects to seek
and obtain land use and development rights for the development of a planned
residential community on the property.
MILLER SHOP
A 327-acre tract, partially owned by Flagler and FECR (Flagler, 70 acres; FECR,
257 acres), located in St. Johns County along US 1 at the northern end of the
city of St. Augustine. The property fronts along US 1 on the east, and the San
Sebastian River on the west. Flagler expects to master plan this property for a
variety of mixed uses of commercial, industrial and residential. Additionally,
Flagler has received entitlements for 150,000-sq. ft. of commercial development
on 28 acres of the property.
NATIONAL GARDENS
A 5,900-acre tract located in Volusia and Flagler Counties divided by the
intersection of I-95 and US 1. As demand develops, Flagler expects to master
plan portions of the property for a mixed use of commercial, industrial and
residential uses, but will need to first seek and obtain various land use
approvals from state, regional and local governmental entities.
TICO TRACT
A 1,700-acre tract located in northern unincorporated Brevard County just to the
southwest of the city limits of Titusville. The property fronts along I-95, SR
405 and US 1 and surrounds the Space Coast Executive Airport on two sides. At
such time that demand for industrial development dictates, Flagler expects to
develop the property as a planned industrial park, but will need to first seek
and obtain various approvals from state, regional and local governmental
entities.
FORT PIERCE K-4
A 565-acre tract located in St. Lucie County at the southeast quadrant of the
intersection of I-95 and the Florida Turnpike. The land use designation for the
property is for mixed-use development, with 160 acres of the property presently
zoned for heavy industrial. The remainder is presently zoned for agriculture
residential. When market analysis reflects the proper demand for industrial use,
Flagler expects to develop the industrial zoned property for sale. Various
approvals from state, regional and local governmental entities will be required.
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107TH AVENUE PROPERTY (SECTION 8)
A 465-acre undeveloped tract located in west Dade County bounded by NW 107th
Avenue (west), NW 90th Street (north), NW 74th Street (south) and NW 97th Avenue
(east). The property is contiguous to the southeast corner of Beacon Station,
Flagler's 500-acre master planned commercial and industrial development and
plans are to develop the property in a similar manner.
DOWNTOWN MIAMI LOTS
A 9-acre tract located in downtown Miami fronting on NW 1st Avenue adjacent to
the Miami Arena and less than one block from an announced federal courthouse.
The future land use designation and zoning of the property are for
office/mixed-use. Flagler is evaluating the development of the property for the
allowable use.
OVERVIEW OF FECI LAND HOLDINGS
The Company owned and managed 17,218 acres of land at year-end 2000, which
included 431 acres on which the buildings set forth immediately above are
located; 1,552 acres developed with infrastructure ready to receive buildings,
including the projects under development described in Item 1, Part 1 of this
Report; 14,053 acres of undeveloped properties described in Item 1, Part I of
this Report, and 1,182 acres owned by FECR. These properties are held for lease,
development and/or sale and are in fifteen counties of the state of Florida as
follows:
FLAGLER FECR TOTAL
COUNTIES ACRES ACRES ACRES
------------ ------- ------ ------
Duval 1,484 11 1,495
St. Johns 3,324 61 3,385
Putnam -- 87 87
Flagler 3,461 2 3,463
Volusia 2,908 676 3,584
Brevard 2,396 150 2,546
Orange 176 -- 176
Indian River 5 -- 5
St. Lucie 567 43 610
Martin 76 2 78
Palm Beach 12 19 31
Broward 54 5 59
Dade 1,486 106 1,592
Manatee 87 -- 87
Okeechobee -- 20 20
------ ------ ------
Total 16,036 1,182 17,218
====== ====== ======
TELECOMMUNICATIONS
EPIK leases approximately 30,000-sq. ft. of office space in Orlando, Florida
where its corporate headquarters are located. EPIK owns 52 specialized
telecommunications huts, totaling 24,230-sq. ft., to house telecommunications
equipment along the southeast footprint in Florida and Georgia. EPIK also leases
200-sq. ft. of space at Teleplace, and 3,279-sq. ft. of space at the New World
Tower, both sites located in Miami, Florida. These two sites were established
for the purpose of housing telecommunications equipment. These 54 network sites
are fully developed and integrated into the southeast footprint. In addition,
EPIK purchased a 27,500-sq. ft. office building in Jacksonville, Florida that is
being converted to house telecommunications equipment for EPIK and its
customers.
EPIK is in the process of developing over 80 additional sites along the
southeast footprint as part of two major development initiatives. Collocation
sites are under development in 46 cities along the southeast
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footprint. These sites will encompass approximately 141,800-sq. ft. Completion
of the collocation development effort is scheduled for third quarter of 2001.
The remaining 40 sites under development are part of a metro ring development
initiative that includes fiber rings around nine major metropolitan markets
along the southeast footprint. Each site is a small node along one of the nine
rings. Completion of the metro ring development effort is scheduled for late
third or fourth quarter of 2001.
In aggregate, EPIK currently operates 41 network sites in Florida, representing
approximately 24,000-sq. ft., and 13 sites in Georgia, representing
approximately 3,700-sq. ft of network space. Of the 46 collocation sites under
development, 25 are located in Florida (94,000-sq. ft.) and 21 are located in
Georgia (47,800-sq. ft.). The metro ring nodes are spread across Florida (32
nodes across eight metro rings) and Georgia (eight nodes across one ring).
TRUCKING
During 2000, FLX relocated its corporate headquarters from Cincinnati, Ohio to
Jacksonville, Florida. However, at December 31, 2000, FLX continued to lease
approximately 3,500-sq. ft. of space in Cincinnati, Ohio where its previous
corporate headquarters and terminal dispatching operations were located. This
lease was terminated on March 8, 2001.
FLX leases 717-sq. ft. of office space from FECR, and 7,168-sq. ft. of office
space from the prior owner of FLX, both in Jacksonville, Florida. FLX leases
2,500-sq. ft. in Atlanta, Georgia for terminal dispatching operations.
FLX has approximately 226 tractors available, consisting of 141 owner-operated
tractors. FLX has a total of 280 trailers in its fleet, consisting of 1-45',
24-48' and 255-53' dry vans.
ITEM 3. LEGAL PROCEEDINGS
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 transportation 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.
FECR is presently involved in proceedings initiated by the United States
Environmental Protection Agency (USEPA) for the remediation of a site in which
USEPA has named FECR a potentially responsible party (PRP). On the 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. There are many other PRPs named
by USEPA for this site. The USEPA 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. FECR is working with other PRPs
and USEPA to resolve this matter consistent with the allocator's decision. FECR
believes that its liability for the remediation of the site will not be
material.
The Company has accrued its estimated share of the total estimated cleanup costs
for the site. Based upon management's evaluation, 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.
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The Company monitors a small number of sites where properties were leased. Based
on management's ongoing review and monitoring of the sites, the Company does not
expect to incur material additional costs, if any.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The common stock of FECI, owned by 1,854 stockholders of record as of December
31, 2000, is traded on the New York Stock Exchange with the symbols FLA and
FLA.b.
The following table shows the high and low sales prices and dividends per share
by quarter for 2000 and 1999:
COMMON STOCK PRICE CASH
------------------ DIVIDENDS
HIGH LOW PAID
--------- -------- ---------
2000
----
Fourth Quarter
Class A $41 1/2 $33 3/4 $.025
Class B $40 5/8 $33 1/4 $.025
Third Quarter $44 15/16 $37 1/8 $.025
Second Quarter $49 15/16 $37 1/2 $.025
First Quarter $51 $37 3/16 $.025
1999
----
Fourth Quarter $45 3/8 $31 $.025
Third Quarter $43 7/8 $29 5/8 $.025
Second Quarter $44 1/4 $26 3/4 $.025
First Quarter $35 1/8 $25 7/8 $.025
The Company pays quarterly cash dividends on its outstanding shares of common
stock. The determination of the amount of future cash dividends, if any, to be
declared and paid by the Company will depend upon, among other things, the
Company's financial condition, funds from operations, level of capital
expenditures, future business prospects and other factors deemed relevant by the
Board of Directors. The closing prices of the Company's Class A common stock
were $35.07 and $34.15 for the Class B common stock as of March 15, 2001.
RECAPITALIZATION AND DISTRIBUTION TRANSACTION
On October 9, 2000, St. Joe Company (St. Joe) and FECI completed the
recapitalization of FECI, and St. Joe implemented the pro-rata spin-off to St.
Joe shareholders of St. Joe's approximate 54.0 percent interest in FECI. Under
the terms of the recapitalization, which was approved along with certain
corporate governance provisions at a special meeting of FECI shareholders on
March 8, 2000, St. Joe received a new class of FECI common stock, Class B common
stock (NYSE: FLA.b) for each share of FECI common stock it owned. St. Joe then
distributed the Class B common stock to its shareholders, after which it no
longer has an equity interest in FECI. Holders of Class B common stock have the
right to elect, as a class, at least 80.0 percent of FECI's Board of Directors.
All shares of FECI common stock, other than Class B common stock, have been
redesignated as FECI Class A common stock. The Class A common stock will
continue trading on the NYSE under the symbol FLA. Except with respect to voting
rights for the election or removal of Directors, the Class A and Class B common
stocks are substantially identical.
St. Joe and its affiliates continue to provide real estate services to the
Company under contracts expiring in October 2003, including property management
and leasing, development management and construction coordination.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to the
Company's consolidated statements of income for each of the five years in the
period ended December 31, 2000, and with respect to the consolidated balance
sheets for the same periods are derived from the consolidated financial
statements.
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
(dollars in thousands, except per share amounts) 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
INCOME STATEMENT DATA:
Operating Revenues 276,276 323,887 246,812 249,762 207,227
Operating Expenses *241,092 **262,863 189,939 198,198 170,425
-------- --------- -------- -------- --------
Operating Profit 35,184 61,024 56,873 51,564 36,802
Other Income (net) 7,832 **4,986 13,326 11,393 11,315
Income before Income Taxes 43,016 66,010 70,199 62,957 48,117
Provision for Income Taxes 17,258 25,231 26,578 22,822 17,703
-------- -------- -------- -------- --------
Net Income 25,758 40,779 43,621 40,135 30,414
======== ======== ======== ======== ========
Earnings Per Share - Basic $ 0.71 $ 1.12 $ 1.20 $ 1.11 $ 0.84
Earnings Per Share - Diluted $ 0.70 $ 1.12 $ 1.20 $ 1.11 $ 0.84
Weighted-Average Shares - Basic 36,365 36,302 36,286 36,286 36,208
======== ======== ======== ======== ========
Weighted-Average Shares - Diluted 36,706 36,509 36,299 36,286 36,208
======== ======== ======== ======== ========
Cash Dividends Declared on Common Stock 3,643 3,636 3,627 3,624 3,627
======== ======== ======== ======== ========
Cash Dividends Declared Per Share on
Common Stock $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10
======== ======== ======== ======== ========
AT DECEMBER 31,
-----------------------------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
--------- ------- ------- ------- -------
BALANCE SHEET DATA:
Total Assets 1,111,538 910,878 871,541 825,490 789,681
Cash and Investments 32,690 102,552 85,423 103,144 94,229
Properties Less Accumulated Depreciation 989,283 742,176 720,891 663,672 636,019
Shareholders' Equity 748,104 724,441 686,831 648,875 608,796
*Restructuring and other costs of $5,282 are included in operating expenses for
the year ended December 31, 2000.
**Special charges of $7,487 and $762 are included in operating expenses and
other income, respectively, for the year ended December 31, 1999.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis should be read in conjunction with Item
8-Consolidated Financial Statements, Item 1-Business and Item 2-Properties
included elsewhere herein. The following discussion contains forward-looking
statements, see cautionary statement at the front of this Report. The Company's
actual results may differ significantly from those projected in the
forward-looking statements.
GENERAL OVERVIEW
FECI is a holding company engaged, through four wholly owned subsidiaries, in
the rail, real estate, telecommunications and trucking businesses.
Except for certain of the Company's trucking and telecommunications assets and
operations, the Company's assets and operations are located in the state of
Florida. Consequently, more broadly, the Company's performance is significantly
affected by the general health of the Florida economy, as well as the national
economy. The Company's real estate operations are cyclical and are affected by
local demographic and general economic trends and the supply and rate of
absorption of new construction. Although the Company's real estate business has
a large portfolio of income-producing properties that provide stable operating
results, the Company's real estate earnings may be significantly affected from
period to period by the nature and timing of sales of developed property and
other assets.
The Company generates rail operating revenues primarily from the movement of
freight in both conventional freight cars and intermodal shipments of containers
and trailers on flatcars over its rail lines. Freight revenues are recorded
proportionately as freight moves from origin to destination. Modest non-freight
operating revenues are derived from demurrage and detention (equipment per diem
paid by customers), switching, weighing, special train and other transportation
services, as well as from services rendered to freight customers and other
outside parties by the Company's Maintenance of Way, Communications and Signals
and Maintenance of Equipment Departments. The Company has one railroad customer,
which accounted for approximately 15.3 percent, 17.0 percent and 18.0 percent of
its operating revenues in 1998, 1999 and 2000, respectively. The Company does
not believe that this customer will cease to be a rail shipper or will
significantly decrease its freight volume in the foreseeable future. In the
event that this customer or another large customer should cease or significantly
reduce its rail freight operations, management believes that the Company could
restructure its operations to reduce operating costs by an amount sufficient to
offset the decrease in operating revenues.
The Company's rail and trucking operating expenses consist of salaries and wages
and related payroll taxes and employee benefits, depreciation, insurance and
casualty claim expense, diesel fuel, car hire, property taxes, materials and
supplies, purchased services and other expenses. Many of the railway's operating
expenses are of a relatively fixed nature, and do not increase or decrease
proportionately with increases or decreases in operating revenues unless the
Company's management takes specific actions to restructure the Company's
operations. The Company experiences increases/decreases in fuel costs as the
price of diesel fuel fluctuates in the market.
Real estate operating revenues are generated from (i) rental contracts on its
commercial and industrial portfolio of buildings and (ii) sales of land and/or
buildings.
Real estate operating expenses include the costs of real estate sales and
managing commercial and industrial properties. The Company sells certain real
estate holdings when it determines its rate of return on such property is
advantageous. Real estate sales expenses can fluctuate significantly
year-to-year due to the costs of such sales. The Company incurs property
management expenses, such as building maintenance and leasing costs and property
taxes, as new buildings are completed and placed in the Company's inventory of
leasable properties.
Passive telecommunications revenues are generated from leases of railroad
right-of-way to other telecommunications companies for the installation of fiber
optic and other facilities. EPIK's telecommunications revenues are generated
from a variety of product offerings, including leasing of bandwidth capacity on
the lit network, long-term contracts for collocation space and dark fiber along
the southeast regional footprint, as well as metro fiber rings being
developed/completed in seven major Florida/Georgia metropolitan cities (Atlanta,
Jacksonville, Orlando, Tampa, Miami, Daytona and Melbourne). Bandwidth capacity,
collocation and dark fiber revenues are recognized over the lease contract.
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23
EPIK's telecommunications expenses are primarily related to customer service,
network operations and sales and marketing activities. These expenses include
salaries and wages, employee benefits, professional services and purchased
services. Also, included in telecommunications expenses is depreciation related
to the completed portion of the southeast network and operational infrastructure
(i.e., buildings, furniture, etc.)
Trucking revenues are generated by various services, including full
over-the-road service, intermodal pick up and delivery and transportation
brokerage.
CONSOLIDATED RESULTS OF OPERATIONS
Operating revenues decreased by $47.6 million to $276.3 million in 2000 from
$323.9 million in 1999. This decrease results primarily from decreased Flagler
realty sales of $61.9 million, offset by increased Flagler rental revenues,
telecommunication revenues and trucking revenues. During the prior year, Flagler
sold three industrial parks accounting for $62.5 million of 1999 revenues.
Flagler's rental revenues increased $6.0 million in 2000 as lease-up occurred on
properties completed in 1999 and 2000. EPIK's telecommunications revenues
increased $3.2 million in 2000 as collocation and capacity products were made
available on the southeast network. Trucking revenues increased $2.6 million as
the new management team focused freight service offerings in the Southeast
jointly with FECR's freight services.
RESULTS FOR 2000 COMPARED TO 1999
Discussions are based on segment information - see Note 9 included in Item 8 of
this Report.
REVENUES
RAILWAY
FECR handled 176,545 rail carloads in 2000 compared to 173,759 in 1999, an
increase of 2,786 carloads or 1.6 percent. The railroad handled 269,337
intermodal units in 2000 compared to 287,359 in 1999, a decrease of 18,022 or
6.3 percent.
FECR's operating revenues were comparable at $164.8 million for 2000 versus
$164.9 million for 1999. While aggregate loadings remained strong at 111,921
loads, an increase of 1,666 units over 1999 results, decreased intermodal
traffic offset the aggregate revenue gains. Intermodal traffic continues to be
adversely affected by operational difficulties of connecting carriers and a
general softening of the economy, especially during the second half of 2000.
Aggregate loadings reflected a strong Florida economy where private construction
and public projects (e.g., highways, etc.) continued to demand aggregate
products. All other traffic types were comparable year-over-year. Miscellaneous
freight charges, which include switching, demurrage, detention and rents for
operating properties/facilities increased $0.9 million due to increased focus on
provisioning and billing these value added services for our freight customers.
REAL ESTATE
Realty rental and sales revenues from both Flagler and other realty operations
were $75.0 million for 2000 compared to $129.6 million for 1999. The decrease
from the prior year is primarily associated with real estate sales in 1999 that
generated $78.4 million in revenue, and included the disposal of three business
parks with 1.5 million sq. ft. of land and several undeveloped land parcels.
Sales of several undeveloped land parcels generated $17.5 million in revenues in
2000. The decrease in revenues associated with real estate sales was somewhat
offset by increases in rental revenues. Flagler's rental operations generated
$54.2 million in 2000 rental revenues compared to $48.2 million in 1999. Other
rental revenues increased to $3.3 million in 2000 compared to $3.0 million in
1999.
At year-end 2000, Flagler held 51 finished buildings with 5.3 million sq. ft.
and 93.0 percent occupancy. Flagler's "same store" properties, including 46
buildings with 4.7 million sq. ft., were 94.0 percent occupied at December 31,
2000 compared to 89.0 percent at December 31, 1999. "Same store" rental revenues
increased by $2.1 million, with $43.7 million generated in 2000 over $41.6
million in 1999. Increases were principally due to occupancy improvements.
Four 100.0 percent owned Flagler operating properties, with 511,000-sq. ft.
placed in service during 1999, were
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89.0 percent occupied at year-end 2000. One 101,000-sq. ft. build-to-suit
facility was placed in service during May 2000. Three additional properties,
with 408,000-sq. ft., received certificates of occupancy during 2000 and are
currently in lease-up period. Together, these properties generated $9.4 million
in revenues during 2000, an increase of $7.6 million over 1999's revenues of
$1.8 million. Operating properties that were sold during 1999 generated $3.5
million in revenues, with no corresponding revenues in 2000.
At the end of fourth quarter 2000, Flagler had 12 projects with 1.8 million sq.
ft. in various stages of development (408,000-sq. ft. in lease-up period;
532,000-sq. ft. under construction; 883,000-sq. ft. in pre-development).
The Company uses a supplemental performance measure along with operating profit
to report its operating results for its real estate operations. This measure is
earnings before interest expense, income taxes, depreciation and amortization
(EBITDA). EBITDA is not a measure of operating results or cash flows from
operating activities as defined by generally accepted accounting principles.
Additionally, EBITDA is not necessarily indicative of cash available to fund
cash needs and should not be considered as an alternative to cash flows as a
measure of liquidity. However, the Company believes that EBITDA provides
relevant information about its real estate operations and, along with operating
profit, is useful in understanding its real estate operating results.
EBITDA generated by the realty segment totaled $39.8 million for 2000 compared
to $50.6 million in the prior year. The decrease is related to real estate
sales. Flagler's real estate sales generated EBITDA of $7.8 million in 2000
compared to $21.0 million in the prior year. Flagler's 1999 sales EBITDA
included the disposition of three business parks, including 1.5 million sq. ft.
and several undeveloped land parcels. Flagler's 2000 sales include the
disposition of ancillary land holdings only, with no operating properties sold
during the year. Other realty land sales generated $1.8 million EBITDA in 2000
and $0.8 million in 1999.
EBITDA decreases related to real estate sales are somewhat offset by increases
related to rental activities. Flagler's rental operations (net of overheads)
generated 2000 EBITDA of $27.4 million over $26.1 million for 1999. EBITDA
covering rail realty rental operations was $2.9 million in 2000 over $2.7
million for 1999.
Flagler's operating properties generated $36.3 million in 2000's rental EBITDA,
with $32.4 million generated in the prior year. "Same store" EBITDA improved 4.0
percent with $29.8 million in 2000 compared to $28.5 million in 1999. New
properties completed in 1999 and 2000 (including properties currently in
lease-up period) contributed $6.5 million in 2000 EBITDA compared to $1.4
million in 1999. Properties that were disposed of generated $2.5 million in
rental EBITDA during 1999, with no corresponding EBITDA in 2000.
TELECOMMUNICATIONS
EPIK's revenues were $3.4 million for 2000. Fourth quarter revenues were $2.4
million as significant new segments of the southeast regional footprint became
operational. EPIK's revenue backlog increased over 450.0 percent in 2000 to over
$180.0 million, with 70.0 percent of the backlog from collocation and the
remainder from dark fiber, capacity and IP services.
Revenues from passive fiber leases increased $1.7 million to $7.0 million in
2000. This increase results from favorable leasing activities with major
telecommunications companies (e.g., MCI, Qwest, etc.) and a $0.8 million
settlement of a dispute with a telecommunications company over amounts due for
installations on FECR's property.
TRUCKING
The Company's trucking subsidiary's operating revenues increased to $31.6
million in 2000 from $29.0 million in 1999. This increase reflects improved
sales efforts resulting in additional customer accounts. For the year, traffic
interchanged with the FECR improved by 14.0 percent.
EXPENSES
Operating expenses decreased by $21.8 million in 2000 to $241.1 million from
$262.9 million in 1999. Most notably, expenses for Flagler's realty sales
decreased $48.7 million, reflecting $48.6 million of costs associated with the
sale of three previously mentioned industrial parks. Increased Flagler's realty
rental operating expenses of $7.8 million resulted from costs associated with
the lease-up of new operating buildings and increased staffing at Flagler's
headquarters' operation. Railway's expenses decreased $9.2 million to $121.2
million in 2000. Railway's expenses included $5.5 million of special charges in
1999, and $2.7 million related to the settlement of previous year's litigation.
The remaining decrease in expenses was the net of a $5.0 million fuel price
increase offset by a
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wide spectrum of cost savings. EPIK's start-up costs increased $21.1 million to
$24.4 million as it implemented the business plan for the southeast network.
Trucking expenses increased $9.5 million as the company reorganized its
operations and personnel. Corporate general and administrative expenses
decreased $1.9 million to $7.0 million as 1999's expenses included $2.5 million
of spin-off related costs.
RAILWAY
Excluding a 62.3 percent fuel price increase ($5.0 million) and the 1999 special
charges ($5.5 million), FECR's operating expenses decreased by $8.7 million or
7.0 percent over 1999. Decreases in expenses included labor and benefits ($2.3
million), car hire ($1.2 million), casualty and insurance ($2.2 million), fuel
efficiency ($1.0 million), and other costs, primarily derailment expenses ($0.9
million). Labor and benefits decreased as operational and headquarters'
efficiencies allowed the number of employees to decrease by 6.0 percent. An
increased focus on car utilization and velocity decreased car hire net costs by
$1.2 million. Network operations were improved to allow significant improvement
in total transit time for foreign equipment on FECR's rail line. Results for
casualty and insurance expenses for 1999 included a $2.7 million settlement for
a prior year's incident. During 2000, FECR effectively administered an improved
shutdown policy which helped to increase fuel efficiency by $1.0 million. FECR
experienced a reduced number of derailments during 2000, which reduced costs by
$0.8 million, the largest decrease in a number of decreases for other costs.
Railway segment's operating ratio improved to 73.5 percent compared to 75.7
percent in 1999 (excluding special charges). On a fuel neutral basis, the
operating ratio would have been 70.5 percent for 2000.
REAL ESTATE
Realty rental and sales operating expenses (after depreciation and amortization)
for both Flagler and other realty decreased from $94.8 million in 1999 to $54.0
million in 2000. The decrease is associated with fewer real estate sales in
2000. As previously discussed, sales in 1999 included the disposal of three
business parks with 1.5 million sq. ft. of operating properties, as well as
several undeveloped land parcels. Sales for 2000 included undeveloped land
parcels only, with no operating properties disposed of during the year. Sales
expenses totaled $7.9 million for 2000 compared to $56.7 million in 1999.
Offsetting the decreases in expenses associated with real estate sales were
increases in expenses related to rental activities. "Same store" rental expenses
(before depreciation and amortization) increased by $0.9 million from $13.2
million in 1999 to $14.1 million in 2000. Expenses (before amortization and
depreciation) related to projects completed in 1999 and 2000 (including those
currently in lease-up period) increased by $2.4 million from $0.5 million in
1999 to $2.9 million in 2000. "Sold store" expenses were $1.1 million in 1999,
with no corresponding expenses in 2000. Asset management fees/corporate overhead
and depreciation/amortization increased by $4.8 million, all costs that are
determined by the value of and/or additions to the portfolio, along with
transition costs associated with Flagler's new management team.
TELECOMMUNICATIONS
Costs of service expenses were $2.4 million for 2000, an increase of $2.4
million and 100.0 percent. During 2000, EPIK completed network operations
accounting for the increase in this expense category. EPIK's selling, general
and administrative expenses increased to $22.0 million in 2000 from $3.3 million
in 1999 and were reflective of start-up costs, primarily wages, benefits,
professional services and sales and marketing expenses, necessary to execute its
business plan for the development of the southeast regional footprint.
TRUCKING
Trucking expenses increased $9.5 million to $39.8 million at December 31, 2000.
Increased expenses reflected a number of costs and restructuring charges,
including expenses associated with relocation of the Company's headquarters from
Cincinnati, Ohio to Jacksonville, Florida, as well as force reductions and
severance payments, and the addition of new facilities and staff at the new
headquarters. The costs and charges also include the restructuring of the
existing network, the opening of an additional terminal in Charlotte, North
Carolina, and a charge for the impairment of goodwill associated with the
original acquisition and operations of FLX. The total amount of the pre-tax
charges is $5.3 million.
Excluding the costs and restructuring charges, operating expenses were $34.5
million compared with $30.2 million for the same period last year. This increase
in expenses primarily relates to insurance and casualty costs ($0.7 million),
increased fuel costs ($0.6 million), and transition costs for the new management
team ($0.3 million), as
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well as higher line-haul costs associated with increased revenues (driver costs
$0.1 million, drayage costs $0.9 million, brokerage costs $0.4 million,
equipment lease expense $0.5 million, and $0.7 million increase in rail
interchange costs).
CORPORATE GENERAL & ADMINISTRATIVE
The decrease in corporate general and administrative expenses of $1.9 million in
2000 related primarily to $2.5 million of spin-off (legal and consulting) costs
incurred and reflected in the 1999 results.
OTHER INCOME
Other income increased $2.8 million to $7.8 million primarily from a $2.4
million TTX dividend received during the first quarter of 2000. FECR owns 1.0
percent of TTX, a provider of intermodal equipment. Dividends from TTX have
historically been infrequent.
INCOME TAX
Income tax expenses represent an effective rate of 40.1 percent in 2000 compared
to an effective rate of 38.2 percent in 1999.
NET INCOME
Net income was $25.8 million or $0.70 per diluted share for 2000 compared to net
income of $40.8 million or $1.12 per diluted share in 1999.
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SUMMARY OF OPERATING RESULTS
----------------------------
2000 vs. 1999
-------------
INFORMATION BY INDUSTRY SEGMENT
(dollars in thousands)
OPERATING REVENUES 2000 1999 $ Change
- ------------------ ---- ---- --------
Railway (a) 164,844 164,899 (55)
Trucking 31,601 29,011 2,590
Realty:
Flagler Realty Rental (b) 54,196 48,179 6,017
Flagler Realty Sales 15,692 77,608 (61,916)
Other Rental 3,253 2,979 274
Other Sales 1,815 803 1,012
------------------------------------
Total Realty 74,956 129,569 (54,613)
Telecommunications:
EPIK Communications 3,393 160 3,233
Fiber Leases 6,984 5,271 1,713
------------------------------------
Total Telecommunications 10,377 5,431 4,946
Total Revenues (segment) 281,778 328,910 (47,132)
Intersegment Revenues (5,502) (5,023) (479)
------------------------------------
Total Revenues (consolidated) 276,276 323,887 (47,611)
OPERATING EXPENSES
- ------------------
Railway (c) 121,181 130,370 (9,189)
Trucking (d) 39,752 30,223 9,529
Realty:
Flagler Realty Rental 45,632 37,824 7,808
Flagler Realty Sales 7,930 56,650 (48,720)
Other Rental 437 355 82
Other Sales -- -- --
------------------------------------
Total Realty 53,999 94,829 (40,830)
Telecommunications:
EPIK Communications 24,426 3,289 21,137
Fiber Leases 191 255 (64)
------------------------------------
Total Telecommunications 24,617 3,544 21,073
Corporate General & Administrative (e) 7,045 8,920 (1,875)
------------------------------------
Total Expenses (segment) 246,594 267,886 (21,292)
Intersegment Expenses (5,502) (5,023) (479)
------------------------------------
Total Expenses (consolidated) 241,092 262,863 (21,771)
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(dollars in thousands)
OPERATING PROFIT (LOSS) 2000 1999 $ Change
- ----------------------- ---- ---- --------
Railway 43,663 34,529 9,134
Trucking (8,151) (1,212) (6,939)
Realty 20,957 34,740 (13,783)
Telecommunications (14,240) 1,887 (16,127)
Corporate General & Administrative (7,045) (8,920) 1,875
------- ------- -------
Segment & Consolidated Operating Profit 35,184 61,024 (25,840)
Other Income (net) 7,832 4,986 2,846
------- ------- -------
Income before Taxes 43,016 66,010 (22,994)
Provision for income taxes (17,258) (25,231) 7,973
------- ------- -------
Net Income 25,758 40,779 (15,021)
======= ======= =======
EBITDA BY INDUSTRY SEGMENT (f)
2000 1999 $ Change
---- ---- --------
RAILROAD EBITDA 58,529 49,148 9,381
REALTY EBITDA:
EBITDA from Flagler operating properties rents 36,279 32,391 3,888
EBITDA (loss) from Flagler land rents/holding costs (3,092) (2,329) (763)
Equity pickups on partnership rents 78 110 (32)
Less: unallocated corporate overhead (5,895) (4,046) (1,849)
------- ------ -------
EBITDA from Flagler rental properties, net of
overheads 27,370 26,126 1,244
EBITDA from Flagler real estate sales, net of
overheads 7,762 20,959 (13,197)
------- ------ -------
Total EBITDA - Flagler 35,132 47,085 (11,953)
------- ------ -------
EBITDA from other rental 2,857 2,671 186
EBITDA from other real estate sales 1,815 803 1,012
Total EBITDA - real estate segment 39,804 50,559 (10,755)
======= ====== =======
EPIK EBITDA (18,649) (3,120) (15,529)
======= ====== =======
26
29
SUMMARY OF OPERATING EXPENSES
-----------------------------
2000 vs. 1999
-------------
RAIL OPERATING EXPENSES (dollars in thousands) 2000 1999 $ Change
- ----------------------- ---- ---- --------
Compensation & Benefits 47,197 53,874 (6,677)
Fuel 13,851 9,706 4,145
Equipment Rents (net) 1,129 2,306 (1,177)
Depreciation 14,825 14,582 243
Purchased Services 8,616 8,958 (342)
Repairs Billed to/by Others (net) (2,961) (2,086) (875)
Load/Unload 7,392 8,010 (618)
Casualty & Insurance 3,523 5,698 (2,175)
Property Taxes 4,500 4,280 220
Materials 9,443 10,832 (1,389)
General & Administrative 10,932 10,590 342
Other 2,734 3,620 (886)
------- ------- ------
Total Operating Expenses-Rail Segment 121,181 130,370 (9,189)
======= ======= ======
TRUCKING OPERATING EXPENSES
- ---------------------------
Compensation & Benefits 3,487 3,282 205
Fuel 1,659 1,092 567
Equipment Rents (net) 2,875 1,519 1,356
Depreciation 41 35 6
Purchased Services 12,161 10,910 1,251
Repairs Billed to/by Others (net) 808 972 (164)
Casualty & Insurance 2,611 1,947 664
Property Taxes 242 257 (15)
General & Administrative 9,751 4,833 4,918
Other 759 677 82
Intersegment Expenses 5,358 4,699 659
------- ------- ------
Total Operating Expenses-Trucking Segment 39,752 30,223 9,529
======= ======= ======
REALTY OPERATING EXPENSES
- -------------------------
Real Estate Taxes-Developed 5,775 5,157 618
Repairs & Maintenance-Recoverable 1,504 1,271 233
Services, Utilities, Management Costs 9,144 8,085 1,059
------- ------ -------
Subtotal-Expenses subject to recovery 16,423 14,513 1,910
Realty Sales Expense 7,929 56,650 (48,721)
Real Estate Taxes-Undeveloped Land 3,266 2,773 493
Repairs & Maintenance-Non-recoverable 1,262 558 704
Depreciation & Amortization 18,461 15,536 2,925
SG&A-Non-recoverable 6,658 4,799 1,859
------- ------ -------
Subtotal-Non-recoverable Expenses 37,576 80,316 (42,740)
TOTAL OPERATING EXPENSES-REALTY SEGMENT 53,999 94,829 (40,830)
======= ====== =======
TOTAL OPERATING EXPENSES-TELECOM SEGMENT 24,617 3,544 21,073
------- ------- -------
CORPORATE GENERAL & ADMINISTRATIVE 7,045 8,920 (1,875)
------- ------- -------
TOTAL SEGMENT OPERATING EXPENSES 246,594 267,886 (21,292)
======= ======= =======
(Prior years results have been reclassified to conform to current year's
presentation.)
27
30
(a) Included intersegment revenues of $5,358 and $4,699 for the year ended
December 31, 2000 and 1999, respectively.
(b) Included intersegment revenues of $144 and $324 for the year ended
December 31, 2000 and 1999, respectively.
(c) Included intersegment expenses of $69 and $136 for the year ended
December 31, 2000 and 1999, respectively.
(d) Included intersegment expenses of $5,358 and $4,699 for the year ended
December 31, 2000 and 1999, respectively.
(e) Included intersegment expenses of $75 and $188 for the year ended
December 31, 2000 and 1999, respectively.
(f) EBITDA is defined as earnings before interest expense, income taxes,
depreciation and amortization.
RESULTS FOR 1999 COMPARED TO 1998
RAILWAY
FECR handled 174,000 rail carloads in 1999 compared to 161,000 in 1998, an
increase of 13,000 carloads or 8.1 percent. The railroad handled 287,000
intermodal units in 1999 compared to 326,000 in 1998, a decrease of 39,000 or
12.0 percent.
FECR's revenues increased to $164.9 million in 1999 from $162.4 million in 1998,
an increase of $2.5 million or 1.5 percent. This increase was primarily
attributable to increases in shipments of aggregates and automotive/automotive
parts traffic. Aggregate shipments increased by 7,100 carloads or 6.8 percent in
1999 over 1998. This increase is reflective of a sustaining strong Florida
economy as evidenced with continued growth in residential and commercial
markets, as well as highway construction projects. Automotive and
automobile-related traffic increased by approximately 1,800 rail cars or 8.0
percent in 1999 over 1998. The increase in the number of automotive shipments is
primarily attributable to continued strength in the shipment of new vehicles to
Miami, as well as the opening of an automotive handling facility on the
Company's property in Titusville in 1998 by NS.
The decrease in intermodal shipments includes a decrease of approximately 25,700
or 11.0 percent in trailers handled, and a decrease in containers handled of
13,600 or 12.9 percent. The overall 12.0 percent decrease in intermodal
shipments primarily results from NS's service redesign that commenced in 1998
whereby certain terminals along the East Coast of Florida were no longer
marketed. Port consolidations and the repositioning of certain traffic from 20'
to 40' equipment also contributed to the decrease.
Other carload traffic increased 4,200 carloads or 11.9 percent. This increase
was primarily due to additional traffic received at the new NS bulk terminal
facility located on FECR's right-of-way. Traffic volumes associated with SCFE
also increased in 1999.
REAL ESTATE
The Company generated operating revenues ($129.6 million in 1999 and $53.1
million in 1998) in its realty segment from both real estate owned by Flagler
and FECR. Flagler generated revenues ($125.8 million in 1999 and $50.2 million
in 1998) from rent of its improved and certain unimproved properties and sales
of certain real estate assets. FECR's realty revenues ($3.8 million in 1999 and
$3.0 million in 1998) are generated by leases and sales of non-operating
properties.
Flagler's revenues increased by $75.6 million (151.0 percent) to $125.8 million
in 1999 compared to $50.2 million in 1998. The increase is primarily associated
with 1999 real estate sales, which contributed $70.1 million to the increase
over 1998. Two industrial parks in Miami, with ten warehouse buildings (1.2
million sq. ft.), were sold in the first quarter of 1999, generating revenues of
$49.0 million. Additionally, one industrial park in Jacksonville, with six
buildings, was sold during December 1999, generating revenues of $13.6 million.
Increased rental revenues contributed the remaining $5.5 million of the increase
in total Flagler revenues over 1998 rental revenues of $42.7 million. Increased
rental revenues were primarily generated from increased occupancy and rental
rates of buildings completed during 1998 and "leased-up" during 1998 and 1999.
Increases in rental revenues from "same store" ($2.5 million) and new buildings
completed in 1999 ($1.9 million) were offset by decreased revenues ($3.9
million) from buildings sold during 1999.
28
31
Flagler generated EBITDA of approximately $47.1 million in 1999 compared to
$27.1 million in 1998, a $20.0 million increase or 74.0 percent over 1998. $15.0
million of the increased EBITDA resulted from sales of the previously mentioned
industrial parks and certain undeveloped land parcels. The remaining increases
in EBITDA related to rental activities.
TELECOMMUNICATIONS
Telecommunications revenues were $5.4 million for 1999, $1.0 million less than
1998. Included in 1998 revenues was a $2.5 million recognition of a non-monetary
exchange involving fiber optic cables. Results reflect increased revenues
provided under lease renewals and new leases for 1999.
TRUCKING
The Company's trucking subsidiary's operating revenues were down slightly at
$29.0 million in 1999 from $29.8 million in 1998. This decrease was primarily
attributable to the loss of three customer accounts during the third quarter,
which was not fully offset by new business.
EXPENSES
Segment operating expenses overall increased $73.1 million to $267.9 million in
1999. Operating expense increases consisted of approximately $57.6 million in
the realty segment, $5.4 million for the railway segment, $3.4 million in the
telecommunications segment, $6.2 million for corporate general and
administrative and $0.5 million for the trucking segment in 1999.
RAILWAY
Operating expenses increased $5.4 million to $130.4 million at December 31,
1999. Included in 1999 operating expenses were $5.5 million of special charge
items shown in Note 4 of the financial statements. These special charge items
were included in the captions "Materials" ($1.2 million) and "General and
Administrative" ($4.3 million). Increased fuel costs of $0.4 million, a $2.7
million settlement of a lawsuit involving a 1994 incident, and costs of $1.2
million associated with a second quarter derailment were offset by savings
generated from severance programs started in late 1998 ($2.0 million); cost
control initiatives implemented in 1999 ($2.7 million), and reduced intermodal
expenses as volumes decreased ($0.9 million).
REAL ESTATE
Real estate expenses increased by $57.6 million to $94.8 million in 1999. The
sale of three industrial parks previously mentioned caused real estate expenses
to increase $53.6 million over 1998. Rental operating expenses accounted for the
remaining increased expenses, and reflected overall increased costs of "same
store" and new buildings, along with increased management fees.
TELECOMMUNICATIONS
Telecommunications expenses, which increased $3.4 million to $3.5 million in
1999, reflected the start-up of EPIK. EPIK established offices in Orlando, began
its initial operations, and built a team of 13 professionals during 1999.
TRUCKING
Trucking expenses increased $0.5 million to $30.2 million at December 31, 1999.
Increased expenses primarily resulted from increased casualty expenses of $1.0
million that related to prior year incidents, while operating costs decreased
with revenue volumes.
CORPORATE GENERAL & ADMINISTRATIVE
The increase in corporate general and administrative expenses of $6.2 million in
1999 related to $2.0 million of special charges for the curtailment of certain
compensation plans, $2.5 million of spin-off (legal and consulting)
29
32
costs incurred, and $1.9 million of increased staffing and moving costs as the
new management team was assembled.
OTHER INCOME
Other income generated from investments and other transactions decreased to $5.0
million in 1999, a decrease of $8.3 million or 62.6 percent over 1998. The
decrease primarily resulted from decreases in investment income as the Company
liquidated certain investments to fund capital expenditures for transportation
projects and new building construction, along with the recognition of unrealized
losses on certain investments and the write-off of certain information
technology assets that were included in the second quarter special charges.
INCOME TAX
Income tax expenses decreased by approximately $1.4 million to $25.2 million in
1999, representing an effective rate of 38.2 percent compared to an effective
rate of 37.9 percent in 1998.
NET INCOME
Net income was $40.8 million or $1.12 per diluted share in 1999 compared to net
income of $43.6 million or $1.20 per diluted share in 1998.
30
33
SUMMARY OF OPERATING RESULTS
----------------------------
1999 vs. 1998
-------------
INFORMATION BY INDUSTRY SEGMENT
(dollars in thousands)
OPERATING REVENUES 1999 1998 $ Change
- ------------------ ---- ---- --------
Railway (a) 164,899 162,389 2,510
Trucking 29,011 29,774 (763)
Realty:
Flagler Realty Rental (b) 48,179 42,672 5,507
Flagler Realty Sales 77,608 7,513 70,095
Other Rental 2,979 2,505 474
Other Sales 803 459 344
------- -------- -------
Total Realty 129,569 53,149 76,420
Telecommunications:
EPIK Communications 160 -- 160
Fiber Leases 5,271 6,392 (1,121)
------- -------- -------
Total Telecommunications 5,431 6,392 (961)
Total Revenues (segment) 328,910 251,704 77,206
Intersegment Revenues (5,023) (4,892) (131)
------- -------- -------
Total Revenues (consolidated) 323,887 246,812 77,075
OPERATING EXPENSES
- ------------------
Railway (c) 130,370 124,936 5,434
Trucking (d) 30,223 29,726 497
Realty:
Flagler Realty Rental 37,824 34,534 3,290
Flagler Realty Sales 56,650 2,563 54,087
Other Rental 355 160 195
Other Sales -- -- --
------- ------- -------
Total Realty 94,829 37,257 57,572
Telecommunications:
EPIK Communications 3,289 -- 3,289
Fiber Leases 255 177 78
------- ------- -------
Total Telecommunications 3,544 177 3,367
Corporate General & Administrative (e) 8,920 2,735 6,185
------- ------- -------
Total Expenses (segment) 267,886 194,831 73,055
Intersegment Expenses (5,023) (4,892) (131)
------- ------- -------
Total Expenses (consolidated) 262,863 189,939 72,924
31
34
(dollars in thousands) 1999 1998 $ Change
---- ---- --------
OPERATING PROFIT (LOSS)
- -----------------------
Railway 34,529 37,453 (2,924)
Trucking (1,212) 48 (1,260)
Realty 34,740 15,892 18,848
Telecommunications 1,887 6,215 (4,328)
Corporate General & Administrative (8,920) (2,735) (6,185)
------- ------ ------
Segment & Consolidated Operating Profit 61,024 56,873 4,151
Other Income (net) 4,986 13,326 (8,340)
------- ------ ------
Income before Taxes 66,010 70,199 (4,189)
Provision for Income Taxes (25,231) (26,578) 1,347
------- ------- ------
Net Income 40,779 43,621 (2,842)
======= ======= ======
EBITDA BY INDUSTRY SEGMENT
1999 1998 $ Change
---- ---- --------
RAILROAD EBITDA 49,148 52,085 (2,937)
====== ====== ======
REALTY EBITDA:
EBITDA from Flagler operating properties rents 32,391 27,090 5,301
EBITDA (loss) from Flagler land rents/holding costs (2,329) (2,268) (61)
Equity pickups on partnership rents 110 -- 110
Less: unallocated corporate overhead (4,046) (2,737) (1,309)
------ ------ ------
EBITDA from Flagler rental properties, net of overheads 26,126 22,085 4,041
EBITDA from Flagler real estate sales, net of overheads 20,959 5,054 15,905
------ ------ ------
Total EBITDA - Flagler 47,085 27,139 19,946
------ ------ ------
EBITDA from other rental 2,671 2,345 326
EBITDA from other real estate sales 803 459 344
Total EBITDA - real estate segment 50,559 29,943 20,616
====== ====== ======
EPIK EBITDA (3,120) -- (3,120)
====== ====== ======
32
35
SUMMARY OF OPERATING EXPENSES
1999 VS. 1998
RAIL OPERATING EXPENSES (dollars in thousands) 1999 1998 $ CHANGE
---- ---- --------
Compensation & Benefits 53,874 52,108 1,766
Fuel 9,706 9,220 486
Equipment Rents (net) 2,306 1,671 635
Depreciation 14,582 14,802 (220)
Purchased Services 8,958 10,054 (1,096)
Repairs Billed to/by Others (net) (2,086) (1,368) (718)
Load/Unload 8,010 8,622 (612)
Casualty & Insurance 5,698 5,787 (89)
Property Taxes 4,280 4,008 272
Materials 10,832 11,124 (292)
General & Administrative 10,590 6,949 3,641
Other 3,620 1,959 1,661
------- ------- ------
Total Operating Expenses-Rail Segment 130,370 124,936 5,434
======= ======= ======
TRUCKING OPERATING EXPENSES
Compensation & Benefits 3,282 3,439 (157)
Fuel 1,092 1,180 (88)
Equipment Rents (net) 1,519 1,624 (105)
Depreciation 35 55 (20)
Purchased Services 10,910 11,511 (601)
Repairs Billed to/by Others (net) 972 1,236 (264)
Casualty & Insurance 1,947 779 1,168
Property Taxes 257 221 36
General & Administrative 4,833 4,627 206
Other 677 314 363
Intersegment Expenses 4,699 4,740 (41)
------- ------- ------
Total Operating Expenses-Trucking Segment 30,223 29,726 497
======= ======= ======
REALTY OPERATING EXPENSES
Real Estate Taxes-Developed 5,157 5,913 (756)
Repairs & Maintenance-Recoverable 1,271 1,454 (183)
Services, Utilities, Management Costs 8,085 6,606 1,479
------- ------- ------
Subtotal-Expenses subject to recovery 14,513 13,973 540
Realty Sales Expense 56,650 2,563 54,087
Real Estate Taxes-Undeveloped Land 2,773 2,377 396
Repairs & Maintenance-Non-recoverable 558 788 (230)
Depreciation & Amortization 15,536 13,562 1,974
SG&A-Non-recoverable 4,799 3,994 805
------- ------- ------
Subtotal-Non-recoverable Expenses 80,316 23,284 57,032
TOTAL OPERATING EXPENSES-REALTY SEGMENT 94,829 37,257 57,572
======= ======= ======
TOTAL OPERATING EXPENSES-TELECOM SEGMENT 3,544 177 3,367
------- ------- ------
CORPORATE GENERAL & ADMINISTRATIVE 8,920 2,735 6,185
------- ------- ------
TOTAL SEGMENT OPERATING EXPENSES 267,886 194,831 73,055
======= ======= ======
(Prior years results have been reclassified to conform to current year's
presentation.)
(a) Included intersegment revenues of $4,699 and $4,740 for the year ended
December 31, 1999 and 1998, respectively.
(b) Included intersegment revenues of $324 and $152 for the year ended December
31, 1999 and 1998, respectively.
(c) Included intersegment expenses of $136 and $55 for the year ended December
31, 1999 and 1998, respectively.
(d) Included intersegment expenses of $4,699 and $4,740 for the year ended
December 31, 999 and 1998, respectively.
(e) Included intersegment expenses of $188 and $97 for the year ended December
31, 1999 and 1998, respectively.
33
36
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company made substantial capital expenditures during 2000, especially for
the design, construction and development of EPIK's southeast network and other
telecommunications initiatives. Capital expenditures for 2000 were $177.5
million, $62.0 million and $32.0 million at EPIK, Flagler and FECR,
respectively. For 2001, the Company plans to continue to develop the value of
its assets with follow through capital investment in the range of $350.0 to
$375.0 million. The focus will be continued improvements in transportation,
development of the real property portfolio and completion of the southeast
telecommunications build-out announced last year. This investment program is
planned to be financed through use of the Company's cash balances, bank debt,
non-recourse financing for the Company's leased up realty holdings, as well as
internally generated cash flow.
Net cash generated by operations was $134.5 million, $56.0 million and $31.3
million for the years ended December 31, 2000, 1999 and 1998, respectively. Net
cash generated by operations for the year ended December 31, 2000 was due
primarily from net income, non-cash items and changes in working capital. Also,
included in net cash generated from operations was the sale of trading
investments.
Cash used in investing activities was $217.6 million, $52.0 million and $44.1
million for the years ended December 31, 2000, 1999 and 1998, respectively. For
the year 2000, these funds were used for capital expenditures at the Company's
subsidiaries.
Cash flows from or (used in) financing activities were $85.8 million, ($2.8
million) and ($3.6 million) for the years ended December 31, 2000, 1999 and
1998, respectively. During the year 2000, the Company borrowed $88.0 million
from its $200.0 million revolving credit agreement. On March 22, 2001, this
facility was restructured into a secured facility with a total borrowing
capacity of $375.0 million.
The Company anticipates that its cash flows from operations will not generate
enough capital to finance its growth plans, especially in telecommunications and
realty. The Company will meet this demand with borrowings on its revolving
agreement and non-recourse financing on its real estate holdings.
The Company's capital requirements may vary based upon the timing and the
success of implementation of its business plan and as a result of regulatory,
technological and competitive developments or if: (i) demand for the Company's
services or cash flow from operations is less than or more than expected, (ii)
the Company's plans or projections change or prove to be inaccurate, (iii) the
Company makes acquisitions, or (iv) the Company accelerates deployment of its
network or otherwise alters the schedule or targets of its business plan
implementation. The expectations of required future capital expenditures are
based on the Company's current estimates.
ENVIRONMENTAL 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.
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 insignificant to
the operations of the Company. Management does not anticipate any changes in
these expenditures.
These expenditures are expected to be funded from current operations
supplemented, as necessary, by cash and investments currently on hand and
through the sale of properties.
34
37
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk primarily
related to the Company's investment portfolio. The portfolio is materially
comprised of fixed rate municipal securities with active secondary or resale
markets to ensure portfolio liquidity. The Company does not use derivative
financial instruments to hedge its investment portfolio.
The table below presents principal amounts and related weighted-average interest
rates by year of maturity for the Company's investment portfolio, segregated
into trading and non-trading. The weighted-average interest rates for the
various fixed-rate investments are based on the actual rates that existed as of
December 31, 2000.
EXPECTED CONTRACTUAL MATURITIES
(dollars in thousands) 2001 Fair Value
---- ----------
Short-Term Investments
Available-for-Sale:
Tax Exempt Municipals
Fixed-Rate 13,437 12,942
Weighted-Average Interest Rate 6.75%
Other Investments
Available-for-Sale:
Other Debt Securities
Fixed-Rate 788 1,304
Weighted-Average Interest Rate 5.00%
As the table incorporates only those exposures that exist as of December 31,
2000, it does not consider those exposures or positions that could arise after
that date. As a result, the Company's ultimate realized gain or loss with
respect to interest rate fluctuations would depend on the exposures that arise
during the period and market interest rates.
The Company also maintains a revolving credit facility on which interest rate
floats with the current market rate, currently 7.07%, and such rate
approximates the Company's fair market value of borrowing.
35
38
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 balance sheets of Florida East Coast
Industries, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2000. In connection with our audits of the
consolidated financial statements, we also audited the financial statement
schedule as listed in the accompanying Index on Page 59 of this Report on Form
10-K for the year 2000. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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
significant 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, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Jacksonville, Florida
February 9, 2001
36
39
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2000, 1999 and 1998
YEARS ENDED DECEMBER 31,
------------------------
(dollars in thousands, except per share amounts) 2000 1999 1998
---- ---- ----
OPERATING REVENUES 276,276 323,887 246,812
OPERATING EXPENSES (NOTE 4) 241,092 262,863 189,939
---------- ----------- ----------
OPERATING PROFIT 35,184 61,024 56,873
OTHER INCOME (NET) (NOTE 15) 7,832 4,986 13,326
---------- ----------- ----------
INCOME BEFORE INCOME TAXES 43,016 66,010 70,199
PROVISION FOR INCOME TAXES (NOTE 8) 17,258 25,231 26,578
---------- ----------- ----------
NET INCOME 25,758 40,779 43,621
========== ========== ==========
PER SHARE DATA:
Cash Dividends $ 0.10 $ 0.10 $ 0.10
========== ========== ==========
Basic Net Income Per Share $ 0.71 $ 1.12 $ 1.20
========== ========== ==========
Diluted Net Income Per Share $ 0.70 $ 1.12 $ 1.20
========== ========== ==========
AVERAGE SHARES OUTSTANDING-BASIC 36,364,867 36,301,527 36,286,360
AVERAGE SHARES OUTSTANDING-DILUTED 36,705,908 36,508,631 36,298,906
(Prior years results have been reclassified to conform to current year's
presentation.)
See accompanying notes to consolidated financial statements.
37
40
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(dollars in thousands) 2000 1999
---- ----
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents 18,444 15,715
Short-Term Investments (Note 6) 12,942 46,433
Accounts Receivable (net) 34,513 25,130
Materials and Supplies 3,653 5,565
Other Current Assets (Note 8) 8,772 6,408
--------- -------
Total Current Assets 78,324 99,251
OTHER INVESTMENTS (NOTE 6) 1,304 40,404
PROPERTIES, LESS ACCUMULATED DEPRECIATION (NOTE 5) 989,283 742,176
OTHER ASSETS AND DEFERRED CHARGES 42,627 29,047
--------- -------
TOTAL ASSETS 1,111,538 910,878
--------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable 81,814 31,880
Income Taxes 4,834 2,409
Accrued Casualty and Other Liabilities (Note 10) 2,647 2,533
Other Accrued Liabilities 5,568 4,547
--------- -------
Total Current Liabilities 94,863 41,369
DEFERRED INCOME TAXES (NOTE 8) 136,170 133,444
LONG-TERM DEBT 88,000 0
ACCRUED CASUALTY, DEFERRED REVENUE, AND OTHER LIABILITIES (NOTE 10) 44,401 11,624
SHAREHOLDERS' EQUITY:
Common Stock: 65,762 64,049
Class A Common Stock, no par value; 50,000,000 shares authorized; 17,674,811
shares issued and 16,875,727 shares outstanding at December 31, 2000, and
37,194,244 shares issued and 36,395,160 outstanding at December 31, 1999
Class B Common Stock, no par value; 100,000,000 shares authorized; 19,609,216 shares
issued and outstanding at December 31, 2000 and 0 shares issued and outstanding
at December 31, 1999
Retained Earnings 693,384 671,269
Accumulated Other Comprehensive Income-Unrealized Gain
On Securities (net) (Notes 6 and 12) 13 317
Restricted Stock Deferred Compensation (Note 13) (1,700) (1,839)
Treasury Stock at Cost (799,084 shares) (9,355) (9,355)
--------- -------
Total Shareholders' Equity 748,104 724,441
--------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,111,538 910,878
========= =======
See accompanying notes to consolidated financial statements.
38
41
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND
--------------------------------------------------------------
COMPREHENSIVE INCOME
--------------------
(dollars in thousands, except per share amounts)
ACCUMULATED RESTRICTED
OTHER STOCK
COMMON STOCK RETAINED COMPREHENSIVE DEFERRED TREASURY
SHARES AMOUNT EARNINGS INCOME COMPENSATION STOCK TOTAL
---------------------- -------- ------------- ------------ -------- -------
Balance at December 31, 1997 37,085,444 60,802 594,132 3,296 -- (9,355) 648,875
Comprehensive Income:
Net Income -- -- 43,621 -- -- -- --
Net unrealized loss on securities,
net of reclassification adjustment
(see Note 12) -- -- -- (2,079) -- -- --
Total Comprehensive Income -- -- -- -- -- -- 41,542
Dividends declared on common
stock ($.10) per share -- -- (3,627) -- -- -- (3,627)
Restricted stock granted, net of
amortization (see Note 13) 40,000 1,198 -- -- (1,157) -- 41
----------- ------ ------- ------------- ------------ ------ -------
Balance at December 31, 1998 37,125,444 62,000 634,126 1,217 (1,157) (9,355) 686,831
Comprehensive Income:
Net Income -- -- 40,779 -- -- -- --
Net unrealized loss on securities,
net of reclassification adjustment
(see Note 12) -- -- -- (900) -- -- --
Total Comprehensive Income -- -- -- -- -- -- 39,879
Dividends declared on common
stock ($.10) per share -- -- (3,636) -- -- -- (3,636)
Exercise of stock options 32,000 880 880
Restricted stock granted, net of
amortization (see Note 13) 36,800 1,169 -- -- (682) -- 487
----------- ------ ------- ------------- ----------- ------ -------
Balance at December 31, 1999 37,194,244 64,049 671,269 317 (1,839) (9,355) 724,441
Class A common stock canceled (19,609,216)
Class B common stock issued 19,609,216
Comprehensive Income:
Net Income 25,758
Net unrealized loss on securities,
net of reclassification adjustment
(see Note 12) (304)
Total Comprehensive Income 25,454
Dividends declared on common
stock ($.10) per share (3,643) (3,643)
Exercise of stock options 52,484 1,466 1,466
Restricted stock granted, net of
amortization (see Note 13) 37,299 247 139 386
---------- ------ ------- ------------- ------------ ------ -------
Balance at December 31, 2000 37,284,027 65,762 693,384 13 (1,700) (9,355) 748,104
========== ====== ======= ============= ============ ====== =======
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
CASH FLOWS FROM OPERATING ACTIVITIES: (DOLLARS IN THOUSANDS) 2000 1999 1998
-------- -------- --------
Net Income 25,758 40,779 43,621
Adjustments to Reconcile Net Income to Cash Generated by Operating Activities:
Depreciation and Amortization 41,730 32,830 29,961
Gain on Disposition of Assets (9,604) (16,846) (393)
Sales (Purchase) of Trading Investments (net) 34,100 (9,962) (34,754)
Realized Loss (Gains) on Investments (438) 1,517 (5,880)
Non-monetary Fiber Optic Transaction 0 0 (2,518)
Deferred Taxes 1,816 1,429 1,244
Stock Compensation Plans 385 487 41
Changes in Operating Assets and Liabilities:
Accounts Receivable (9,383) 4,152 1,763
Other Current Assets 580 3,303 (1,149)
Other Assets and Deferred Charges (13,360) (3,441) (5,340)
Accounts Payable 49,934 2,428 5,979
Income Taxes Payable 2,425 963 (3,184)
Other Current Liabilities 1,021 (1,253) (858)
Accrued Casualty, Deferred Reserve and Other Long-Term Liabilities 9,544 (392) 2,793
-------- -------- -------
Net Cash Generated by Operating Activities 134,508 55,994 31,326
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Properties (273,677) (110,060) (89,028)
Purchases of Investments:
Available-for-Sale (1,900) (133,296) (57,145)
Maturities and Redemption of Investments:
Available-for-Sale 40,404 124,451 95,775
Proceeds from Disposition of Assets 17,571 66,932 6,304
-------- -------- -------
Net Cash from (used in) Investing Activities (217,602) (51,973) (44,094)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of Dividends (3,643) (3,636) (3,627)
Proceeds from Stock Options Exercised 1,466 880 0
Proceeds from line of credit 88,000 0 0
-------- -------- -------
Net Cash Used in Financing Activities 85,823 (2,756) (3,627)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,729 1,265 (16,395)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 15,715 14,450 30,845
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR 18,444 15,715 14,450
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Income Taxes 13,136 22,632 26,460
-------- -------- -------
Cash Paid for Interest 632 377 351
-------- -------- -------
Property Contributed to Partnerships, net of Cash Receipts 5,495 7,762 0
-------- -------- -------
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
1. NATURE OF BUSINESS
The principal operations of Florida East Coast Industries, Inc. (the Company or
FECI) and its subsidiaries primarily relate to the transportation of goods by
rail and truck, the development, leasing, management and sale of real estate,
and the more recently "carriers' carrier" telecommunications business offering
bandwidth capacity, dark fiber leases and collocation services to
telecommunications providers. The Company's rail segment operates only within
the state of Florida with approximately 49.0 percent of its revenues derived
from local moves along the Company's line. Approximately 45.0 percent of the
rail segment's revenues were derived from five of its largest customers, with
approximately $29,400,000, $26,900,000 and $25,200,000, 18.0 percent, 17.0
percent and 15.3 percent, in 2000, 1999 and 1998, respectively, generated by one
significant customer. The realty segment of the Company presently operates in
Florida with business parks in Jacksonville, Orlando and the South Florida
markets. Flagler's operating properties are Class "A" office space and high
quality commercial/industrial facilities. During 2000, Flagler built up a
management team to begin the transition of responsibilities from The St. Joe
Company (St. Joe), which included asset management. St. Joe continues to provide
development, construction coordination and leasing services and property
management for the portfolio of buildings. EPIK's southeast regional footprint
runs primarily in the states of Florida and Georgia. EPIK provides bandwidth,
dark fiber, collocation and wave services as a wholesale "carriers' carrier."
The Company's trucking segment has operating rights within the forty-eight
states but primarily operates within the Southeast. During 2000, the new
management team moved the trucking company's headquarters from Cincinnati, Ohio
to Jacksonville, Florida.
2. RECAPITALIZATION AND MAJORITY STOCKHOLDER
On October 9, 2000, the St. Joe Company (St. Joe) and FECI completed the
recapitalization of FECI, and St. Joe implemented the pro-rata spin-off to St.
Joe shareholders of St. Joe's approximate 54.0 percent interest in FECI. Under
the terms of the recapitalization, which was approved along with certain
corporate governance provisions at a special meeting of FECI shareholders on
March 8, 2000, St. Joe received a new class of FECI common stock, Class B common
stock (NYSE: FLA.b) for each share of FECI common stock it owned. St. Joe then
distributed the Class B common stock to its shareholders, after which it no
longer has an equity interest in FECI. Holders of Class B common stock have the
right to elect, as a class, at least 80.0 percent of the FECI Board of
Directors.
All shares of FECI common stock, other than Class B common stock, have been
redesignated as FECI Class A common stock. The Class A common stock will
continue trading on the NYSE under the symbol FLA. Except with respect to voting
rights for the election or removal of Directors, the Class A and Class B common
stocks are identical. Terms of the recapitalization, including the shareholders'
agreement, are contained in the Special Shareholders' meeting Proxy Statement
filed February 4, 2000, on Form 14A.
Alfred I. duPont Testamentary Trust owns 58.5 percent of the Class B common
stock, and the Nemours Foundation owns 10.7 percent of the Class A and 3.0
percent of the Class B common stock. The holdings of the Trust, together with
the holdings of Class A common stock and Class B common stock held by the
Nemours Foundation, together equal 37.8 percent of the Company's outstanding
common stock as of March 31, 2001.
St. Joe and its affiliates continue to provide significant real estate services
to the Company under contracts expiring in October 2003. These services include
property management, development management and construction coordination.
Amounts paid to St. Joe for these services in 2000, 1999 and 1998 were
$1,579,000, $2,648,000 and $2,125,000 for asset management fees, $2,956,000,
$2,916,000 and $2,055,000 for property management fees, $1,630,000, $2,538,000
and $1,833,000 for development fees, $2,665,000, $2,308,000 and $1,804,000 for
construction coordination fees and leasing commissions, and $657,000, $1,017,000
and $0 for commissions on real estate sales, respectively.
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44
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
REVENUE RECOGNITION
Railway Revenues: Rail and intermodal revenue is recognized proportionately as
freight moves from origin to destination.
Trucking Revenues: Revenue is 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.
Realty Rental Income: Revenue is recognized upon commencement of rental and
lease contracts. The Company uses the straight-line basis for recording the
revenues over the life of the lease contract.
Dark Fiber, Collocation and Bandwidth Revenues: Revenue is recognized upon
commencement of rental and lease contracts. The Company uses the straight-line
basis for recording the revenues over the life of the lease contract. Any
advance payments called for in the agreement are deferred and included in
deferred revenues.
Dark Fiber Swaps: No revenue is recognized on swap transactions. Historical
"carryover basis" is assigned to received fiber in an exchange.
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.
PROPERTIES
Railway and trucking properties are stated at historical cost and are
depreciated and amortized on the straight-line method over the estimated useful
lives. Road properties' depreciation is based on lives ranging from 10 to 40
years, and equipment properties on lives varying from 9 to 27.5 years. Gains and
losses on normal retirements of these items are credited or charged to
accumulated depreciation.
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. Tenant improvements are
depreciated over the term (1-15 years) of the related lease agreement.
Telecommunications assets are stated at historical cost and depreciated on the
straight-line method over their estimated asset lives of 40 years for certain
buildings and 3-20 years for all other network assets.
The Company reviews its property, plant and equipment for impairment whenever
events or changes in circumstances indicate the carrying value of an asset may
not be recoverable. Recoverability is measured by comparison of the carrying
amount to the net cash flows expected to be generated by the asset.
The Company capitalizes interest during the construction of new facilities
(e.g., buildings, network, etc.) and is amortized over the life of the asset.
During 2000, $587,000 of interest was capitalized.
EARNINGS PER SHARE
The diluted weighted-average number of shares includes the net shares that would
be issued upon the exercise of "in the money" stock options using the treasury
stock method.
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45
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
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.
All securities held at December 31, 2000 are considered 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.
STOCK-BASED COMPENSATION
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB Opinion No. 25), and related interpretations in accounting for
stock options. As such, compensation expenses would be recorded on the date of
the grant only if the current market price of the underlying stock exceeded the
exercise price. Compensation expenses for grants of restricted stock are
recognized over the applicable vesting period (generally five years).
COMPREHENSIVE INCOME
SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Comprehensive income consists of net income and net unrealized gains (losses) on
available-for-sale securities and is presented in the consolidated statements of
shareholders' equity and
43
46
comprehensive income. The statement requires only additional disclosures in the
consolidated financial statements. It does not affect the Company's financial
position or results of operations.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
4. RESTRUCTURING AND SPECIAL CHARGES
In the third quarter of 2000, the Company's trucking subsidiary, FLX, incurred
restructuring charges and other costs, including expenses associated with
relocation of FLX's headquarters from Cincinnati, Ohio, to Jacksonville,
Florida, as well as force reductions and severance payments, and the addition of
new facilities and staff at the new headquarters. The costs and charges also
include the restructuring of the existing terminal network, the opening of an
additional terminal in Charlotte, North Carolina, and a charge for the
impairment of goodwill associated with the original acquisition of FLX. The
total amount of the pre-tax charges is $5.3 million.
Included in the charges is $3.1 million for the impairment of goodwill, $0.3
million for buyout of lease commitments on headquarters' and operational
buildings abandoned in the reorganization, and employee severance costs of $0.1
million. The $3.1 million of goodwill is non-deductible for federal income tax
purposes. Other costs include additional equipment lease cost of $0.9 million,
recruiting, relocation and other costs of assembling the new management team of
$0.4 million, costs of $0.1 million to consolidate information technology
operations and systems to FECI's service provider, along with other
miscellaneous costs of $0.4 million.
The Company periodically evaluates intangibles for impairment of value. During
the third quarter, the Company determined the underlying intangible assets
(i.e., enterprise goodwill for existing operational platform, autonomous region
structure, management team expertise, access to Macon, Georgia intermodal
facilities) originally acquired with the purchase of FLX should be written down
to their net realizable value. Using discounted cash flows for the enterprise as
a whole and assumptions for future revenue and costs, $3.1 million was
considered impaired and included as a part of the previously mentioned
restructuring costs. All remaining restructuring and other costs were determined
by amounts incurred, contractual liabilities or in the case of employee
severance benefits communicated to affected personnel. The restructuring and
payments for the costs accrued were completed by year-end.
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.
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5. PROPERTIES
Properties consist of:
2000 1999
-------- --------
FECR PROPERTIES:
- ----------------
Road Equipment 368,457 353,982
Buildings 1,436 1,436
Equipment 192,538 191,432
Land 5,112 4,797
Fiber 3,200 4,944
Construction in Progress 3,959 2,368
------- -------
574,702 558,959
Less Accumulated Depreciation 230,450 226,108
------- -------
344,252 332,851
======= =======
FLX PROPERTIES:
- ---------------
Equipment 1,424 1,098
Less Accumulated Depreciation 743 761
------- -------
681 337
======= =======
EPIK PROPERTIES:*
- -----------------
Equipment 59,242 624
Buildings 1,860 0
Land 177 0
Collocation 5,593 0
Fiber Network 24,012 0
Construction in Progress 124,161 5,257
------- -------
215,045 5,881
Less Accumulated Depreciation 2,790 9
------- -------
212,255 5,872
======= =======
FLAGLER PROPERTIES:
- -------------------
Land and Land Improvements 182,411 187,387
Buildings 286,303 233,830
Construction in Progress 23,006 25,093
------- -------
491,720 446,310
Less Accumulated Depreciation & Amortization 68,206 52,406
------- -------
423,514 393,904
======= =======
CORPORATE:
- ----------
Equipment 11,965 10,899
Construction in Progress 588 109
------- -------
12,553 11,008
Less Accumulated Depreciation 3,972 1,796
------- -------
8,581 9,212
======= =======
*Included in 2000 amounts are $23.3 million of assets (primarily fiber), which
were exchanged under long-term agreements for the use of dark fiber and
collocation space.
Real estate properties, having a net book value of $285.6 million at December
31, 2000, are leased under non-cancelable operating leases with expected
aggregate rentals of $171.4 million, which are due in years 2001-2005 in the
amounts of $48.1, $41.9, $34.0, $25.9 and $21.4 million, respectively, and $51.9
million thereafter.
Telecommunications properties, predominately dark fiber and collocation assets,
are committed under long-term agreements with expected aggregate rentals of
$184.8 million which are due in years 2001-
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2005 in the amounts of $12.4, $13.5, $12.1, $8.9, $8.8 million, respectively,
and $129.1 million thereafter.
6. INVESTMENTS
In 1999, other investments represented a development fund created to accumulate
capital expected to be required for future improvement of the Company's real
estate properties or other corporate needs. During 2000, these funds were
liquidated for capital expenditures and other corporate needs. There were gross
realized gains of $6,729 and $1,157,979 and gross realized losses of $158,876
and $573,360 from available-for-sale securities for 2000 and 1999, respectively.
Investments at December 31, 2000 consist of:
(dollars in thousands) CARRYING FAIR UNREALIZED UNREALIZED
COST VALUE VALUE GAIN LOSS
------ -------- ------ ---------- ----------
Short-Term Investments
Available-for-Sale:
Tax Exempt Municipals 13,437 12,942 12,942 (495)
------ ------ ------ --- ----
Total Short-Term Investments 13,437 12,942 12,942 (495)
====== ====== ====== === ====
Other Investments
Available-for-Sale
Other Debt Securities 788 1,304 1,304 516
------ ------ ------ --- ----
Total Other Investments 788 1,304 1,304 516
====== ====== ====== === ====
Investments at December 31, 1999 consist of:
(dollars in thousands) CARRYING FAIR UNREALIZED UNREALIZED
COST VALUE VALUE GAIN LOSS
------ -------- ------ ---------- ----------
Short-Term Investments
Trading:
Cash 152 152 152
Tax Exempt Municipals 46,806 46,281 46,281 (525)
------ ------ ------ --- ----
Total Trading Investments 46,958 46,433 46,433 (525)
====== ====== ====== === ====
Other Investments
Available-for-Sale
U.S. Government Securities:
Maturing in 1-5 years 30,854 30,893 30,893 39
Tax Exempt Municipals:
Maturing in 1-5 years 5,271 5,271 5,271
Maturing in more than 10 years 2,692 2,692 2,692
Other Debt Securities 788 1,265 1,265 477
Equity Securities 283 283 283
------ ------ ------ --- ----
Total Other Investments 39,888 40,404 40,404 516
====== ====== ====== === ====
7. COLLATERAL TRUST 5% BONDS
There were outstanding at December 31, 2000 and 1999, $11,494,800 and
$11,724,050, 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
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49
payments on the Bonds, are held in trust for the purpose of making such
payments. Accordingly, the Bonds are considered to be extinguished and,
therefore, are not reflected in the Company's financial statements.
8. INCOME TAXES
Total income tax expense for the years ended December 31, 2000, 1999 and 1998
was allocated as follows:
(dollars in thousands) 2000 1999 1998
-------- -------- --------
Income from continuing operations 17,258 25,231 26,578
Shareholders' equity for recognition of unrealized
holding (loss) on investments available-for-sale (121) (526) (1,354)
------ ------ ------
17,137 24,705 25,224
====== ====== ======
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:
(dollars in thousands) 2000 1999 1998
-------- -------- --------
Amount computed at statutory federal rate 15,055 23,104 24,569
Effect of dividends received exclusion and tax-free interest (1,206) (1,188) (1,169)
Effect of goodwill impairment and amortization exclusion 1,213 152 152
State taxes (net of federal benefit) 1,520 2,333 2,499
Other (net) 676 830 527
------ ------ ------
17,258 25,231 26,578
====== ====== ======
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities at December 31, 2000 and
1999 are as follows:
(dollars in thousands) 2000 1999
-------- --------
Deferred Tax Assets:
Accrued casualty and other liabilities 4,016 3,651
Other 1,743 144
------- -------
Total deferred tax asset 5,759 3,795
------- -------
Deferred Tax Liabilities:
Properties, principally due to differences in depreciation 101,716 100,283
Deferred gain on land sales 29,395 31,303
Deferred profit on bonds extinguished 338 658
Unrealized holding gain on investments available-for-sale 8 199
Straight-line rent 1,974 848
Other 5,085 1,445
------- -------
Total deferred tax liabilities 138,516 134,736
------- -------
Net deferred tax liabilities 132,757 130,941
======= =======
There was no valuation allowance provided for deferred tax assets as of December
31, 2000 and 1999 as the Company believes the results of future operations will
generate sufficient taxable income to realize the deferred tax assets.
Deferred tax assets of $3,413 and $2,503 at December 31, 2000 and 1999,
respectively, were included in other current assets.
9. SEGMENT INFORMATION
The Company follows Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information" (SFAS 131).
SFAS 131 provides guidance for reporting information about operating segments
and other geographic information based on a management approach. The accounting
policies of the segments are the same as those described in the Summary of
Significant Accounting Policies. Under the provisions of SFAS 131, the Company
has four reportable operating segments all within the same geographic area.
These are the railway segment, realty segment, telecommunications segment and
the
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trucking segment.
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, provides wholesale
telecommunications private line services (bandwidth), collocation services 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 EBITDA and operating
profit. 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. EPIK's
operations are currently start-up in nature and as such, are expected to
generate losses during this time frame. 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.
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INFORMATION BY INDUSTRY SEGMENT FOLLOWS:
(dollars in thousands) 2000 1999 1998
-------- -------- --------
OPERATING REVENUES
- ------------------
Railway(a) 164,844 164,899 162,389
Trucking 31,601 29,011 29,774
Realty:
Flagler Realty Rental(b) 54,196 48,179 42,672
Flagler Realty Sales 15,692 77,608 7,513
Other Rental 3,253 2,979 2,505
Other Sales 1,815 803 459
------- ------- -------
Total Realty 74,956 129,569 53,149
Telecommunications:
EPIK Communications 3,393 160 --
Fiber Leases 6,984 5,271 6,392
------- ------- -------
Total Telecommunications 10,377 5,431 6,392
Total Revenues (segment) 281,778 328,910 251,704
Intersegment Revenues (5,502) (5,023) (4,892)
------- ------- -------
Total Revenues (consolidated) 276,276 323,887 246,812
======= ======= =======
OPERATING PROFIT (LOSS)
- -----------------------
Railway 43,663 34,529 37,453
Trucking (8,151) (1,212) 48
Realty 20,957 34,740 15,892
Telecommunications (14,240) 1,887 6,215
Corporate General & Administrative (7,045) (8,920) (2,735)
------- ------- -------
Segment & Consolidated Operating Profit 35,184 61,024 56,873
Other Income (net) 7,832 4,986 13,326
------- ------- -------
Income before Taxes 43,016 66,010 70,199
Provision for income taxes (17,258) (25,231) (26,578)
------- ------- -------
Net Income 25,758 40,779 43,621
======= ======= =======
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(DOLLARS IN THOUSANDS) 2000 1999 1998
---------- -------- --------
RAILROAD EBITDA 58,529 49,148 52,085
- --------------- ========= ======= =======
REALTY EBITDA:
EBITDA from Flagler operating properties rents 36,279 32,391 27,090
EBITDA (loss) from Flagler land rents/holding
costs (3,092) (2,329) (2,268)
Equity pickups on partnership rents 78 110 0
Less: unallocated corporate overhead (5,895) (4,046) (2,737)
--------- ------- -------
EBITDA from Flagler rental properties, net of
overheads 27,370 26,126 22,085
EBITDA from Flagler real estate sales, net of
overheads 7,762 20,959 5,054
--------- ------- -------
Total EBITDA - Flagler 35,132 47,085 27,139
--------- ------- -------
EBITDA from other rental 2,857 2,671 2,345
EBITDA from other real estate sales 1,815 803 459
--------- ------- -------
Total EBITDA - real estate segment 39,804 50,559 29,943
========= ======= =======
EPIK EBITDA (18,649) (3,120) 0
========= ======= =======
IDENTIFIABLE ASSETS:
- --------------------
Transportation-Railway 489,780 446,618 417,887
Transportation-Trucking 6,811 4,199 8,062
Realty 476,088 462,121 434,778
Telecommunications 47,782 5,563 4,194
Corporate **91,077 (7,623) 6,620
--------- ------- -------
1,111,538 910,878 871,541
========= ======= =======
** Increase in 2000 represents advances made by FECI to its subsidiaries.
CAPITAL EXPENDITURES:
- ---------------------
Transportation-Railway 31,992 24,834 22,762
Transportation-Trucking 616 101 150
Realty 61,982 72,477 62,153
Telecommunications 177,544 6,060 0
Corporate 1,543 6,588 3,963
--------- ------- -------
273,677 110,060 89,028
========= ======= =======
DEPRECIATION & AMORTIZATION:
- ----------------------------
Transportation-Railway 15,057 14,583 15,751
Transportation-Trucking* 3,652 639 647
Realty 18,462 15,499 12,487
Telecommunications 2,383 263 0
Corporate 2,176 1,846 1,076
--------- -------- -------
41,730 32,830 29,961
========= ======== =======
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*Includes amortization of goodwill of $3,465,000, $469,000 and $469,000 for
2000, 1999 and 1998, respectively.
(a) Included intersegment revenues of $5,358, $4,699 and $4,740
for the years ended December 31, 2000, 1999 and 1998,
respectively.
(b) Included intersegment revenues of $144, $324 and $152 for the
years ended December 31, 2000, 1999 and 1998, respectively.
10. ACCRUED CASUALTY AND OTHER LONG-TERM LIABILITIES
The Company is subject to proceedings arising out of historic disposal of fuel
and oil used in the transportation 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 remediation of a site in which USEPA has named FECR a
potentially responsible party (PRP). USEPA has alleged that FECR caused certain
materials, including waste oil, to be disposed of at the site over a period of
years. There are many other PRPs named by USEPA for this site. The USEPA 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. FECR is working with other PRPs and USEPA to resolve this matter
consistent with the allocator's decision. FECR believes that its liability for
the remediation of the site will not be material.
The Company has accrued its estimated share of the total estimated cleanup costs
for the site. Based upon management's evaluation, 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.
The Company monitors a small number of sites where properties were leased. Based
on management's ongoing review and monitoring of the sites, the Company does not
expect to incur material additional costs, if any, on these sites.
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
51
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the Company, will be material.
It is difficult to quantify future environmental costs because 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.
Reserves for potential environmental liabilities were $1.0 million at year-end
2000, and $1.5 million for year-end 1999. Environmental liabilities will be paid
over an extended period, and the timing of such payments cannot be predicted
with any confidence.
The Company maintains comprehensive liability insurance for bodily injury and
property claims for risks with respect to losses for third-party liability,
property damage and group health insurance coverage provided employees but
maintains a significant self-insured retention for these exposures. 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 matters.
11. RETIREMENT PLANS
The Company sponsors three 401(k) plans. Contributions are at the employee's
discretion with upper limits of 10.0 percent of compensation before taxes,
subject to maximum limits imposed by the IRS ($10,500 in 2000), and an
additional contribution up to 10.0 percent of after-tax compensation, also
subject to maximum limits imposed by the IRS. Total contributions in 2000,
including the Company's match if any, were limited by IRS regulations to
$30,000.
401(K) PLAN FOR SALARIED EMPLOYEES
The amounts of matching contributions by the Company for this plan covering the
years 2000, 1999 and 1998 were approximately $436,042, $371,000 and $356,000,
respectively. The expenses associated with this plan were approximately $9,285,
$15,000 and $14,000 in 2000, 1999 and 1998, respectively. In accordance with the
terms of the plan, the Company matched the employee's contributions $1.00 for
$1.00 up to the first $1,200 contributed by the employee in 2000. For employee
contributions in excess of $1,200, the Company matches $0.25 for every $1.00 in
pretax employee contributions.
401(K) PLAN FOR HOURLY WAGE EMPLOYEES AND/OR EMPLOYEES COVERED BY COLLECTIVE
BARGAINING AGREEMENT
This is a non-contributory plan that was instituted in April 1995. The expenses
associated with this plan were approximately $4,385, $8,300 and $5,700 in 2000,
1999 and 1998, respectively.
401(K) PLAN FOR FLORIDA EXPRESS CARRIERS, INC.
The Company matched employee contributions $0.25 for each $1.00 contributed up
to contributions totaling 6.0 percent of employee's compensation in 2000. The
amounts of the Company's matching contributions were approximately $20,693,
$19,000 and $23,000 for 2000, 1999 and 1998, respectively. Expenses for this
plan were approximately $5,512, $5,800 and $5,000 for 2000, 1999 and 1998,
respectively.
PENSION PLAN
The Company adopted a non-funded defined benefit plan covering nine officers of
the Company in 1998. The benefits are based on years of service and the
employee's compensation during the five years before retirement. The Company
curtailed this plan in 1999, causing no additional benefits to accrue to covered
officers. At December 31, 2000 and 1999, accrued liabilities were $3.8 million
and $3.9 million, respectively, related to the contract benefit obligation. The
Company incurred benefit cost, primarily related to interest, of $0.3 million in
2000 and 1999.
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55
12. COMPREHENSIVE INCOME
The related tax effects allocated to each component of other comprehensive
income are as follows:
(dollars in thousands) TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
---------- ---------- ----------
BALANCE AT DECEMBER 31, 1998
- ----------------------------
Unrealized Gains on Securities:
Unrealized Holding Gains Rising during Period 2,447 (839) 1,608
Less: Reclassification Adjustment for Gains
Realized in Income 5,880 (2,193) 3,687
------ ------ ------
Net Unrealized Loss on Securities (3,433) 1,354 (2,079)
------ ------ ------
Other Comprehensive Income (3,433) 1,354 (2,079)
====== ====== ======
BALANCE AT DECEMBER 31, 1999
- ----------------------------
Unrealized Gains on Securities:
Unrealized Holding Gains Rising during Period 91 (40) 51
Less: Reclassification Adjustment for Losses
Realized in Income (1,517) 566 (951)
------ ------ ------
Net Unrealized Loss on Securities (1,426) 526 (900)
------ ------ ------
Other Comprehensive Income (1,426) 526 (900)
====== ====== ======
BALANCE AT DECEMBER 31, 2000
- ----------------------------
Unrealized Gains on Securities:
Unrealized Holding Losses Rising during Period (863) 288 (575)
Less: Reclassification Adjustment for Gains
Realized in Income 438 (167) 271
------ ------ ------
Net Unrealized Loss on Securities (425) 121 (304)
------ ------ ------
Other Comprehensive Income (425) 121 (304)
====== ====== ======
13. STOCK-BASED COMPENSATION
The 1998 Stock Incentive Plan (the Plan), as amended, allows the Company to
grant to employees and directors various stock awards, including stock options,
which are granted at prices not less than the fair market value at the date of
grant and restricted stock. A maximum of 2.6 million shares was approved to be
issued under the Plan. On December 31, 2000, options for 1,619,442 shares have
been granted.
53
56
The stock options may be granted over a period not to exceed 10 years and
generally vest from one to five years from the date of grant. The changes in
outstanding options are as follows:
WEIGHTED-AVERAGE EXERCISE
SHARES UNDER OPTION PRICE PER SHARE
------------------- -------------------------
Balance at December 31, 1997 -- --
Granted 651,872 29.807
--------- --------
Balance at December 31, 1998 651,872 29.807
========= ========
Granted 531,100 32.277
Exercised (32,000) 29.807
--------- --------
Balance at December 31, 1999 1,150,972 30.959
========= ========
Granted 436,470 40.190
Exercised (52,484) 29.505
Forfeited (139,730) 31.822
--------- --------
Balance at December 31, 2000 1,395,228 33.214
========= ========
Stock options outstanding and exercisable on December 31, 2000, are as follows:
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF EXERCISE EXERCISE PRICE REMAINING CONTRACTUAL
PRICES PER SHARE SHARES UNDER OPTION PER SHARE LIFE IN YEARS
----------------- ------------------- ---------------- ---------------------
Outstanding:
27.438-38.750 1,138,928 30.903 9.74
38.751-48.438 256,300 43.482 9.74
---------- ------ ------
1,395,228 33.214 9.74
Exercisable:
27.438-38.750 423,081 28.470 9.74
38.751-48.438 27,760 46.680 9.74
---------- ------ ------
450,841 29.590 9.74
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and related interpretations in accounting
for the Plan and, therefore, no compensation expense has been recognized for
stock options issued under the Plan. For companies electing to continue the use
of APB 25, SFAS No. 123, "Accounting for Stock-Based Compensation," requires pro
forma disclosures determined through the use of an option-pricing model as if
the provisions of SFAS No. 123 had been adopted.
The weighted-average fair value at date of grant for options granted during
2000, 1999 and 1998 was $19.30, $22.34 and $10.63 per share, respectively. The
fair value of each option grant was estimated on the date of the grant using the
Black-Scholes option-pricing model with the following assumptions:
2000 1999 1998
------ ------ ------
Expected dividend yield .28% .31% .36%
Expected volatility 38% 48% 26%
Risk-free interest rate 5.0% 6.2% 4.8%
Expected term in years 6.3 6.3 6.3
If the Company had adopted the provisions of SFAS No. 123, the impact on
reported net income and earnings per share would have been as follows:
54
57
52 WEEKS ENDED 52 weeks ended 52 weeks ended
12/31/00 12/31/99 12/31/98
---------- ---------- ----------
Net Income (in thousands) 20,091 36,642 42,300
Earnings Per Share:
Basic $ 0.55 $ 1.01 $ 1.17
Diluted $ 0.55 $ 1.00 $ 1.17
During 2000 and 1999, the Company also awarded 41,549 and 76,800 shares,
respectively, of restricted stock under the Plan, with a weighted average fair
value at the date of grant of $36.421 and $30.271, respectively, per share.
These restricted shares vest ratably after five years of continued employment.
Compensation expense related to this award was $304,000 and $487,000 for 2000
and 1999, respectively.
EPIK's senior management, through awards of non-qualified stock options and
stock appreciation rights, has an equity participation in EPIK, which provides
them approximately 15.0 percent of common equity value. Compensation expense
related to the stock appreciation rights in 2000 was $2.2 million.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
(dollars in thousands, except per share amounts)
2000 1999
-------------------------------------------- --------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
-------- -------- -------- -------- -------- -------- -------- --------
Operating Revenues 75,673 70,145 65,299 65,159 90,188 61,619 61,715 110,365
Other Income 2,087 1,242 498 4,005 284 1,482 1,274 1,946
Operating Expenses 68,112 65,564 54,497 52,919 71,218 48,526 57,593 85,526
Net Income 5,787 2,099 7,033 10,839 11,877 8,587 3,559 16,756
Basic Net Income Per Share $ 0.16 $ 0.06 $ 0.19 $ 0.30 $ 0.33 $ 0.23 $ 0.10 $ 0.46
15. OTHER INCOME
(dollars in thousands) 2000 1999 1998
-------- -------- --------
Dividend Income 2,581 1,072 1,372
Interest Income 3,766 4,744 4,312
Interest Expense (932) (378) (351)
Gain (Loss) on Investments (438) (1,517) 5,880
Other (net) 2,855 1,065 2,113
----- ------ ------
7,832 4,986 13,326
===== ====== ======
16. CREDIT REVOLVER AND OTHER COMMITMENTS
The Company has a $200.0 million revolving credit agreement with certain
financial institutions. The borrowings under the credit agreement are unsecured
and for which the Company presently pays (quarterly) commitment and utilization
fees, as applicable under the agreement, at a range of 10-15 basis points and
10-25 basis points, respectively. The Company's revolving credit agreement
contains various covenants which, among other things, require the maintenance of
certain financial ratios related to fixed charge coverage and maximum leverage,
establish minimum levels of net worth, establish limitations on indebtedness,
certain types of payments, including dividends, liens and investments, and limit
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. Borrowings under the credit
agreement bear interest at variable rates linked to the LIBOR Index. Interest on
borrowings is due and payable on the "rollover date" for each draw. Outstanding
borrowings can be paid at any time by the borrower or at the conclusion of the
facilities term (March 31, 2003). During the fourth quarter of 2000, the Company
borrowed $88.0 million at an average rate of 7.07 percent. At December 31, 2000,
there were $88.0 million of direct borrowings outstanding under the facility.
On March 22, 2001, the Company's revolving credit agreement was restructured
into a secured facility with a borrowing capacity of $375.0 million. Borrowings
under the credit agreement continue to bear interest at variable rates linked
to the LIBOR index. The credit agreement also continues to contain 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 Company is obligated under several non-cancelable operating leases covering
its facilities and equipment.
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The lease terms are from 4 to 7 years. Future minimum payments under the leases
and credit revolver debt are as follows:
YEAR AMOUNT
---- -----------
2001 $ 7,097,000
2002 5,030,000
2003* 94,637,000
2004 3,503,000
2005 3,943,000
Thereafter 7,007,000
*Includes debt repayment of $88.0 million in year 2003.
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
The information set forth under the captions "Election of Directors-Nominees,"
"Section 16(a) Beneficial Ownership Reporting Compliance," "Compensation of
Executive Officers and "Executive Employment Agreements," in the Company's
definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the Proxy Statement),
containing the information required by this Item 10 is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Compensation Committee Report,"
"Compensation of Executive Officers," "Option Grants in Last Fiscal Year,"
"Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values," "Executive Employment Agreements," "Compensation of Directors," and
"Performance Graph" in the Proxy Statement contains the information required in
this Item 11 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement contains the
information required in this Item 12 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement contains the information required in this
Item 13 and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE 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 Schedule are filed as
part of this Report.
56
59
2. EXHIBITS
The Exhibits listed on the accompanying Index to Exhibits are filed as
part of this Report.
(b) REPORTS ON FORM 8-K
1. Form 8-K was filed on May 22, 2000 covering an Analyst
Presentation dated May 18, 2000.
2. Form 8-K was filed on October 10, 2000, announcing the
recapitalization of Florida East Coast Industries, Inc. and
the completion on October 9, 2000 of the pro rata spin-off by
The St. Joe Company of the approximate 54.0 percent equity
interest held by St. Joe in FECI to St. Joe shareholders was
completed on October 9, 2000.
3. Form 8-K was filed on November 13, 2000, announcing that Mr.
John McClellan, President of EPIK Communications Incorporated,
intended to speak at the UBS Warburg Fifth Annual Global
Telecom Conference that was being held on November 13-15, 2000
at the Plaza Hotel, New York, NY.
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60
FLORIDA EAST COAST INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
[ITEM 14(A)]
Reference
Form 10-K
Page Nos.
---------
Consolidated Statements of Income for each of the
three years ended December 31, 2000 38
Consolidated Balance Sheets at December 31, 2000 and 1999 39
Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income for each of the three years in the
period ended December 31, 2000 40
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 2000 41
Notes to Consolidated Financial Statements 42-57
Independent Auditors' Report 37
Financial Statement Schedule:
III-Real Estate and Accumulated Depreciation 64-65
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 FECI (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.
58
61
FLORIDA EAST COAST INDUSTRIES, INC.
INDEX TO EXHIBITS
(ITEM 13[A] 3.)
S-K
Item 601 Documents Page Numbers
- -------- --------- ------------
(3)(i) Amended and Restated Articles of Incorporation *
(3)(ii Amended and Restated By-Laws *
(4) Stock Purchase Rights #
10(a) Employment Agreement, Basic Stock Option Agreement
and Restricted Stock Agreement dated December 21, 2000
between FECI and Richard G. Smith **
10(b) Credit Agreement dated March 22, 2001, between Florida **
East Coast Industries, Inc., and Bank of America, N.A.,
First Union National Bank and SunTrust Bank
10(c) Distribution and Recapitalization Agreement ##
10(d) Shareholders' Agreement dated as of October 26, 1999
among Alfred I. duPont Testamentary Trust, Nemours
Foundation and Florida East Coast Industries, Inc. ###
(20) Shareholders letters dated October 9, 2000 with attached **
Summary of Rights Plan -- Term Sheet
(21) Subsidiaries of Florida East Coast Industries, Inc. 62
(23) Independent Auditors' Consent Letter 66
(24) Power of Attorney 63
*Amended and Restated Articles of Incorporation and Amended and Restated By-Laws
of the Registrant, incorporated by reference to Appendices D and E,
respectively, to the definitive Proxy Statement on Schedule 14A filed with the
Securities and Exchange Commission on February 4, 2000 (Registration No.
001-08728).
**These documents filed on Form 10-K with the Securities and Exchange Commission
on March 30, 2001.
#Stock Purchase Rights and Rights Agreement, incorporated by reference to
Exhibit 1 to Florida East Coast Industries, Inc.'s Registration Statement on
Form 8A, filed with the Securities and Exchange Commission on October 4, 2000.
##Distribution and Recapitalization Agreement, incorporated by reference to
Appendix A to the definitive Proxy Statement on Schedule 14A, filed with the
Securities and Exchange Commission on February 4, 2000 (Registration No.
001-08728).
###Shareholders' Agreement, incorporated by reference to Appendix C to the
definitive Proxy Statement on Schedule 14A, filed with the Securities and
Exchange Commission on February 4, 2000 (Registration No. 001-08728).
59
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SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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 on March 15, 2001.
FLORIDA EAST COAST INDUSTRIES, INC.
- -----------------------------------
(Registrant)
By:
----------------------------------------------
Richard G. Smith, Executive Vice President
and Chief Financial Officer
----------------------------------------------
Mark A. Leininger
Vice President and Controller
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:
R.W. Anestis* Heidi J. Eddins*
- ---------------------------------------- --------------------------------------------------
R.W. Anestis, Chairman, President, Chief Heidi J. Eddins, Executive Vice President, General
Executive Officer and Director Counsel and Secretary
R.S. Ellwood* J.N. Fairbanks*
- ---------------------------------------- --------------------------------------------------
R.S. Ellwood, Director J.N. Fairbanks, Director
D.M. Foster* A.C. Harper*
- ---------------------------------------- --------------------------------------------------
D.M. Foster, Director A.C. Harper, Director
A. Henriques* G.H. Lamphere*
- ---------------------------------------- --------------------------------------------------
A. Henriques, Director G.H. Lamphere, Director
J. Nemec* H.H. Peyton*
- ---------------------------------------- --------------------------------------------------
J. Nemec, Director H.H. Peyton, Director
W.L. Thornton*
- ----------------------------------------
W.L. Thornton, Director
Date: March 15, 2001
*Such signature has been affixed pursuant to Power of Attorney.
60
63
21. Listing of parent and subsidiaries wholly-owned, unless otherwise noted, by
Florida East Coast Industries, Inc. as of December 31, 2000:
Name of Subsidiary State of Incorporation/Organization
- ------------------ -----------------------------------
Florida East Coast Railway, L.L.C. Florida
Railroad Track Construction Corporation Florida
(100% owned by Florida East Coast Railway)
Florida East Coast Deliveries, Inc. Florida
(100% owned by Florida East Coast Railway)
Flagler Development Company Florida
Gran Central - Deerwood North, L.L.C. Delaware
(100% owned by Flagler Development Company)
Florida Express Carriers, Inc. Florida
Florida Express Logistics, Inc. Florida
(100% owned by Florida Express Carriers, Inc.)
EPIK Communications Incorporated Florida
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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, D.C. 20549, under the provisions of
the Securities Exchange Act of 1934, as amended, a Report on Form 10-K
for the fiscal year ended December 31, 2000, hereby constitutes and
appoints R.W. Anestis and Heidi J. Eddins 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
2000 Report of Florida East Coast Industries, Inc., on Form 10-K and to
file on behalf of the Corporation such 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/ R.W. Anestis /s/ Heidi J. Eddins
-------------------------------------- ------------------------------------------
R.W. Anestis, Chairman, President, Heidi J. Eddins, Executive Vice President,
Chief Executive Officer and Director General Counsel and Secretary
/s/ R.S. Ellwood /s/ J.N. Fairbanks
-------------------------------------- ------------------------------------------
R.S. Ellwood, Director J.N. Fairbanks, Director
/s/ D.M. Foster /s/ A.C. Harper
-------------------------------------- ------------------------------------------
D.M. Foster, Director A.C. Harper, Director
/s/ A. Henriques /s/ G.H. Lamphere
-------------------------------------- ------------------------------------------
A. Henriques, Director G.H. Lamphere, Director
/s/ J. Nemec /s/ H.H. Peyton
-------------------------------------- ------------------------------------------
J. Nemec, Director H.H. Peyton, Director
/s/ W.L. Thornton /s/ R.G. Smith
-------------------------------------- ------------------------------------------
W.L.Thornton, Director R.G. Smith, Executive Vice President
and Chief Financial Officer
/s/ M.A. Leininger
-------------------------------------
M.A. Leininger, Vice President and
Controller
Date: March 15, 2001
--------------------------------
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FLORIDA EAST COAST INDUSTRIES, INC.
SCHEDULE III (CONSOLIDATED) - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000, 1999 AND 1998
(dollars in thousands)
Initial Cost to Company Carried at Close of Period
----------------------- --------------------------
Depreciable
Life Used
Costs in
Capitalized Calculation
Subsequent to Date Latest Income
Land & Land Buildings and Accumulated Capitalized in
Description Land Acquisition Improvements Improvements Total Depreciation or Acquired Statement
- -------------------------------- ------- ------------- ------------ ------------- ------- ------------ ----------- -------------
Duval County
- ------------
Office Buildings 1,675 110,581 18,083 94,173 112,256 19,291 various 3 to 40 years
Office/Showroom/Warehouses 362 40,636 5,974 35,024 40,998 9,026 1987 3 to 40 years
Office/Warehouses 332 11,410 3,834 7,908 11,742 2,224 1994 3 to 40 years
Front Load Warehouse 19 2,809 347 2,481 2,828 365 1998 3 to 40 years
Rail Warehouses 18 2,885 326 2,577 2,903 395 1998 3 to 40 years
Land w/Infrastructure 1,524 15,658 15,429 1,753 17,182 1,847 1998 3 to 40 years
Unimproved Land & Misc. Assets 313 74 387 -- 387 -- 1998 5 years
St. Johns County
- ----------------
Unimproved Land 812 3,281 4,092 -- 4,093 1 various 15 years
Flagler County
- --------------
Unimproved Land 998 3,511 4,509 -- 4,509 4 various 15 years
Volusia County
- --------------
Unimproved Land 623 3,542 4,165 -- 4,165 4 various 15 years
Brevard County
- --------------
Unimproved Land 246 11,154 11,400 -- 11,400 -- various
Indian River County
- -------------------
Unimproved Land 1 -- 1 0 1 -- various
St. Lucie County
- ----------------
Unimproved Land 399 245 644 -- 644 -- various
Martin County
- -------------
Land w/ Infrastructure 493 3,495 3,988 -- 3,988 369 various 15 years
Unimproved Land 1 -- 1 -- 1 -- various
Okeechobee County
- -----------------
Unimproved Land 3 -- 3 -- 3 -- various
Putnam County
- -------------
Unimproved Land 2 -- 2 -- 2 -- various
Palm Beach County
- -----------------
Unimproved Land 164 66 230 -- 230 -- various 3 to 40 years
Broward County
- --------------
Rail Warehouse 33 1,760 405 1,388 1,793 881 1986 3 to 40 years
Land w/ Infrastructure 1,949 1,486 3,435 -- 3,435 26 1992 3 to 40 years
Unimproved Land 63 2,033 2,096 -- 2,096 -- various
Manatee County
- --------------
Unimproved Land 73 1 74 -- 74 -- various
63
66
FLORIDA EAST COAST INDUSTRIES, INC.
SCHEDULE III (CONSOLIDATED) - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000, 1999 AND 1998
(dollars in thousands)
Initial Cost to Company Carried at Close of Period
----------------------- --------------------------
Depreciable
Life Used
Costs in
Capitalized Calculation
Subsequent to Date Latest Income
Land & Land Buildings and Accumulated Capitalized in
Description Land Acquisition Improvements Improvements Total Depreciation or Acquired Statement
- ---------------------------- ------- ------------- ------------ ------------- ------- ------------ ----------- -------------
Dade County
- -----------
Double Front Load Warehouse 727 6,551 2,059 5,219 7,278 1,944 1993 3 to 40 years
Rail Warehouses 1,373 13,103 3,909 10,567 14,476 3,975 1988 3 to 40 years
Office/Showroom/Warehouses 1,833 18,731 5,948 14,617 20,564 6,365 1988 3 to 40 years
Office Building 840 9,071 1,382 8,529 9,911 269 2000 3 to 40 years
Office/Warehouses 2,348 22,964 6,441 18,871 25,312 6,414 1990 3 to 40 years
Front Load Warehouses 3,089 24,547 8,774 18,862 27,636 6,962 1991 3 to 40 years
Office/Service Center 254 3,046 900 2,400 3,300 683 1994 3 to 40 years
Transit Warehouse 140 1,436 140 1,436 1,576 393 various 3 to 40 years
Land w/Infrastructure 12,230 20,824 31,146 1,908 33,054 2,175 various 3 to 40 years
Unimproved Land & Misc
Assets 5,133 9,274 14,407 -- 14,407 -- various 3 to 40 years
Orange County
- -------------
Office Building -- 54,818 9,726 45,092 54,818 3,535 1998 3 to 40 years
Office/Showroom/Warehouse -- 19,378 3,500 15,878 19,378 1,422 1998 3 to 40 years
Land w/Infrastructure -- 3,932 3,885 47 3,932 77 1995 3 to 40 years
Unimproved Land & Misc
Assets -- 16,927 16,927 -- 16,927 -- 1999 3 to 40 years
------- ------- ------- ------- ------- -------
TOTALS 38,070 439,229 188,569 288,730 477,299 68,647
======= ======= ======= ======= ======= =======
Notes:
(A) The aggregate cost of real estate owned at December 31, 2000 for federal
income tax purposes is approximately $403,000,000.
(B) Reconciliation of real estate owned (dollars in thousands):
2000 1999 1998
-------- -------- --------
Balance at Beginning of Year 427,448 418,502 365,532
Amounts Capitalized 64,633 73,761 62,153
Amounts Retired or Adjusted (14,782) (64,815) (9,183)
-------- -------- --------
Balance at Close of Period 477,299 427,448 418,502
======== ======== ========
(C) Reconciliation of accumulated depreciation (dollars in thousands):
Balance at Beginning of Year 52,770 51,987 39,691
Depreciation Expense 16,028 14,064 12,487
Amounts Retired or Adjusted (151) (13,281) (191)
-------- -------- --------
Balance at Close of Period 68,647 52,770 51,987
======== ======== ========
64
67
Exhibit 23
Independent Auditors' Consent
The Board of Directors
Florida East Coast Industries, Inc.:
We consent to incorporation by reference in the registration statement (No.
333-53144) on Form S-8 of Florida East Coast Industries, Inc. of our report
dated February 9, 2001, relating to the consolidated balance sheets of Florida
East Coast Industries, Inc. as of December 31, 2000 and 1999, and the related
consolidated statements of income, changes in shareholders' equity and
comprehensive income, and cash flows for the three years ended December 31,
2000, and the related schedule, which report appears in the December 31, 2000
annual report on Form 10-K of Florida East Coast Industries, Inc.
/s/ KPMG LLP
Jacksonville, Florida
March 29, 2001
65