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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2002
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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 _____________
Commission File Number 001-08728
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FLORIDA EAST COAST INDUSTRIES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 59-2349968
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
ONE MALAGA STREET, ST. AUGUSTINE, FLORIDA 32084
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (904) 829-3421
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
CLASS OUTSTANDING AT JUNE 30, 2002
- --------------------------------- ----------------------------
Class A Common Stock-no par value 16,923,816 shares
Class B Common Stock-no par value 19,609,216 shares
FLORIDA EAST COAST INDUSTRIES, INC.
PART I
FINANCIAL INFORMATION
INDEX PAGE NUMBERS
----- ------------
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
June 30, 2002 and December 31, 2001 2
Consolidated Statements of Income -
Three Months and Six Months Ended
June 30, 2002 and 2001 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2002 and 2001 4
Notes to Consolidated Condensed Financial Statements (unaudited) 5-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Second Quarter 2002 versus Second Quarter 2001
and Six Months 2002 versus Six Months 2001 12-17
Changes in Financial Condition, Liquidity and Capital Resources 17-18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 18
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18-19
ITEM 5. OTHER INFORMATION 20-21
ITEM 6. EXHIBITS AND REPORTS 21-22
1
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
JUNE 30 DECEMBER 31
2002 2001
----------- -----------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 9,643 14,089
Accounts receivable (net) 28,532 31,219
Income tax receivable 7,563 10,105
Materials and supplies 2,591 3,703
Other current assets 15,792 22,545
--------- ---------
Total current assets 64,121 81,661
PROPERTIES, LESS ACCUMULATED DEPRECIATION AND AMORTIZATION 1,057,778 1,064,899
OTHER ASSETS AND DEFERRED CHARGES 51,777 54,110
--------- ---------
TOTAL ASSETS 1,173,676 1,200,670
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 42,355 58,202
Short-term debt 2,547 2,457
Accrued casualty and other reserves 2,013 1,987
Other accrued liabilities 25,703 16,746
--------- ---------
Total current liabilities 72,618 79,392
DEFERRED INCOME TAXES 103,653 103,673
LONG-TERM DEBT 276,487 282,784
ACCRUED CASUALTY AND OTHER LONG-TERM LIABILITIES 36,726 50,652
SHAREHOLDERS' EQUITY:
Common Stock:
Class A common stock; no par value; 50,000,000 shares authorized; 17,722,900 66,626 66,533
shares issued and 16,923,816 shares outstanding at June 30, 2002, and
17,720,687 shares issued and 16,921,603 shares outstanding at December 31, 2001
Class B common stock; no par value; 100,000,000 shares authorized; 19,609,216
shares issued and outstanding at June 30, 2002 and December 31, 2001
Retained earnings 628,071 628,346
Restricted stock deferred compensation (1,150) (1,355)
Treasury stock at cost (799,084 shares) (9,355) (9,355)
--------- ---------
Total shareholders' equity 684,192 684,169
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,173,676 1,200,670
========= =========
(See accompanying notes)
2
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
(unaudited)
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
----------------------------------- -----------------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Operating revenues 74,268 80,249 149,434 148,148
Operating expenses (Note 9) (76,755) (76,291) (150,193) (139,976)
----------- ----------- ----------- -----------
Operating (loss) profit (2,487) 3,958 (759) 8,172
Interest (expense) income (5,102) 502 (9,817) 361
Other income (Note 7) 10,808 364 13,119 1,027
Income before income taxes 3,219 4,824 2,543 9,560
Provision for income taxes (1,252) (1,960) (992) (3,826)
----------- ----------- ----------- -----------
Net income 1,967 2,864 1,551 5,734
=========== =========== =========== ===========
Earnings per share-basic & diluted $ 0.05 $ 0.08 $ 0.04 $ 0.16
Average shares outstanding-basic 36,446,612 36,393,587 36,442,971 36,391,607
Average shares outstanding-diluted 36,643,377 36,654,807 36,616,155 36,669,648
(See accompanying notes)
3
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
SIX MONTHS ENDED JUNE 30
----------------------------
2002 2001
------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 1,551 5,734
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization 32,840 23,995
Restructuring charges and other costs 5,474 --
Payment of restructuring charges (3,705) --
Gain on sales and other disposition of properties (3,654) (6,286)
Non-cash gain on contract termination (9,437) --
Deferred taxes (20) (593)
Stock compensation plans 366 421
------- --------
23,415 23,271
Changes in operating assets and liabilities:
Accounts receivable 2,637 1,792
Other current assets 2,306 (8,199)
Other assets and deferred charges 2,109 (4,016)
Accounts payable (14,735) (7,531)
Income taxes (payable) receivable 2,542 (4,591)
Other current liabilities 12,382 2,303
Accrued casualty and other long-term liabilities (3,076) 2,638
------- --------
4,165 (17,604)
Net cash generated by operating activities 27,580 5,667
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of properties (29,180) (170,402)
Purchase of available-for-sale investments -- 13,007
Proceeds from disposition of assets 5,255 12,277
------- --------
Net cash used in investing activities (23,925) (145,118)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options -- 2,178
Purchase of common stock (68) --
Proceeds from mortgages -- 160,000
Payment of mortgage debt (1,207) --
Payment of line of credit (5,000) (16,000)
Debt issuance costs -- (4,611)
Payment of dividends (1,826) (1,826)
------- --------
Net cash (used in) generated by financing activities (8,101) 139,741
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,446) 290
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,089 18,444
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 9,643 18,734
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash (received) paid for income taxes (2,542) 12,950
======= ========
Cash paid for interest 9,359 5,076
======= ========
(See accompanying notes)
4
FLORIDA EAST COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. General
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements reflect all accruals and adjustments considered necessary
to present fairly the financial position as of June 30, 2002 and December 31,
2001, and the results of operations and cash flows for the three-month and
six-month periods ended June 30, 2002 and 2001. Results for interim periods may
not necessarily be indicative of the results to be expected for the year. These
interim financial statements should be read in conjunction with the Company's
2001 Annual Report on Form 10-K for the year ended December 31, 2001 filed with
the Securities and Exchange Commission.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
NOTE 2. Strategic Alternatives Review of EPIK
During the quarter, the Company announced it had retained Morgan Stanley to
assist in a review of strategic alternatives for EPIK Communications
Incorporated (EPIK). In its announcement (as filed on Form 8-K June 20, 2002),
the Company stated that if the Company should consummate a transaction
involving EPIK, it likely would result in a non-cash charge to earnings and
possibly result in income tax benefits for the Company, all as more fully
described in the announcement. However, due to the preliminary stage of the
strategic review and current volatility of the telecommunications industry, the
results of the review, if any, are not currently predictable, and there can be
no assurance the strategic review will result in a transaction involving EPIK
or the realization of any income tax benefits for the Company.
NOTE 3. Commitments and Contingencies
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 that may result from
disposition of such matters. The Company maintains comprehensive liability
insurance for bodily injury and property claims, but also maintains a
significant self-insured retention for these exposures, particularly at Florida
East Coast Railway, L.L.C. (FECR or Railway).
The Company is subject to proceedings and consent decrees arising out of its
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.
The Company is participating, together with several other potentially
responsible parties (PRPs), in the remediation of a site in Jacksonville,
Florida, pursuant to an agreement with the United States Environmental
Protection Agency (USEPA). The site previously accepted waste oil from many
businesses. 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 its 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
5
Environmental Protection (FDEP), the Company operates and maintains groundwater
treatment systems at its primary facilities.
FECR is one of several PRPs alleged to have contributed to the environmental
contamination at and near the Miami International Airport. The allegations are
contained in a lawsuit filed by Miami-Dade County but not officially served on
the Railway. The Company does not currently possess sufficient information to
reasonably estimate the amount of remediation liability, if any, it may have in
regard to this matter. While the ultimate results of the claim against FECR
cannot be predicted with certainty, based on information presently available,
management does not expect that resolution of this matter will have a material
adverse effect on the Company's financial position, liquidity or results of
operation.
The Company monitors a small number of sites leased to others, or acquired by
the Company or its subsidiaries. Based on management's ongoing review and
monitoring of the sites, and the ability to seek contribution or
indemnification from the PRPs, the Company does not expect to incur material
additional costs, if any.
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.
NOTE 4. Comprehensive Income
Comprehensive income for the three months ended June 30, 2002 and 2001 was
$2.0 million and $2.7 million, respectively. Comprehensive income for the six
months ended June 30, 2002 and 2001 was $1.6 million and $5.8 million,
respectively. The 2001 amounts differ from net income due to changes in the net
unrealized holding gains/losses generated from available-for-sale securities.
NOTE 5. Earnings Per Share
The 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.
NOTE 6. Dividends
On May 30, 2002, the Company declared a dividend of $.025 (2 1/2 cents) per
share on its outstanding common stock, payable June 28, 2002, to shareholders
of record June 13, 2002.
NOTE 7. Other Income
(dollars in thousands) THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
6/30/02 6/30/01 6/30/02 6/30/01
------- ------- ------- -------
EPIK-contract termination 9,437 -- 9,437 --
Pipe & wire crossings/signboards 1,661 646 4,112 1,081
Gain on investments -- 100 -- 97
Other (net) (290) (382) (430) (151)
------- ------- ------- ------
10,808 364 13,119 1,027
======= ======= ======= ======
6
During 1999 through 2001, a now-bankrupt former customer made advance payments
to EPIK for network services to be provided in the future. EPIK recognizes
revenues from such payments only as and when it provides the contracted
services. However, under bankruptcy settlement with the former customer, which
was completed during the second quarter of 2002, EPIK is no longer
contractually obligated to provide any future services or return the previously
received amounts. Accordingly, EPIK recorded during the second quarter of 2002
$9.4 million of other income to reflect the bankruptcy settlement of this
commercial contract.
NOTE 8. Debt
The Company maintains a $300 million revolving credit agreement with certain
financial institutions, for which the Company presently pays (quarterly)
commitment fees, as applicable under the agreement, at a range of 20-50 basis
points. The borrowings under the credit agreement are secured by the capital
securities of FECR, Florida Express Carriers, Inc. (FLX) and the Class A shares
of EPIK. 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. Some of the above covenants provide specific exclusion of EPIK's
financial results, as well as exclusion of certain financing and investing
activities at Flagler Development Company (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 facility's term (March 31, 2004). At June 30, 2002, there
were $34 million of direct borrowings outstanding under the facility at an
average interest rate of approximately 2.59%.
During 2001, Flagler issued $247 million of mortgage notes with $160 million
due July 1, 2011 and $87 million due October 1, 2008. At June 30, 2002, $245
million was outstanding on these notes. These notes are collateralized by
certain buildings and properties of Flagler. Blended interest and principal
repayment on the notes is payable monthly based on a fixed 7.39% and 6.95%
weighted-average interest rate, respectively, for each note offering, on the
outstanding principal amount of the mortgage notes and assuming a thirty-year
amortization period. The net proceeds were used in 2001 to repay existing
indebtedness under the Company's revolving credit facility.
NOTE 9. Restructuring Charges and Other Costs
During the fourth quarter of 2001, EPIK recorded $12.1 million of restructuring
charges related to the termination benefits of 105 management and other
employees, and certain redundant collocation and commercial realty lease
liabilities. During the second quarter of 2002, EPIK recorded additional
restructuring charges for termination costs for 29 additional employees ($1.0
million) and redundant collocation lease liabilities ($0.9 million). Also, EPIK
increased its valuation allowance reserves for materials held for sale by $3.6
million, reflecting lower than previously expected sales prices for
telecommunication equipment and materials identified in the fourth quarter of
2001 as excess to EPIK's needs. At June 30, 2002, the restructuring liabilities
were $8.3 million, the decrease primarily resulting from payments of
termination benefits.
NOTE 10. Segment Information
The Company follows Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information" (SFAS
131). Under the provisions of SFAS 131, the Company has four reportable
operating segments all within the same geographic area, as follows: railway
segment, trucking segment, realty segment and the telecommunications segment.
The railway segment, a part of FECR, provides rail freight transportation along
the east coast of Florida between Jacksonville and Miami. The trucking segment
is operated by FLX, which provides truckload
7
transportation for a wide range of general commodities primarily in the
southeast United States. The realty segment, which includes Flagler, is engaged
in the development, leasing, management, operation and selected sale of
commercial and industrial property. EPIK, based in Orlando, Florida, operates
as a carriers' carrier, providing wholesale carrier services including
bandwidth (private lines), wave services, Internet Protocol services,
collocation and dark fiber.
The Company's railway subsidiary 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. Also, the railway subsidiary generates revenues and
expenses from the rental, leasing, and sale of buildings and properties that
are ancillary to the railroad's operations. These revenues and expenses are
included in the realty segment.
The Company evaluates the railway and trucking segments' performance based on
operating profit or loss from operations before other income and income taxes.
Also, the Company evaluates FECR on EBITDA from railway operations and for the
legal entity as a whole. Operating profit is operating revenue less directly
traceable costs and expenses. EBITDA is defined as operating profit before net
interest expense, income taxes, depreciation and amortization. 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.
Intersegment revenues for transactions between the railway and trucking
segments are based generally on quoted rates, which are believed to approximate
the cost that would have been incurred had similar services been obtained from
or provided to an unrelated third party.
The Company's reportable segments are strategic business units that offer
different products and services and are managed separately.
8
INFORMATION BY INDUSTRY SEGMENT:
(dollars in thousands) THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
6/30/02 6/30/01 6/30/02 6/30/01
------- ------- -------- --------
OPERATING REVENUES
Railway (a) 41,671 40,721 82,609 80,503
Trucking 7,325 8,449 16,443 16,028
Realty:
Flagler Realty Rental (b) 17,793 15,013 33,468 30,054
Flagler Realty Sales 1,236 10,286 3,787 12,295
Other Rental 889 858 1,684 1,671
Other Sales 903 984 1,468 984
------- ------- -------- --------
Total Realty 20,821 27,141 40,407 45,004
Telecommunications:
EPIK Communications 4,632 3,417 10,073 6,014
Right-of-way Leases 1,610 1,936 3,182 3,505
------- ------- -------- --------
Total Telecommunications 6,242 5,353 13,255 9,519
Total Revenues (segment) 76,059 81,664 152,714 151,054
Intersegment Revenues (1,791) (1,415) (3,280) (2,906)
------- ------- -------- --------
Total Revenues (consolidated) 74,268 80,249 149,434 148,148
OPERATING EXPENSES
Railway (c) 30,778 29,572 62,014 59,033
Trucking (d) 8,813 10,281 19,688 18,835
Realty:
Flagler Realty Rental 13,301 12,502 25,919 24,378
Flagler Realty Sales 458 4,984 1,601 5,837
Other Rental 1,148 1,222 2,307 1,982
------- ------- -------- --------
Total Realty 14,907 18,708 29,827 32,197
Telecommunications:
EPIK Communications* 20,384 16,957 36,309 29,062
Right-of-way Leases 38 38 76 72
------- ------- -------- --------
Total Telecommunications 20,422 16,995 36,385 29,134
Corporate General & Administrative (e) 3,626 2,150 5,559 3,683
------- ------- -------- --------
Total Expenses (segment) 78,546 77,706 153,473 142,882
Intersegment Expenses (1,791) (1,415) (3,280) (2,906)
------- ------- -------- --------
Total Expenses (consolidated) 76,755 76,291 150,193 139,976
OPERATING PROFIT (LOSS)
Railway 10,893 11,149 20,595 21,470
Trucking (1,488) (1,832) (3,245) (2,807)
Realty 5,914 8,433 10,580 12,807
Telecommunications (14,180) (11,642) (23,130) (19,615)
Corporate General & Administrative (3,626) (2,150) (5,559) (3,683)
------- ------- -------- --------
Segment & Consolidated Operating Profit (2,487) 3,958 (759) 8,172
Interest (Expense) Income (5,102) 502 (9,817) 361
Other Income 10,808 364 13,119 1,027
------- ------- -------- --------
5,706 866 3,302 1,388
INCOME BEFORE TAXES 3,219 4,824 2,543 9,560
Provision for Income Taxes (1,252) (1,960) (992) (3,826)
------- ------- -------- --------
NET INCOME 1,967 2,864 1,551 5,734
======= ======= ======== ========
9
EBITDA BY INDUSTRY SEGMENT: (f) (g)
(dollars in thousands) THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
6/30/02 6/30/01 6/30/02 6/30/01
------- ------- ------- -------
RAILWAY EBITDA**
FECR EBITDA 19,870 18,592 38,831 35,498
Less:
EBITDA from other realty rental and sales 1,405 950 2,403 1,557
EBITDA from right-of-way leases 1,610 1,936 3,182 3,505
EBITDA from FECR other income 1,657 457 4,112 1,107
------- ------- ------- -------
Railway segment EBITDA (g) 15,198 15,249 29,134 29,329
======= ======= ======= =======
REALTY EBITDA
EBITDA from Flagler operating properties rents 12,072 9,892 22,148 20,091
EBITDA from real estate services -- -- -- --
EBITDA (loss) from Flagler land rents/holding costs (768) (705) (1,564) (1,388)
Equity pickups on partnership rents 392 224 954 397
Less: unallocated corporate overhead (1,258) (1,561) (2,483) (2,826)
------- ------- ------- -------
EBITDA from Flagler rental properties, net of overheads 10,438 7,850 19,055 16,274
EBITDA from Flagler real estate sales, net of overheads 777 5,302 2,185 6,459
------- ------- ------- -------
Total EBITDA - Flagler (g) 11,215 13,152 21,240 22,733
------- ------- ------- -------
EBITDA (loss) from other rental (248) (353) (602) (290)
EBITDA from other real estate sales 903 984 1,468 984
------- ------- ------- -------
Total EBITDA - real estate segment (g) 11,870 13,783 22,106 23,427
======= ======= ======= =======
TELECOMMUNICATIONS EBITDA
EPIK EBITDA (g) (10,478) (11,518) (15,388) (19,235)
EPIK EBITA, excluding restructuring and other costs (4,924) (11,518) (9,834) (19,235)
Telecommunications EBITDA (g) (8,868) (9,582) (12,206) (15,730)
(Prior year results have been reclassified to conform to current year's
presentation.)
(a) Included intersegment revenues of $1,736 and $1,354 for the three
months ended June 30, 2002 and 2001, and $3,164 and $2,796 for the six months
ended June 30, 2002 and 2001, respectively.
(b) Included intersegment revenues of $55 and $61 for the three months
ended June 30, 2002 and 2001, and $116 and $110 for the six months ended June
30, 2002 and 2001, respectively.
(c) Included intersegment expenses of $48 and $41 for the three months
ended June 30, 2002 and 2001, and $92 and $71 for the six months ended June 30,
2002 and 2001, respectively.
(d) Included intersegment expenses of $1,736 and $1,354 for the three
months ended June 30, 2002 and 2001, and $3,164 and $2,796 for the six months
ended June 30, 2002 and 2001, respectively.
(e) Included intersegment expenses of $7 and $20 for the three months
ended June 30, 2002 and 2001, and $24 and $39 for the six months ended June 30,
2002 and 2001, respectively.
10
(f) EBITDA is defined as operating profit before net interest expense,
income taxes, depreciation and amortization.
(g) Railway segment EBITDA excludes depreciation of $4,305 and $4,100 for
the three months ended June 30, 2002 and 2001, and $8,539 and $7,859 for the
six months ended June 30, 2002 and 2001, respectively. Total FECR EBITDA
includes EBITDA from right-of-way leases, other realty rental, other realty
sales and other income of $4,672 and $3,343 for the three months ended June 30,
2002 and 2001, and $9,697 and $6,169 for the six months ended June 30, 2002 and
2001, respectively and in total, plus EBITDA from Railway operations. Excludes
depreciation in total of $4,354 and $4,149 for the three months ended June 30,
2002 and 2001, and $8,636 and $7,952 for the six months ended June 30, 2002 and
2001, respectively.
Total EBITDA-Flagler excludes depreciation and amortization of $5,946 and
$5,339 for the three months ended June 30, 2002 and 2001, and $11,506 and
$10,598 for the six months ended June 30, 2002 and 2001, respectively.
Total EBITDA-real estate segment excludes depreciation and amortization in
total of $5,957 and $5,350 for the three months ended June 30, 2002 and 2001,
and $11,527 and $10,619 for the six months ended June 30, 2002 and 2001,
respectively.
EPIK EBITDA excludes depreciation and amortization of $5,274 and $2,022 for the
three months ended June 30, 2002 and 2001, and $10,848 and $3,813 for the six
months ended June 30, 2002 and 2001, respectively. Telecommunications EBITDA
excludes depreciation and amortization in total of $5,312 and $2,060 for the
three months ended June 30, 2002 and 2001, and $10,924 and $3,885 for the six
months ended June 30, 2002 and 2001, respectively.
* 2002 amounts include $5.5 million of restructuring and other costs.
** This table is provided to reconcile total EBITDA from the legal
entity, Florida East Coast Railway, L.L.C., to EBITDA associated with the
Railway operations of FECR and included in the Railway segment.
11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains "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.
The Company cautions that such statements are necessarily based on certain
assumptions, which are subject to risks and uncertainties that could cause
actual results to materially differ from those contained in these
forward-looking statements. Important factors that could cause such differences
include, but are not limited to, the Company's ability to compete effectively
in a rapidly evolving capital constrained, volatile, and price competitive
telecommunications marketplace and to respond to customer demands and industry
changes; the ability to achieve revenue growth in uncertain telecommunications
markets, particularly from products and services that are in the early stages
of development or operation; credit risks associated with contractual
obligations from customers, including telecommunication customers; the ability
to manage growth; changes in business strategy, legislative or regulatory
changes; technological changes; volatility of fuel prices; and changing general
economic conditions (particularly in the State of Florida) as it relates to
economically sensitive products in freight service and building rental
activities; industry competition; natural events such as weather conditions,
floods, earthquakes and forest fires; the ability of the Company to complete
its financing plans; and the ultimate outcome of environmental investigations
or proceedings and other types of claims and litigation. In addition, there are
risks related to factors such as changes in telecommunications industry
business conditions, receptivity to industry consolidation by the securities
markets, and perceptions of future growth of demand for telecommunication
services in Florida and elsewhere, all of which could affect third parties'
level of interest in and ability to consummate a transaction involving EPIK
that is acceptable to the Company; changes in the general or local real estate
market or in general or local economic conditions; the ability of the buyers to
terminate contracts to purchase real estate from the Company prior to the
expiration of inspection periods; ability of buyers to obtain financing;
fluctuations in interest rates; buyers' ability to close transactions;
governmental decisions affecting the use of land; liability for environmental
remediation and changes in environmental laws and regulations; failure or
inability of third parties to fulfill their commitments or to perform their
obligations under agreements; and other risks inherent in the real estate and
other business of the Company.
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 thereof. The Company undertakes
no obligation to publicly release revisions to the forward-looking statements
in this Report that reflect events or circumstances after the date hereof or
reflects the occurrence of unanticipated events.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
SECOND QUARTER AND SIX MONTHS
The Company reported consolidated revenues of $74.3 million for the second
quarter 2002 compared to $80.2 million in the second quarter 2001, a decrease
of 7.5%. The Company reported net income of $2.0 million, or $0.05 per diluted
share, compared with net income of $2.9 million, or $0.08 per diluted share, in
the second quarter 2001.
12
For the six months ended June 30, 2002, FECI reported consolidated revenues of
$149.4 million compared to $148.1 million for the same period in 2001, an
increase of 0.9%. The Company reported net income of $1.6 million, or $0.04 per
diluted share, for the six months compared to net income of $5.7 million, or
$0.16 per diluted share, for the prior year period.
RAILWAY
SECOND QUARTER
Second quarter 2002 Railway segment revenues increased 2.3% to $41.7 million
compared to $40.7 million in the second quarter of 2001. Operating profit was
$10.9 million in the second quarter compared to $11.1 million in the prior
year. EBITDA was comparable at $15.2 million for the second quarter 2002 versus
second quarter 2001. The operating ratio was 73.9% compared to 72.6% in the
second quarter of 2001.
Second quarter freight revenues were 3.1% higher than in the same period of
2001. Revenues from carloads were up 6.9% for the second quarter 2002. The
primary driver for the increase was aggregate revenue, up 13.1%, benefiting
from both joint initiatives with customers that resulted in increased market
share, and strong construction demand. In addition, revenues from foodstuffs
increased 35.7% due to significant new business from moving chilled juice
products for Tropicana Products, Inc. Motor vehicle revenues decreased 9.3% as
shipments from FECR's largest automobile customer fell from last year's levels.
Intermodal revenues declined 2.9% for the second quarter 2002, primarily from
reduced demand of international transport customers, LTL (less than truckload)
carriers, and reduced traffic from a connecting rail carrier. However, revenues
from intermodal interconnections with Florida Express Carriers (FLX) increased
28.2% compared to the second quarter 2001 due to focused business development
and marketing initiatives undertaken by the Railway and FLX.
Operating expenses for the Railway were $30.8 million for the second quarter
2002 compared to $29.6 million for the second quarter of 2001. Wages and
benefits increased $1.0 million, reflecting a general wage increase and
increased labor to support the Railway's efforts to gain and maintain new
customers and traffic. Equipment rents increased $0.8 million in the second
quarter of 2002, primarily the result of additional intermodal equipment rents.
Personal injury expense increased $0.6 million, while derailment expenses
increased $0.3 million due to a derailment in April. Partially offsetting these
increases for the quarter were decreased car hire of $1.2 million and fuel
costs of $0.4 million, primarily due to effective car management and favorable
fuel prices, respectively.
SIX MONTHS
2002 Railway segment revenues for the six-month period ended June 30, 2002
increased 2.6% to $82.6 million compared to $80.5 million for the same period
2001. Operating profit was $20.6 million for the six-month period ended June
30, 2002 compared to $21.5 million in the prior year. EBITDA remained
comparable at $29.1 million for the six-month period ended June 30, 2002 versus
$29.3 million for the same period 2001. The operating ratio was 75.1% for the
six-month period ended June 30, 2002 compared to 73.3% for the same period
2001.
Freight revenues were 3.3% higher for the six-month period ended June 30, 2002
than for the same period 2001. Revenues from carloads were up 7.4% for the
six-month period ended June 30, 2002. The primary driver for the increase was
aggregate revenue, up 14.7%, benefiting from joint initiatives that resulted in
customers achieving increased market share, and strong construction demand. In
addition, revenues from foodstuffs increased 44.5% due to significant new
business from moving chilled juice products for Tropicana Products, Inc. Motor
vehicle revenues decreased 5.4% as shipments from FECR's largest automobile
customer fell from last year's levels.
Intermodal revenues declined 3.0% for the six-month period ended June 30, 2002,
primarily from reduced demand of international transport customers, LTL (less
than truckload) carriers, and reduced traffic from a connecting rail carrier,
though revenues from intermodal interconnections with FLX increased 13.2%
compared to 2001 levels due to business development and marketing initiatives by
the Railway and FLX.
13
Operating expenses for the Railway were $62.0 million for the six-month period
ended June 30, 2002 compared to $59.0 million for the same period 2001. Wages
and benefits increased $1.8 million, reflecting a general wage increase and
increased labor to support the Railway's efforts to gain and maintain new
customers and traffic. Purchased services were up $1.0 million from 2001 levels
due to several new outsourcing activities intended to improve customer service
and operations, as well as 2002 rail grinding costs that more typically are
incurred in the second half of the year. Personal injuries increased $0.7
million, and derailment expenses increased $0.7 million due to three
derailments occurring during the six-month period. Partially offsetting these
increases for the six-month period ended June 30, 2002 were decreased fuel
costs of $1.1 million, primarily due to favorable fuel prices.
TRUCKING
SECOND QUARTER
Revenues from FLX declined 13.3% to $7.3 million in the second quarter 2002
from $8.4 million in the second quarter 2001 due to FLX's previously announced
plan to reduce agency arrangements and shed non-intermodal trucking that
contributes little to FLX's profits. By taking agency arrangements in house,
FLX directed more interchange traffic to the Railway. Interchanged units with
the Railway increased approximately 24% in the second quarter of 2002 versus
the second quarter of 2001. Operating loss for the second quarter 2002 was $1.5
million versus $1.8 million in second quarter 2001.
SIX MONTHS
Revenues from FLX increased 2.6% to $16.4 million for the six-month period
ended June 30, 2002 from $16.0 million for the same period 2001. The operating
loss was $3.2 million for the six-month period ended June 30, 2002 compared to
a loss of $2.8 million for the same period 2001, primarily resulting from
increased line-haul expenses partially offset by decreased agency costs.
General and administrative expenses were comparable for the six-month period
ended June 30, 2002 versus the same period 2001.
REALTY
SECOND QUARTER
Realty rental operations and sales revenues from both Flagler and other realty
operations were $20.8 million during the second quarter 2002 compared to $27.1
million for the same period last year. The decrease from prior year related to
a $9.1 million decrease in land sales, partially offset by a $2.8 million
increase in rental operations revenues. Second quarter 2002 rental operations
for Flagler generated $17.8 million in revenues versus $15.0 million for 2001.
Included in Flagler's rental and services revenues is a lease termination
settlement for $1.6 million.
At the end of the second quarter 2002, Flagler held 56 finished buildings, with
6.3 million square feet, and an overall occupancy of 84%. Flagler's "same
store" properties, including buildings with 5.5 million square feet, were 87%
occupied at June 30, 2002 compared to 93% at June 30, 2001. "Same store" rental
revenues increased by $1.4 million during the second quarter with $15.8 million
generated in 2002 compared to $14.4 million in 2001. The increase is
principally associated with a net lease termination fee of $1.6 million,
partially offset by a $0.3 million decrease in rental revenues.
Five 100% owned Flagler operating properties, with 862,019 square feet, were
delivered and began operating activities in 2001. Together, these five
properties contributed $1.4 million in second quarter 2002 revenues with none
generated in the prior year.
Second quarter realty rental and sales operating expenses (after depreciation
and amortization) for both Flagler and other realty decreased from $18.7
million in 2001 to $14.9 million in 2002. The decrease primarily reflected
Flagler's reduced real estate sales activity compared to the prior year, offset
partially by increased rental operations expenses. Real estate sales expenses
were $0.5 million in 2002 compared to $5.0 million in 2001. Second quarter 2002
operating expenses (after depreciation and amortization) related
14
to both Flagler and other rental activities were $14.4 million, up from $13.7
million in 2001. This increase primarily reflects additional depreciation and
amortization expense for Flagler's rental properties.
Second quarter 2002 EBITDA for the real estate segment was $11.9 million,
compared to $13.8 million in 2001. This decrease relates to reduced Flagler
real estate sales activity that contributed $5.3 million in 2001 versus $0.8
million in 2002. Offsetting this decrease was EBITDA from Flagler's operating
property rents, which increased $2.2 million due to increased revenues of $2.8
million (including the net lease termination fee of $1.6 million) partially
offset by increased operating expenses. Flagler's "same store" rental expenses
(before depreciation and amortization) increased to $4.6 million in 2002 from
$4.5 million in 2001. Flagler's operating expenses (before depreciation and
amortization) related to rental activities for five properties delivered in
2001 were $0.5 million for second quarter 2002 with less than $0.1 million in
expenses in the prior year period.
Corporate overhead costs decreased to $1.3 million in second quarter 2002 from
$1.6 million in second quarter 2001. The decrease is principally related to
cost cutting initiatives at Flagler. Flagler occupies approximately 14,000
square feet of space in Jacksonville and currently has 36 employees.
At quarter end 2002, Flagler had seven projects, with 814,350 square feet, in
various stages of development (223,800 square feet in lease-up stage; 590,550
square feet in predevelopment).
SIX MONTHS
Flagler's rental and services revenues and EBITDA from operating properties
rentals increased by 11.4% and 10.2%, respectively, to $33.5 million and $22.1
million, respectively, during the six months ended June 30, 2002 when compared
to the same period 2001 ($30.1 million and $20.1 million, respectively).
Flagler's 2002 results include a net lease termination fee of $1.6 million
received in the second quarter of 2002. Remaining increases result from new
product lease up during the period offset by lower occupancy in "same store."
Flagler's operating expenses from rental operations were $25.9 million with
depreciation and amortization of $11.0 million, an increase of $0.9 million
from prior year's amounts. Flagler generated $2.2 million in land sale profits
for the six-month period ended June 30, 2002 compared to $6.5 million in 2001.
Other realty operations contributed $1.5 million in profits from real estate
sales, an increase of $0.5 million from the prior year.
TELECOMMUNICATIONS
SECOND QUARTER
During the quarter, the Company announced it had retained Morgan Stanley to
assist in a review of strategic alternatives for EPIK. In its announcement (as
filed on Form 8-K June 20, 2002), the Company stated that if the Company should
consummate a transaction involving EPIK, it likely would result in a non-cash
charge to earnings and possibly result in the realization of income tax
benefits for the Company, all as more fully described in the announcement.
However, due to the preliminary stage of the strategic review and current
volatility of the telecommunications industry, the results of the review, if
any, are not currently predictable, and there can be no assurance the strategic
review will result in either a transaction involving EPIK or any income tax
benefits for the Company.
EPIK's operating results continue to be consistent with the Company's
expectation of its restructuring plan announced in November of 2001. Before
restructuring and other costs, EPIK's second quarter 2002 EBITDA loss from
operations was ($4.9 million), which compares sequentially with the first
quarter of 2002 of ($4.9 million) and ($11.5 million) in the second quarter of
2001. Also consistent with the restructuring plan's expectation, capital
expenditures in the second quarter were $2.5 million.
EPIK's second quarter 2002 revenues were $4.6 million, which compares
sequentially with the first quarter of 2002 of $5.4 million and $3.4 million in
the second quarter 2001. EPIK recognizes certain revenues from credit risk
customers only as payments are received. Included in second and first quarters
of 2002 revenues are payments of $1.0 million and $1.0 million, respectively,
received from credit risk customers for services provided in prior periods.
Excluded in each quarter are $0.4 million and $0.4 million, respectively, of
services provided to credit risk customers that will not be recognized as
revenue until collected. At June 30,
15
2002, EPIK's contracted revenue backlog stood at $96.9 million, $21.4 million
of which is considered at credit risk. Net decrease in backlog from first
quarter 2002 results primarily from revenue recognition of services provided in
the current quarter, and the settlement of a bankruptcy claim agreement with a
former customer of EPIK's, which is discussed more fully below. From the
backlog, EPIK is scheduled to recognize revenues of $8.2 million in the
remainder of 2002, $1.5 million of which is considered at risk.
Operating expenses, before restructuring and other costs, were $14.9 million
compared sequentially with the first quarter 2002 expenses of $15.9 million and
$17.0 million in the second quarter of 2001. Included in the second quarter
2002 expenses are restructuring charges and other costs of $5.5 million, for
additional staff reductions ($1.0 million), collocation (dark) lease buyouts
($0.9 million), and a non-cash increase in the valuation allowance ($3.6
million) for materials identified as excess in the restructuring plan and held
for sale. The increased allowance results from lower than expected sales prices
for excess telecommunication equipment and materials. Operating expenses for
the second quarter of 2002, inclusive of the restructuring and other costs
were, $20.4 million.
During 1999 through 2001, a now-bankrupt former customer made advance payments
to EPIK for network services to be provided in the future. EPIK recognizes
revenues from such payments only as and when it provides the contracted
services. However, under the bankruptcy settlement completed during the second
quarter of 2002, EPIK is no longer contractually obligated to provide any
future services or return the previously received amounts. Accordingly, EPIK
recorded during the second quarter of 2002 $9.4 million of other income to
reflect the settlement of this commercial contract.
SIX MONTHS
EPIK's 2002 first half results are consistent with the expectations of the
restructuring plan adopted in November of 2001 to focus EPIK on growing
revenues from its existing Southeast network, while reducing ongoing operating
expenses and capital needs. EPIK's operating expenses before restructuring
charges and other costs, depreciation and amortization were $20.0 million, with
capital expenditures of $3.4 million for the first half of 2002.
EPIK's 2002 year-to-date revenues were $10.1 million compared to $6.0 million
in the same period in 2001. Revenues during 2002 reflect EPIK's focus on
growing customer services on its lit Southeast network. Revenues from bandwidth
services were $5.1 million for the first half of 2002 versus $1.4 million
during the same period of 2001. EPIK continues to recognize certain revenues
from credit risk customers only as payments are received. Included in revenues
for the first half of 2002 are payments of $1.5 million from credit risk
customers for services provided in prior periods. Conversely, in the first half
of 2002, EPIK provided services of $0.6 million to credit risk customers that
was not recognized as revenue in the first six months. Operating expenses for
the six months ended June 30, 2002 were $36.3 million compared to $29.1 million
for the comparable prior year period. Included in these expenses is $10.9
million and $3.9 million of depreciation and amortization, respectively, for
2002 and 2001. 2002 expenses also included $5.5 million of restructuring
charges and other costs. 2001 expenses included $2.6 million of bad debt
expenses.
CORPORATE EXPENSES
SECOND QUARTER AND SIX MONTHS
Corporate expenses for the second quarter and first six months of 2002 increased
to $3.6 million and $5.6 million, respectively, compared with 2001's second
quarter and first six months' expenses of $2.2 million and $3.7 million,
respectively. Increases in corporate expenses primarily relate to costs
associated with ongoing strategic reviews.
INTEREST EXPENSE
SECOND QUARTER AND SIX MONTHS
Net interest expense for the second quarter and first six months of 2002 was
$5.1 million and $9.8 million, respectively. This compares with net interest
income of $0.5 million and $0.4 million for the second quarter and first six
months of 2001, respectively. The higher net interest expense resulted
primarily from increased borrowings and reduced capitalization of interest due
to completion of telecommunications network construction.
16
OTHER INCOME
SECOND QUARTER AND SIX MONTHS
Other income for the quarter and first six months of 2002 was $10.8 million and
$13.1 million, respectively. This represents an increase of $10.4 million from
the second quarter of 2001 ($0.4 million) and $12.1 million from the first six
months of 2001 ($1.0 million). Second quarter 2002 other income included the
$9.4 million gain upon settlement of a contract termination with one of EPIK's
former customers, as discussed above. The first quarter of 2002 also included
$1.9 million of income from a pipe and wire crossing agreement.
PROVISION FOR INCOME TAXES
Income tax expense represents an effective rate of 39.0% for the second quarter
and first six months of 2002 compared to an effective rate for income tax
expense of 40.0% for the same periods of 2001.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash generated from operations was $27.6 million and $5.7 million for the
six months ended June 30, 2002 and 2001, respectively. Changes in operating
assets and liabilities generated $4.2 million and used $17.6 million for the
six months ended June 30, 2002 and 2001, respectively, which included in the
six months ended June 30, 2002 a significant reduction in EPIK's payables
related to construction of its telecommunications network that was completed in
late 2001. Eliminating changes in operating assets and liabilities, net cash
otherwise generated by operating activities was $23.4 million and $23.3 million
during the six months ended June 30, 2002 and 2001, respectively. During the
first six months of 2002, the Company made capital investments of $29.2
million, received $5.3 million from asset dispositions, and reduced debt
balances by $6.2 million and cash and equivalents balances by $4.4 million.
The Company continues to manage its capital spending, especially at Flagler and
EPIK, based on customer demand in the marketplace. Thus far in 2002, Flagler
has seen cyclical softness in the commercial real estate markets, and
anticipated 2002 capital investment has been reduced to between $35-45 million
from its previously forecasted $45-60 million. In 2001 and 2000, the Company's
capital investments at EPIK were made primarily to construct a
telecommunications network and certain related facilities. This construction
was completed in late 2001. The Company presently does not expect to make
material capital expenditures to expand the network in 2002 or in the
foreseeable future. Capital expenditures estimated at $5 to $8 million are
expected to be made in 2002 to maintain EPIK's business and to discharge
commitments pursuant to customer contracts executed prior to December 31, 2001.
The Company expects that further capital investments at EPIK in 2002 will be
undertaken only as warranted to fulfill new revenue-generating customer
contracts which the Company is seeking.
Financing of the Company's investment program is planned through internally
generated cash flows and the use of the Company's $300 million revolving credit
facility. At June 30, 2002, the amount drawn down on the revolving credit
facility was $34 million.
The Company's $300 million revolving credit facility is provided pursuant to an
agreement, as amended, between the Company and eleven banking institutions (the
"Credit Facility Agreement"). The description herein of the revolving credit
facility is qualified in its entirety by reference to the Credit Facility
Agreement, which is incorporated as Exhibit 10(b) to the Company's Reports on
Form 10-K for the years ended December 31, 2001 and December 31, 2000. Pursuant
to the Credit Facility Agreement, the Company agreed, among other things, to
maintain certain financial ratios. The Company believes the most restrictive of
such ratios to be the Global Debt/EBITDA ratio (the terms Global Debt and
EBITDA being defined in the Credit Facility Agreement). The Credit Facility
Agreement provides that at June 30, 2002 the Company's Global Debt/EBITDA ratio
shall be no greater than 4.75. At June 30, 2002, the Company's actual Global
Debt/EBITDA ratio was 0.78. Pursuant to the Credit Facility Agreement, the
required Global Debt/EBITDA
17
ratio varies in future periods, declining from 4.75 at June 30, 2002 to 3.50 at
March 31, 2003 and thereafter, all as more particularly set forth in the Credit
Facility Agreement. Although no assurances can be given as to the Company's
future compliance with the Global Debt/EBITDA ratio covenant or other financial
covenants, the Company has complied with the terms of the Credit Facility
Agreement at all times in the past and expects to continue to comply with them
in the future.
These interim results on Financial Condition, Liquidity and Capital Resources
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 2001 filed with the Securities and Exchange
Commission.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change to the disclosures made under the heading
"Quantitative and Qualitative Disclosures about Market Risk" on page 41 of the
Company's 2001 Annual Report on Form 10-K.
PART II
ITEM 1.
LEGAL PROCEEDINGS
There are no new legal or regulatory proceedings pending or known to be
contemplated which, in management's opinion, are other than normal and
incidental to the kinds of businesses conducted by the Company.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 30, 2002. There were
16,921,421 shares of Class A Common Stock and 19,609,216 shares of Class B
Common Stock outstanding as of the Record Date of the Annual Meeting, April 3,
2002. Of this amount, there were 15,376,900 Class A Common Stock and 18,786,698
Class B Common Stock represented in person or by proxy.
18
Proposal 1: The election of ten directors: two directors to be elected by Class
A shareholders; eight directors to be elected by Class B shareholders.
NUMBER OF VOTES CAST
-----------------------------------
COMMON CLASS A - NAME FOR ABSTAIN
--------------------- ---------- -------
Allen C. Harper 15,158,672 218,228
Gilbert Lamphere 15,158,662 218,238
COMMON CLASS B - NAME
---------------------
Robert W. Anestis 17,846,109 940,589
Richard S. Ellwood 18,748,872 37,826
J. Nelson Fairbanks 18,748,844 37,854
David M. Foster 18,749,922 36,776
Adolfo Henriques 18,750,547 36,151
Joseph Nemec 18,750,311 36,387
Herbert H. Peyton 18,748,805 37,893
Winfred L. Thornton 18,583,342 203,356
Proposal 2: Approval of Florida East Coast Industries' Stock Incentive Plan:
NUMBER OF VOTES CAST
---------------------------------------------------
FOR AGAINST ABSTAIN
---------- ------- -------
Common Class A 12,786,085 804,533 19,935
Common Class B 16,362,083 331,278 21,740
Broker Non-Vote Common Class A 1,766,347 - Broker Non-Vote Class B 2,071,597
Proposal 3: Approval of Florida East Coast Industries' Employee Stock Purchase
Plan:
NUMBER OF VOTES CAST
---------------------------------------------------
FOR AGAINST ABSTAIN
---------- ------- -------
Common Class A 12,786,085 804,533 19,935
Common Class B 16,474,322 222,705 18,074
Broker Non-Vote Common Class A 1,766,347 - Broker Non-Vote Class B 2,071,597
19
ITEM 5.
OTHER INFORMATION
FECR's traffic volume and revenues for the three months ended June 30, 2002 and
2001, respectively, are shown below. Also, FECR's, Flagler's and FLX's
quarterly operating expenses are presented below.
TRAFFIC
THREE MONTHS ENDED JUNE 30
(dollars and units in thousands)
2002 2001 PERCENT 2002 2001 PERCENT
COMMODITY UNITS UNITS VARIANCE REVENUES REVENUES VARIANCE
- --------- ----- ----- -------- -------- -------- --------
INTERMODAL
TOFC/COFC 64.0 65.7 (2.6) $14,980 $15,430 (2.9)
RAIL CARLOADS
Crushed stone 29.5 27.2 8.5 13,412 11,860 13.1
Construction materials 1.3 1.3 0.0 761 830 (8.3)
Vehicles 5.8 6.4 (9.4) 4,751 5,241 (9.3)
Foodstuffs 2.9 2.0 45.0 2,166 1,596 35.7
Chemicals 1.0 0.9 11.1 1,214 1,043 16.4
Paper 1.7 2.0 (15.0) 1,707 1,884 (9.4)
Other 3.4 3.7 (8.1) 2,035 1,915 6.3
----- ----- ---- ------- ------- ----
Total 109.6 109.2 0.4 $41,026 $39,799 3.1
===== ===== ==== ======= ======= ====
(Prior year results have been reclassified to conform to current year's
presentation.)
RAILWAY OPERATING EXPENSES
(dollars in thousands) QUARTER QUARTER
ENDED 6/30/02 ENDED 6/30/01
------------- -------------
Compensation & Benefits 12,736 11,753
Fuel 2,720 3,157
Equipment Rents (net) 1,048 225
Car Hire (net) (972) 237
Depreciation 4,305 4,100
Purchased Services 2,076 2,018
Repairs to/by Others (net) (1,208) (1,089)
Load/Unload 1,823 1,877
Casualty & Insurance 1,631 1,052
Property Taxes 1,185 1,155
Materials 2,138 2,279
General & Administrative Expenses 2,279 2,182
Other 1,017 626
------- -------
Total Operating Expenses 30,778 29,572
======= =======
20
TRUCKING SEGMENT EXPENSES
(dollars in thousands) QUARTER QUARTER
ENDED 6/30/02 ENDED 6/30/01
------------- -------------
Compensation & Benefits 564 496
Fuel 295 220
Equipment Rentals (net) 591 430
Depreciation 12 37
Purchased Services 4,317 3,263
Repairs Billed to/by Others (net) 123 243
Casualty & Insurance 387 327
Property Taxes 35 27
Other 197 213
----- ------
Total Line-Haul Expenses 6,521 5,256
Agency Costs 789 3,103
General & Administrative Expenses 1,503 1,922
----- ------
Total Operating Expenses 8,813 10,281
===== ======
REALTY SEGMENT EXPENSES
(dollars in thousands) QUARTER QUARTER
ENDED 6/30/02 ENDED 6/30/01
------------- -------------
Real Estate Taxes-Developed 1,904 1,648
Repairs & Maintenance-Recoverable 510 484
Services, Utilities, Management Costs 2,603 2,393
------ ------
Subtotal-Expenses subject to recovery 5,017 4,525
Realty Sales Expense 458 4,983
Real Estate Taxes-Undeveloped Land 820 815
Repairs & Maintenance-Non-recoverable 203 167
Depreciation & Amortization 5,957 5,343
SG&A-Non-recoverable 2,452 2,875
------ ------
Subtotal-Non-recoverable expenses 9,890 14,183
Total Operating Expenses 14,907 18,708
====== ======
ITEM 6.
EXHIBITS AND REPORTS
REPORTS ON FORM 8-K
1. The Registrant furnished information under Item 9 on Form 8-K on May
15, 2002, reporting information the Registrant elected to disclose through Form
8-K pursuant to Regulation FD. The information concerned presentations to be
made by Mr. Robert W. Anestis, Chairman, President and Chief Executive Officer
of Florida East Coast Industries, Inc. to various potential investors at
various locations in Milwaukee, Chicago and St. Louis from May 15-17, 2002.
2. The Registrant furnished information under Item 5 on Form 8-K on June
20, 2002, reporting information the Registrant elected to disclose through Form
8-K pursuant to Regulation FD. The information concerned Florida East Coast
Industries' announcement that it had retained Morgan Stanley to assist in a
review of strategic alternatives for FECI's wholly owned telecommunications
subsidiary, EPIK Communications Incorporated.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLORIDA EAST COAST INDUSTRIES, INC.
(REGISTRANT)
Date: 7/29/02 /s/ Mark A. Leininger
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Mark A. Leininger, Vice President
and Controller
Date: 7/29/02 /s/ Richard G. Smith
------- -------------------------------------------
Richard G. Smith, Executive Vice President
and Chief Financial Officer
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