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Florida East Coast Industries Inc – ‘10-K405’ for 12/31/97

As of:  Friday, 3/27/98   ·   For:  12/31/97   ·   Accession #:  740796-98-3   ·   File #:  1-08728

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  As Of                Filer                Filing    For·On·As Docs:Size

 3/27/98  Florida East Coast Industries Inc 10-K405    12/31/97    3:101K

Annual Report — [x] Reg. S-K Item 405   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Form 10-K405 for 1997                                 42±   166K 
 3: EX-27       Financial Data Schedule (Pre-XBRL)                     2      6K 
 2: EX-99       Change of Control Severance Plan                       4±    14K 


10-K405   —   Form 10-K405 for 1997
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
2Item 1. Business
"Item 2. Properties
"Item 3. Legal Proceedings
"Item 4. Submission of Matters to A Vote of Security Holders
"Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters
"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
"Item 8. Financial Statements and Supplementary Data
"Earnings Per Share
"Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
"Item 10. Directors and Executive Officers of the Registrant
"Item 11. Executive Compensation
"Item 12. Security Ownership of Certain Beneficial Owners and Management
"Item 13. Certain Relationships and Related Transactions
"Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1997. Commission File No. 2-89530 FLORIDA EAST COAST INDUSTRIES, INC. (Exact name of Registrant as specified in its Charter) Florida 59-2349968 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Malaga Street, St. Augustine, FL 32084 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (904) 829-3421 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock, $6.25 Par Value New York Stock Exchange Collateral Trust 5% Bonds New York Stock Exchange Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, or to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated in Part III of this Form 10-K or any amendment to this Form 10-K. (X) Based on the closing sales price of February 3, 1998, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $423,209,934. The number of shares of the Registrant's common stock, $6.25 par value, is 9,271,361 shares issued and 9,071,590 shares outstanding at February 3, 1998, with 199,771 shares of treasury stock.
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PART I ITEM 1. BUSINESS General Florida East Coast Industries, Inc. (Registrant) was incorporated under the laws of the State of Florida on December 9, 1983, for purposes of (a) directly, or through the ownership of shares in any corporation, to acquire, hold, manage, improve, develop and dispose of real estate and property; (b) only through the ownership of shares in any corporation, to engage in the transportation industry; (c) directly, or through the ownership of shares in any corporation, to purchase or otherwise acquire, hold, own and dispose of shares or other securities in any corporation; and (d) to engage in any other lawful act or activity for which a corporation may be organized under the Florida General Corporation Act. Segments Registrant is segmented into areas of Transportation (principally by rail) and Realty (real estate ownership, development, leasing and management). Transportation: Registrant owns 100% of the stock of Florida East Coast Railway Company (Railway) and International Transit, Inc. (ITI). Railway owns 100% of the stock of seven subsidiary corporations, all of which are included in the consolidated Transportation segment and which, considered in the aggregate, do not constitute a significant subsidiary. Principal commodities carried by Transportation include automotive vehicles, crushed stone, cement, trailers-on-flatcars, containers-on-flatcars and basic consumer goods such as foodstuffs. Movement is relatively stable throughout the year with heaviest traffic ordinarily occurring during the first and last quarters of the year. Railway is the only railroad serving locations along the East Coast of Florida between Jacksonville and West Palm Beach. From West Palm Beach to Miami, Railway is competitive with CSX Transportation (CSXT) for rail traffic, excluding that of trailer-on-flatcar/container-on-flatcar traffic, which is handled exclusively by Railway under agreement with CSXT. Common motor carriers and owner-operators are competitive throughout the entire transportation system. Railway is considered generally as a terminating railroad, meaning the majority of the traffic received from other carriers is destined for Jacksonville and points south. A significant portion of traffic handled is received from Jacksonville rail connections, CSXT and Norfolk Southern Railway, destined to points on Railway's line, whereas a less significant portion is forwarded to those connections for destinations outside Florida. In recent years, Railway has experienced continuing growth in traffic originating and terminating at points on its own line, and this local traffic is now generating approximately 47% of rail traffic revenues. ITI is a common motor carrier providing truckload service throughout most of the southeastern United States, 80% of which was acquired at the beginning of the second quarter 1995. Since April 1, 1995, ITI's revenues and expenses have been consolidated into the Company's financials. The Company acquired the remaining 20% ownership of ITI in July 1997. Realty: Registrant owns 100% of the stock of Gran Central Corporation (GCC). GCC is engaged in the development, leasing, management and sales of its property, and general management of all real property included in the consolidated financials. GCC is in competition with other developers and brokers throughout its operating area. Employees: As of December 31, 1997, the Registrant employed approximately 1,215 employees, including 1,177 in Transportation, 34 in Realty and 4 in Corporate. Approximately 700 Transportation employees are covered by collective bargaining agreements. Recent Events: The Company announced on May 5, 1997 that it received a proposal from St. Joe Corporation in which St. Joe offered to merge FECI with a wholly- owned subsidiary of St. Joe by purchasing all the outstanding shares of the Company. On November 21, 1997, St. Joe announced the withdrawal of its outstanding offer. On March 2, a Trackage Agreement with South Central Florida Express Railroad and the Transportation segment of the Company (Railway) was signed. The purpose of this Agreement was to provide for cost reduction in the near future with a future potential growth in the revenue base. Registrant has no foreign operations. Item 2. PROPERTIES Transportation: Transportation properties include rail right-of-way between Jacksonville and Miami and between Ft. Pierce and Lake Harbor and operating properties at major terminals throughout the system. Operating properties include significant switching and classification yards, trailer/container loading and unloading facilities, an automotive marshaling yard and maintenance facilities. Transportation physical plant (i.e., track structure, shops and office buildings) is in excellent condition and includes 351 miles of main track, 91 miles of branch line track, 157 miles of yard switching track and 185 miles of other tracks, including second main and passing tracks. The main track is generally constructed of 132# rail and other track materials on concrete crossties providing a track structure meeting the needs of today's heavy traffic loads. Certain yard tracks, though in good physical condition, are constructed of materials lighter than the 112# and 115# rails deemed necessary for this trackage, and programs are currently under way to relay these tracks with heavier materials. These programs may be expected to extend several years into the future. Transportation owns 82 diesel electric locomotives, approximately 2,633 freight cars, 1,141 trailers for highway revenue service, numerous pieces of rail-mounted and non-rail-mounted work equipment, and numerous automotive vehicles used in maintenance and transportation operations. All equipment owned is in good physical condition. Realty - Realty owned and managed approximately 18,747 acres of land at year- end 1997, including approximately 447 acres developed with buildings; 789 acres developed with an infrastructure ready to receive buildings, and approximately 16,414 acres of undeveloped properties, including 1,097 acres owned by Transportation but not required for operations. These properties are held for lease, development and/or sale, and have a situs in fourteen counties of the state of Florida as follows: Duval 1,531 acres St. Johns 3,386 " Putnam 87 " Flagler 3,464 " Volusia 3,584 " Brevard 2,481 " Orange 85 " Indian River 5 " St. Lucie 610 " Martin 660 " Palm Beach 197 " Broward 61 " Dade 1,699 " Manatee 897 " ---------- Total 18,747 " At year-end 1997, Realty also owned fifty-nine (59) buildings as detailed below: No. of Rentable Year Location Bldgs. Type Square Ft. Built -------- ------ ---- ---------- ----- duPont Center Jacksonville, FL 2 Offices 163,000 1987-88 Gran Park at Interstate South 1 Service Center 35,000 1997 Jacksonville, FL 5 Office/Showroom/ Warehouses 225,000 1987-89 Gran Park at the 3 Office/Showroom/ Avenues Warehouses 172,000 1992-97 Jacksonville, FL 3 Offices 242,000 1992-95 2 Office/Warehouses 301,000 1994-96 Gran Park at 1 Office/Showroom/ Jacksonville Warehouse 148,000 1997 Jacksonville, FL 1 Front Load Warehouse 99,000 1997 1 Rail Building 108,000 1997 Gran Park at Deerwood Jacksonville, FL 3 Offices 385,000 1995-97 Gran Park at 1 Office/Showroom/ Riviera Beach, FL Warehouse 62,000 1987 Lewis Terminals 2 Rail Warehouses 176,000 1982-87 2 Cross Dock Warehouses 74,000 1987-91 Gran Park-McCahill Miami, FL 2 Rail Warehouses 468,000 1992-94 1 Front Load Ware- house 91,000 1996 2 Office Warehouses 319,000 1997 Gran Park at Miami 5 Office/Showroom/ Miami, FL Warehouses 369,000 1988-94 6 Office/Warehouses 588,000 1990-97 4 Rail Warehouses 398,000 1989-94 7 Front Load Warehouses 790,000 1991-95 1 Double Front Load Warehouse 239,000 1993 1 Office/Service Center 39,000 1994 Hialeah, FL 1 Cross Dock 20,000 1987 1 Transit Warehouse 31,000 1975 Pompano Beach, FL 1 Rail Warehouse 54,000 1987 -- --------- TOTALS 59 5,596,000 Realty's holdings include lands adjacent to Railway's tracks which are suitable for development into office and industrial parks offering both rail and non- rail-served parcels. Certain other holdings are in urban or suburban locations offering opportunities for development of office building structures or business parks offering both office building sites and sites for flexible space structure such as office/showroom/warehouse buildings. Realty intends to develop infrastructure and construct buildings for lease and continued ownership wherever possible. ITEM 3. LEGAL PROCEEDINGS The Railway was named as a potentially responsible party (PRP) for the remediation of a designated Superfund site in Portsmouth, Virginia. The USEPA alleged that the Railway caused certain materials to be sent to the site over a period of years. These materials were utilized by the owner of the site in the course of its business which the Railway believes caused the site to become contaminated. The Railway vigorously opposed any attempt to impose liability upon the Railway. The owner of the site filed suit in the United States District Court for the Eastern District of Virginia, Norfolk Division, seeking to impose liability upon the defendants, including the Railway, for remediation of the site. A settlement between the owner of the site and the Railway was achieved in late 1996. The settlement of approximately $.2 million was approved by the Court and the USEPA. Unless additional contamination is discovered at the site, or it becomes necessary to remediate areas beyond the original cleanup, the Railway will have no further liability at the site. The Railway has been named as a PRP for the remediation of two designated Superfund sites near Jacksonville, Florida. On the first site, the USEPA has alleged the Railway caused certain materials to be disposed at the site over a period of years. The USEPA has offered all named PRPs an opportunity to participate in a pilot allocation program. This program is similar to binding arbitration. If the Railway participates in this program, its share of the liability for the remediation will be fixed. The USEPA has also offered to negotiate a separate settlement with certain parties, including the Railway, whom we believe the USEPA considers to be de minimis parties. Railway believes that, whichever alternative is chosen, its liability for the remediation of the site will not be material. On the second site, the Railway was contacted by the USEPA during 1996, at which time the Railway was asked to provide certain information about the manner in which the Railway disposes of steel drums. The USEPA is attempting to determine whether or not the Railway should be a PRP at the steel drum site in Jacksonville, Florida. There is some evidence that the Railway may have sent a small number of steel drums to the site for disposal. The Railway believes its responsibility, if any, for the remediation of the site will not be material. The Railway was contacted by the USEPA during 1996, seeking reimbursement of costs associated with the remediation of a Superfund site in Hialeah, Florida, part of which includes a right-of-way. An individual operated a business on this site for a number of years. The owner of the business slightly encroached upon the Railway's right-of-way. Upon discovering this, the Railway entered into a Lease Agreement with the business owner rather than require the building be removed. The individual has ceased doing business. The USEPA is seeking reimbursement of the approximate $2 million spent in remediation from the Railway on the grounds that the Railway was an "owner" of the site. Settlement negotiations are ongoing at this time, and the ultimate costs are not expected to be material. During April 1996, an individual, alleging that he is a shareholder of FECI, instituted a purported class action suit in Florida state court against FECI, St. Joe Industries, Inc., St. Joe Corporation and members of the FECI Board of Directors (Messrs. Thornton, Belin, Nedley, Zellers, Fairbanks, Foster, Harper, Mercer and Parrish). Certain of the individuals named in the action also are officers or directors of St. Joe Corporation. The action, which has purportedly been brought on behalf of all shareholders of FECI, other than the defendants and their affiliates, is styled Kahn v. St. Joe Industries, Inc., St. Joe Paper Co., Thornton, Belin, Nedley, Zellers, Fairbanks, Foster, Harper, Mercer, Parrish and Florida East Coast Industries, Inc., Case No. 96-01874 CA (Circuit Court, Fourth Judicial Circuit, Duval County, Florida, Division CV-G). In January 1998, the same plaintiffs instituted a new class action against St. Joe, the Company and its directors in an action styled Kahn v. St. Joe Corporation, Thornton, Belin, Nedley, Zellers, Fairbanks, Foster, Harper, Mercer, Parrish and Florida East Coast Industries, Inc., Case No. 98-00025 CA (Circuit Court, Fourth Judicial Circuit, Duval County, Florida, Division CV-G). The complaint alleges that the defendants breached their fiduciary duties to the minority shareholders of the Company in connection with (1) the February 26, 1996 announcement by the Company that it was considering the sale of its real estate subsidiary, GCC, to St. Joe and the sale of its railroad subsidiary, FEC, to a third party, (2) St. Joe's May 5, 1997 offer to purchase all outstanding shares of the Company's Common Stock not owned by St. Joe at $102 per share and (3) St. Joe's November 21, 1997 withdrawal of such offer. According to the complaint, by St. Joe withdrawing its offer, St. Joe is allegedly attempting to coerce the Company's minority shareholders to sell their shares to St. Joe at an inadequate price. The action seeks, among other things, to certify the litigation as a class action, to appoint a receiver to assume control of the Company for the purpose of liquidating it and to enjoin St. Joe from squeezing out minority shareholders at an inadequate price. By agreement of the parties to these two actions, a stipulation of dismissal with prejudice against the named plaintiffs was filed on March 6, 1998 with respect to both actions. There are no other legal or regulatory proceedings pending or known to be contemplated which, in the opinion of the General Attorney of the Registrant, are other than normal and incidental to the kinds of businesses conducted by the Registrant. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS a. Principal market on which Florida East Coast Industries, Inc.'s common stock is traded: New York Stock Exchange. Symbol: FLA b. The table below presents the high and low market prices and dividend information for Florida East Coast Industries, Inc.'s common shares: 1997 ---- Quarter Ended Dec. 31 Sept. 30 June 30 March 31 High $116 $114 1/4 $111 3/4 $101 3/4 Low $92 5/8 $106 1/8 $86 $86 1/4 Dividends $.10 $.10 $.10 $.10 1996 ---- Quarter Ended Dec. 31 Sept. 30 June 30 March 31 High $89 1/4 $85 7/8 $90 1/8 $89 Low $81 1/8 $77 $83 $67 3/8 Dividends $.10 $.10 $.10 $.10 c. The total number of holders of record of Florida East Coast Industries, Inc.'s common stock as of December 31, 1997 was approximately 674. ITEM 6. SELECTED FINANCIAL DATA Financial Review Selected Financial Data (Dollars in thousands except per share amounts*) (Unaudited) Years Ended December 31 1997 1996 1995 ---- ---- ---- Revenues: Operating Revenues $250,520 $208,031 $201,107 Other Income 10,635 10,511 7,924 -------- -------- -------- Total Revenues and Other Income $261,155 $218,542 $209,031 Income before cumulative effect of change in accounting principle $ 40,135 $ 30,414 $ 26,637 Cumulative effect of change in accounting principle for income taxes 0 0 0 -------- ------- ------- Net Income $ 40,135 $30,414 $26,637 ======== ======= ======= Per Share Data: Cash Dividend $ 0.40 $ 0.40 $ 0.40 ======== ======= ======= Income before cumulative effect of change in accounting principle $ 4.43 $ 3.36 $ 2.95 Cumulative effect of change in accounting principle for income taxes $ 0.00 $ 0.00 $ 0.00 -------- ------- ------- Net Income Per Common Share $ 4.43 $ 3.36 $ 2.95 At year-end: Total Assets $825,490 $789,681 $756,210 Working Capital $ 47,558 $ 41,203 $ 38,010 Shareholders' Equity $648,875 $608,796 $581,860 *Average Number of Employees 1,178(1) 1,347(1) 1,248(1) *Average Wage per Employee $ 39,881 $ 39,496 $ 42,215 (1)-Includes ITI employees since purchase of ITI in 1995. The Items Below Pertain to Railway Operations Only (Not Consolidated) Revenue Ton-Miles (thousands) 4,348,000 4,098,000 4,122,000 *Freight Revenue Per Ton-Mile $ 0.0357 $ 0.0352 $ 0.0345 *Miles of Road Operated at Year-End 442 442 442 Revenues: 1994 1993 ---- ---- Operating Revenues $199,544 $181,096 Other Income 9,117 5,103 -------- -------- Total Revenues and Other Income $208,661 $186,199 Income before cumulative effect of change in accounting principle $ 34,605 $ 20,779 Cumulative effect of change in accounting principle for income taxes $ 0 $ 1,504 -------- -------- Net Income $ 34,605 $ 22,283 ======== ======== Per Share Data Cash Dividend $ 0.40 $ 0.40 Income before cumulative effect of change in accounting principle $ 3.85 $ 2.31 Cumulative effect of change in accounting principle for income taxes $ 0.00 $ 0.17 -------- -------- Net Income Per Common Share $ 3.85 $ 2.48 At year-end: Total Assets $722,494 $688,445 Working Capital $ 39,750 $ 42,552 Shareholders' Equity $552,268 $523,038 *Average Number of Employees 1,319 1,463 *Average Wage per Employee $ 36,482 $ 33,936 The Items Below Pertain to Railway Operations Only (Not Consolidated) Revenue Ton-Miles (thousands) 4,388,000 4,257,000 *Freight Revenue Per Ton-Mile $ 0.0338 $ 0.0342 *Miles of Road Operated at Year-End 442 442 Quarterly Financial Data (Unaudited) (Dollars in thousands except per share amounts) 1997 ---- Dec. 31 Sept. 30 June 30 March 31 Operating Revenues $59,168 $60,907 $71,007 $59,438 Other Income $ 2,529 $ 2,797 $ 3,013 $ 2,296 Operating Expenses $45,536 $44,485 $59,831 $48,346 Net Income $10,896 $12,011 $ 8,863 $ 8,365 Net Income Per Common Share $ 1.20 $ 1.33 $ 0.98 $ 0.92 1996 ---- Dec. 31 Sept. 30 June 30 March 31 Operating Revenues $55,458 $51,123 $51,487 $49,963 Other Income $ (609) $ 4,541 $ 2,016 $ 4,563 Operating Expenses $41,256 $43,396 $43,152 $42,621 Net Income $ 8,866 $ 7,656 $ 6,469 $ 7,423 Net Income Per Common Share $ 0.98 $ 0.85 $ 0.71 $ .82 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MANAGEMENT DISCUSSION AND ANALYSIS OF INCOME STATEMENTS This statement summarizes the Company's consolidated income results for the three-year period ending December 31, 1997. The purpose of this discussion is to provide background information for the figures presented, including the significant events which contributed thereto. Operating revenues increased throughout the three-year period, with a significant increase in 1997. Revenue increases in 1996, when compared to 1995, improved by 3.4%, whereas revenue increases in 1997, when compared to 1996, improved by approximately 20.4%. Operating revenues in 1997 increased by $42.5 million or 20.4% from 1996. This $42.5 million consisted of increases of $12.0 million in transportation revenues, $25.9 million in sales of realty property, and $4.6 million in realty rental income. When comparing 1996 operating revenues with 1995, operating revenues increased by $6.9 million or 3.4%. The 1996 increases consisted of $1.9 million in transportation revenues and $6.8 million in realty rental income, with a decrease of $1.8 million in land sales. The increase in transportation revenues of $12.0 million was primarily attributable to significant increases in shipments of rock, intermodal and other carload traffic. The transportation rail segment of the Company derives its revenues from four major classifications of traffic: shipments of rock, intermodal (containers and trailers), automotive and automotive-related parts, and all other commodity-type carload shipments. Brief discussions of the increases in the volumes of the four classifications are presented below comparing 1997 with 1996 and 1996 with 1995. Comparing the number of shipments in 1997 with 1996, rock shipments increased by approximately 4,300 or 4.8%. The increase represented the continued growth in construction along the East Coast of Florida and surrounding areas. When comparing the number of rock shipments in 1996 with 1995, the increase amounts to approximately 2,000 shipments or 2.4%. The number of intermodal shipments in 1997 increased significantly over 1996 by approximately 28,600 or 9.1%. This increase in intermodal traffic was comprised of increases in container shipments of approximately 9,100 and trailer shipments of approximately 19,500. Intermodal traffic in 1996, when compared to 1995, decreased by approximately 5,400 or 1.7%. The composition of this 1996 decrease was approximately 9,900 decrease in trailer shipments offset by an increase in container shipments of 4,500. Automotive and automotive-related traffic decreased in 1997, when compared to 1996, by approximately 600 shipments or 3.2%. The decrease is partially related to recent changes in the operations of rental car business whereby rental cars are being retained for extended periods prior to being resold. In comparing 1996 with 1995, automotive traffic improved by approximately 1,500 shipments or 9.3%. All other carload traffic increased in 1997 over 1996 by approximately 3,200 shipments or 9.7%. A recent trend in this type of traffic has been a movement from shipments by truck to shipment by rail. When comparing 1996 with 1995 for this classification of traffic, all other carload traffic decreased approximately 1,200 shipments or 3.5%. The composite increase in traffic for 1997 versus 1996 was approximately 35,500 shipments or 7.8%. Comparing 1996 with 1995, the composite of traffic decreased by approximately 3,000 shipments or 1%. The significant increase in traffic in 1997 was also reflective of the strong economy existing during 1997. Sales of realty properties in 1997, when compared to 1996, increased by $25.9 million. This increase was comprised of four separate dispositions of property in the first nine months of 1997 of approximately $23.7 million. Realty rental income in 1997 versus 1996 increased by approximately $4.5 million or 13.3%. This increase resulted from additional leasable space of approximately one million square feet being added to inventory from the construction of new buildings. At year-end, there were two new buildings under construction which, upon completion, will add approximately .2 million square feet of leasable space. The Company is primarily involved in ongoing development of land for construction of buildings for lease, with only occasional realty sales anticipated. Operating expenses increased $27.8 million or 16.3% in 1997 when compared to 1996. This increase of $27.8 million reflects increases of $3.1 million in management of realty properties, $22.2 million in cost of realty property sales, and $5.3 million in general and administrative expenses offset by a decrease of $2.8 million in transportation costs. The increase of $3.1 million in the management of realty properties consisted of increases of approximately $1.1 million in depreciation, $1.1 million in property taxes and $.9 million in other costs. The increase of $22.2 million in cost of realty property sold is directly attributable to the property sales during the year. The increase of $5.3 million in general and administrative expense is primarily attributable to: approximately $3.5 million increase associated with the possible disposition of the Company and its affiliates; approximately $.6 million increase associated with the trucking subsidiary; approximtely $.4 million increase associated with the realty subisidary; approximately $.6 million associated with the outsourcing of services by the Information Services Department of the Company, and $.2 million for other expenses. The outsourcing of services by the Information Services Department was primarily attributed to the reduction in personnel in that Department because of the potential sale of the Company. The decrease of $2.8 million in transportation costs is primarily attributable to a reduction in casualty and insurance costs of approximately $2.5 million. This difference is related to the 1996 comparative figures for casualty and insurance which included an accrual for an adverse legal judgment against the Company regarding an asbestos case of approximately $2.2 million. This judgment was appealed and, in 1997, a reversal of the judgment in favor of the Company was declared. When comparing 1996 operating expenses with 1995, operating expenses increased approximately $3.9 million or 2.4%. This increase was primarily related to the inclusion of ITI's operating expenses of $24.7 million in 1996 and $18.9 million in 1995 into the Company's consolidated financials. Other income increased by approximately $.1 million in 1997 when compared to 1996. This increase was comprised of increases in dividends of approximately $.1 million; interest income of approximately $.3 million; other income of approximately $.7 million; a decrease in interest expense of approximately $.2 million offset by a decrease in gains on sales and other disposition of properties of $1.2 million. The decrease in gains on sales and other disposition of properties is primarily attributable to the 1996 sale of fiber optic conduit. Other income increased by $2.6 million in 1996 compared to 1995. This increase was primarily attributable to an increase in gains on sales and other dispositions of properties of approximately $1.6 million representing the sale of fiber optic conduit discussed above, and an increase in other income of approximately $1.5 million primarily representing capital gains from sales of securities. Income taxes increased by approximately $5.1 million in 1997 over 1996. This increase is the result of the increase in income before income taxes of $14.8 million. Income taxes increased by $1.8 million in 1996 from 1995 as a result of an increase in income before taxes of approximately $5.6 million. MANAGEMENT DISCUSSION AND ANALYSIS OF BALANCE SHEETS The Consolidated Balance Sheets provide information about the nature and amounts of the Company's investments, its obligations to creditors, and its shareholders' equity at the end of the year. This information complements data found in the Consolidated Statements of Income and Retained Earnings and is designed to contribute to the shareholders' understanding of the Company. Total current assets for 1997 increased by $1.1 million when compared to 1996. This change is represented primarily by increases of $1.5 million in cash, cash equivalents and short-term investments, $.5 million in materials and supplies, $.2 million in other current assets offset by a decrease in accounts receivable of $1.1 million. Large liquid reserves are maintained to meet the Company's commitment to realty construction and development. Other investments increased by $7.4 million in 1997 from 1996 to a total of $72.0 million. Other investments include approximately $56.9 million of a portfolio managed in diversified investment funds and the balance being invested in U.S. Treasury Bills and similar highly liquid investments. These investments are classified as long-term because of management's intent to use them to finance major realty construction projects. At year-end 1997 and currently, the Company has five major realty development projects in progress: Gran Park at Jacksonville, Gran Park at the Avenues, Gran Park at Deerwood (all in Jacksonville), Gran Park at Miami and Gran Park at Orlando. Construction activities in these parks contributed significantly to the $27.7 million increase in properties from 1996 to 1997. The additions in 1997 amounted to approximately one million square feet of leasable space represented by eight new buildings placed in service. Total current liabilities in 1997 decreased approximately $5.3 million when compared to 1996. This change was primarily attributable to decreases of $2.1 million in accounts payable, $3.0 million each in accrued property taxes, and $.2 million in other accrued liabilities. The Company is subject to proceedings arising out of environmental laws and regulations, which primarily relate to the disposal and use of fuel and oil used in the transportation business. It is the Company's policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals are reviewed and adjusted. The only time environmental recoverables are recorded in the books of the Company is at the time a claim is filed with the State and is expected to be recovered. Such amounts are not material to the consolidated financial statements. Compliance with the federal, state, and local laws and regulations relating to the protection of the environment has not affected the Company's capital additions, earnings or competitive position, nor does management anticipate any future problems will adversely affect the Company's financial situation based upon the information available today. Environmental expenditures for capital improvements and infrequent expenditures for ongoing operations and maintenance have historically been in- significant to the operations of the Company. Management does not anticipate any changes in these expenditures. The Company's financial position continues to be strong as indicated by the current ratios of 2.0 in 1996 and 2.4 in 1997. The Company has no long- term debt or open lines of credit, nor does the Company anticipate that any will be negotiated in the foreseeable future. The Company is not obligated under any significant capital or operating-type leases, except for the short- term leasing of locomotives, freight cars, trailers and data processing equipment. As of December 31, 1997, the Company had authorized approximately $34.0 million for capital expenditures, of which 64.6% represented realty development and construction. These expenditures are expected to be funded from current operations supplemented, as necessary, by cash and investments currently on hand. The Company is aware of the issues associated with the existing computer systems as they relate to the year 2000. The "year 2000" problems are pervasive and complex as virtually all computer operations will be affected in some way by the rollover of the two digit year value at 00. The issue is whether computer systems will properly recognize data sensitive information when the year changes to 2000. The Company is utilizing both internal and external resources to identify, correct or reprogram and test the systems for the year 2000 compliance. It is anticipated that all systems will be in compliance before December 31, 1999. Verbal confirmations, assuring compliance, have been received from the Company's primary processing vendors. The Company is in the process of developing a formal plan of documenting such compliance confirmations from its vendors. MANAGEMENT DISCUSSION AND ANALYSIS OF STATEMENTS OF CASH FLOWS The Statements of Cash Flows detail the Company's cash flow from operating, investing and financing activities during the year. Since the Company does not use debt to finance its operations, operating and investing activities exclusively generated the sources of funds throughout the year. To date, these sources have been sufficient to fund the purchases and construction of properties and pay dividends. Net income for 1997 increased approximately $9.7 million when compared to 1996, and 1996 increased approximately $3.8 million when compared to 1995. The changes in net cash generated by operating activities from 1996 to 1997 and from 1995 to 1996 were primarily attributable to changes in net incomes and the associated timing differences of remitted cash receipts and payments for those comparative periods. The composition of gains on disposition of assets largely includes gains on non-realty land sales of $1.7, $2.9 and $1.3 million for the years 1997, 1996 and 1995, respectively. The purchases of properties for 1997, 1996 and 1995 amounted to $59.1 million, $55.6 million and $70.6 million, respectively. Purchases of properties for the past three years have been financed primarily from cash generated by operating activities with the balance of the funding being applied from investments. The Company is a capital-intensive company and has approximately $917 million invested in such assets. Generally accepted accounting principles require the use of historical costs in preparing financial statements. This approach disregards the effect of inflation on the replacement cost of property and equipment. Therefore, the replacement costs of these assets, as well as the related depreciation expense, would be substantially greater than the amounts reported on the basis of historical costs. The acquisition of new assets will also result in higher depreciation charges and, in the case of realty, higher taxes and operating costs. Cash flows from financing activities for the past three years represent dividend payments. Cash dividends of $.40 per share were paid in each of the three years, reflecting the Company's philosophy that shareholders receive a current benefit at the same time that the Company is reinvesting most earnings in a debt-free asset growth program. The Company continues to believe that asset growth should be internally funded by operating and investing activities rather than through the use of debt. However, the Company is confident that if a need to access the market for funds were to arise, such access would be readily available. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Independent Auditors' Report The Board of Directors and Shareholders Florida East Coast Industries, Inc.: We have audited the consolidated financial statements of Florida East Coast Industries, Inc. and subsidiaries as listed in the accompanying Index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying Index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and signficiant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Florida East Coast Industries, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. s/s KPMG Peat Marwick LLP Jacksonville, Florida February 4, 1998 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS Years ended December 31, 1997, 1996 and 1995 (Dollars in thousands except per share amounts) Years ended December 31 1997 1996 1995 Operating Revenues: Transportation $184,986 $172,958 $171,016 Realty - Land Sales 26,901 982 2,830 - Rents & Other 38,633 34,091 27,261 -------- -------- -------- Total Revenues 250,520 208,031 201,107 -------- -------- -------- Operating Expenses: Transportation 126,475 129,289 129,618 Realty 22,503 19,440 16,535 Realty Sales 22,592 352 490 General and Administrative 26,628 21,344 19,836 -------- -------- -------- Total Expenses 198,198 170,425 166,479 -------- -------- -------- Operating Profit 52,322 37,606 34,628 Other Income (Expense): Dividends 495 399 440 Interest Income 5,124 4,800 5,359 Interest Expense (385) (600) (639) Gains on sales and other disposition of prop 1,728 2,926 1,280 Other (net) 3,673 2,986 1,484 -------- -------- -------- Total Other Income 10,635 10,511 7,924 -------- -------- -------- Income before income taxes 62,957 48,117 42,552 Income Taxes: (Note 8) Current 22,720 17,551 13,028 Deferred 102 152 2,887 -------- -------- -------- Total Income Taxes 22,822 17,703 15,915 -------- -------- -------- Net Income 40,135 30,414 26,637 -------- -------- -------- Retained earnings: Balance at beginning of year $557,621 $530,834 $507,813 Cash dividends (3,624) (3,627) (3,616) -------- -------- -------- Balance at Year-end $594,132 $557,621 $530,834 ======== ======== ======== Per share data: Cash dividends $ 0.40 $ 0.40 $ 0.40 -------- -------- -------- Earnings per common share $ 4.43 $ 3.36 $ 2.95 ======== ======== ======== See accompanying notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 (Dollars in thousands except per share amounts) 1997 1996 Assets Current Assets: Cash and cash equivalents $ 30,845 $ 23,602 Short-term investments (Note 6) 258 5,973 Accounts receivable, net 31,045 32,203 Materials and supplies 11,789 11,237 Other current assets (Note 8) 7,987 7,803 -------- -------- Total current assets 81,924 80,818 Other Investments (Note 6) 72,041 64,654 Properties, Less Accumulated Depreciation and Amortization (Note 5) 663,672 636,019 Other Assets and Deferred Charges 7,853 8,190 -------- -------- Total Assets $825,490 $789,681 ======== ======== Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $ 20,580 $ 22,705 Income taxes 4,630 4,652 Accrued property taxes 1,008 3,981 Accrued casualty and other reserves (Note 10) 5,143 5,038 Other accrued liabilities 3,005 3,239 -------- -------- Total current liabilities 34,366 39,615 Deferred Income Taxes (Note 8) 133,884 132,909 Reserves and Other Long-Term Liabilities (Note 10) 8,365 8,361 Commitments and Contingencies (Note 10) Shareholders' Equity: Common stock, $6.25 par value; 9,360,000 shares authorized; 9,271,361 shares issued and 9,071,590 shares outstanding 57,946 57,946 Capital surplus 2,856 1,598 Retained earnings 594,132 557,621 Net unrealized gain on investments available- for-sale (Note 6) 3,296 1,904 Treasury stock at cost (199,771 and 219,374 shares) (9,355) (10,273) -------- -------- Total shareholders' equity 648,875 608,796 -------- -------- Total Liabilities and Shareholders' Equity $825,490 $789,681 ======== ======== See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1997, 1996 and 1995 (Dollars in thousands) Years ended December 31 1997 1996 1995 Cash Flows from Operating Activities: Net Income $40,135 $30,414 $26,637 Adjustments to reconcile net income to cash generated Depreciation and amortization 24,098 23,506 22,292 Gain on disposition of assets (1,728) (2,926) (1,280) Deferred taxes 102 152 2,887 Changes in operating assets and liabilities: Accounts receivable, net 1,158 (3,614) (1,541) Other current assets (746) (1,599) 308 Other assets and deferred charges 2,513 75 4,137 Accounts payable (2,125) 2,388 (2,729) Accrued property taxes (2,973) 628 179 Other current liabilities (151) 4,250 141 Reserves and other long-term liabilities 4 (911) (1,249) ------- ------- ------- Net cash generated by operating activities 60,287 52,363 49,782 ------- ------- ------- Cash Flows from Investing Activities: Purchases of properties (59,093) (55,633) (70,602) Purchases of investments: Available-for-sale (20,147) (21,928) (35,800) Held-to-maturity (7,997) (12,386) (31,247) Maturities and redemption of investments: Available-for-sale 14,247 18,291 27,968 Held-to-maturity 14,500 27,798 54,839 Proceeds from disposition of assets 9,070 7,674 4,491 ------- ------- ------- Net cash used in investing activities (49,420) (36,184) (50,351) ------- ------- ------- Cash Flows from Financing Activities: Payment of dividends (3,624) (3,627) (3,616) ------- ------- ------- Net cash used in financing activities (3,624) (3,627) (3,616) ------- ------- ------- Net Increase (Decrease) in Cash and Cash Equivalents 7,243 12,552 (4,185) Cash and Cash Equivalents at Beginning of Year 23,602 11,050 15,235 ------- ------- ------- Cash and Cash Equivalents at End of Year $30,845 $23,602 $11,050 ======= ======= ======= Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes $23,637 $13,450 $13,810 ======= ======= ======= Cash paid for interest $ 385 $ 600 $ 639 ======= ======= ======= Notes to Consolidated Financial Statements December 31, 1997, 1996 and 1995 1. Nature of Business The principal operations of Florida East Coast Industries, Inc. (the "Company") and its subsidiaries primarily relate to the transportation of goods by rail and to the development, leasing, management and sale of real estate. Both the Transportation and Realty operations are located within the state of Florida. The rail segment of the Company operates only within the state of Florida with the majority of its revenues derived from interline traffic from two connecting rail carriers. Approximately one-third of the traffic is derived from the Company's five largest customers. 2. Majority Stockholder The Nemours Foundation, which is funded by the Alfred I. duPont Testamentary Trust, owns approximately 5% of the Company's common stock as of December 31, 1997. The Trust is a majority shareholder of St. Joe Corporation's common stock which owns, through a subsidiary, approximately 54.0% of the Company's common stock. Significant transactions with St. Joe Corporation and its affiliates were the Company's payment of dividends, and the sharing of personnel in the areas of environmental, legal and real estate for 1997, 1996 and 1995. Also in 1997, the Company engaged St. Joe Corporation to manage its day-to-day operations of its realty segment, Gran Central Corporation (GCC). Presently, the Company is negotiating an Asset Management Agreement for GCC properties. 3. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries, all of which are wholly- owned. All significant intercompany transactions and balances have been eliminated in consolidation. Revenue Recognition Transportation Revenues: Revenues are substantially recognized upon completion of transportation services at destination. Realty Land Sales: Revenue is recognized upon closing of sales contracts for sale of land or upon settlement of legal proceedings such as condemnations. Rental Income: Revenue is recognized upon completion of rental and lease contracts. The Company uses the straight-line basis for recording the revenues over the life of the lease contract. Transportation Properties Transportation properties are stated at historical cost and are depreciated and amortized on the straight-line method for financial reporting purposes. Gains and losses on normal retirements of these items are credited or charged to accumulated depreciation. Miscellaneous physical property consists principally of non-depreciable real property. Real Estate Properties Real estate properties are stated at historical cost. Depreciation is computed using the straight-line method over estimated asset lives of 15 years for land improvements and 18 to 40 years for buildings. Materials and Supplies New materials and supplies are stated principally at average cost which is not in excess of replacement cost. Used materials are stated at an amount which does not exceed estimated realizable value. Earnings Per Share Earnings per common share are based on the weighted average number of shares of common stock outstanding during the year (9,061,789 in 1997, 9,051,987 in 1996 and 9,039,279 in 1995). The Company adopted Statement of Financial Accounting Standard No. 128, "Earnings Per Share" in 1997. The adoption of this Standard had no impact on the Company's calculation of earnings per share due to its simple capital structure (i.e., no potential common stock). Cash and Cash Equivalents For purposes of cash flows, cash and cash equivalents include cash on hand, bank demand accounts, money market accounts, and overnight repurchase agreements having original maturities of less than three months. Income Taxes The Company follows the asset and liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Investments Investments consist principally of municipal bonds, common stocks, redeemable prefered stocks and U.S. Government obligations. The Company classifies its debt and marketable equity securities in one of three categories: trading, available-for-sale or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near-term. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, which represents the adjustment for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect on available-for-sale securities, are excluded from earnings and are reported as a separate component of shareholders' equity until realized. A decline in the market value of any available-for-sale or held-to- maturity security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Long-Lived Assets In March 1995, the Financial Accounting Standards Board issued Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the asset's carrying amount. This Standard also addresses the accounting for long-lived assets that are expected to be disposed of. The Company has historically reserved for losses related to the impairment of long-term assets. Since the adoption of this Standard in 1996, the Company experienced no material effect on the Company's financial statements. Generally accepted accounting principles require the use of historical costs in preparing financial statements. This approach disregards the effect of inflation on the replacement cost of property and equipment. The Company is a capital-intensive company and has approximately $917 million (original cost) invested in such assets as of December 31, 1997. The replacement costs of these assets, as well as the related depreciation expense, would be substantially greater than the amounts represented on the basis of historical costs. 4. Acquisitions In July 1997, the Company purchased the remaining 20% of the outstanding stock of International Transit, Inc. (ITI), a regional truckload carrier, through the issuance of treasury stock. This non-cash transaction has been excluded from the Statements of Cash Flows. ITI's gross revenues for 1997 and 1996 were $26.9 million and $25.2 million, respectively. ITI's income is not material to the consolidated financial statements. 5. Properties Properties consist of (in thousands): 1997 1996 Transportation Properties: Road $326,103 $321,294 Equipment 194,310 198,544 Miscellaneous Physical Property 2,269 2,269 Construction in Progress 6,395 2,465 -------- -------- 529,077 524,572 Less Accumulated Depreciation & Amortization 213,230 205,979 -------- -------- $315,847 $318,593 ======== ======== Real Estate Properties: Land and Land Improvements $171,408 $164,558 Buildings 194,124 169,272 Construction in Progress 21,984 17,103 -------- -------- 387,516 350,933 Less Accumulated Depreciation & Amortization 39,691 33,507 -------- -------- $347,825 $317,426 ======== ======== Real estate properties having a net book value of $217.1 million at December 31, 1997 are leased under non-cancelable operating leases with expected aggregate rentals of $106.4 million which are due in years 1998-2002 in the amounts of $30.5, $26.1, $21.7, $17.8 and $10.3 million, respectively. 6. Investments Other investments are held as a development fund created to accumulate capital expected to be required for future improvement of the Company's real estate properties. During 1997, the Company transferred substantially all of its held-to-maturity securities to available-for-sale in support of the Company's real estate development plans. Unrealized gains or losses at the time of transfer were not material to the financial statements. Investments at December 31, 1997 consist of (in thousands): Unrealized Unrealized Carrying Fair Holding Holding Cost Value Value Gain (Loss) ----------------------------------------------- Short-term investments Available-for-sale U.S. Government securities $ 258 $ 258 $ 258 $ 0 $ 0 ----------------------------------------------- $ 258 $ 258 $ 258 $ 0 $ 0 ----------------------------------------------- Other Investments Available-for-sale U.S. Government securities Maturing in 1 to 5 years $ 7,969 $ 8,020 $ 8,020 $ 51 $ 0 Maturing in 5 to 10 years 600 621 621 21 0 Tax exempt municipals Maturing in 1 to 5 years 19,750 20,158 20,158 408 0 Maturing in 5 to 10 years 18,326 19,304 19,304 978 0 Maturing in more than 10 years 3,408 3,388 3,388 0 (20) Other debt securities 788 1,690 1,690 902 0 Equity securities 15,826 18,860 18,860 3,034 0 ----------------------------------------------- $66,667 $72,041 $72,041 $ 5,394 $ (20) Investments at December 31, 1996 consist of (in thousands): Unrealized Unrealized Carrying Fair Holding Holding Cost Value Value Gain (Loss) ----------------------------------------------- Short-term investments Held-to-maturity U.S. Government securities $ 4,969 $ 4,969 $ 4,961 $ 0 $ (8) Tax exempt municipals 1,004 1,004 1,005 1 0 ----------------------------------------------- $ 5,973 $ 5,973 $ 5,966 $ 1 $ (8) ----------------------------------------------- Other Investments Available-for-sale U.S. Government securities Maturing in 1 to 5 years $ 293 $ 290 $ 290 $ 0 $ (3) Tax exempt municipals Maturing in 1 to 5 years 10,499 10,820 10,820 321 0 Maturing in 5 to 10 years 19,726 20,336 20,336 610 0 Maturing in more than 10 years 4,281 4,265 4,265 0 (16) Equity securities 11,866 14,053 14,053 2,187 0 ----------------------------------------------- $46,665 $49,764 $49,764 $ 3,118 $ (19) ----------------------------------------------- Held-to-maturity U.S. Government securities Maturing within 1 year to 5 years $ 7,023 $ 7,023 $ 7,092 $ 69 $ 0 Tax exempt municipals Maturing in 1 to 5 years 7,079 7,079 7,121 42 0 Mortgage-backed securities Maturing in 1 to 5 years -0- -0- 400 400 0 Other corporate debt securities Maturing in 5 to 10 years 788 788 1,290 502 0 ----------------------------------------------- $14,890 $14,890 $15,903 $ 1,013 $ 0 ----------------------------------------------- $61,555 $64,654 $65,667 $ 4,131 $ (19) ----------------------------------------------- 7. Collateral Trust 5% Bonds There are outstanding at December 31, 1997 and 1996, $12,185,100 and $12,414,500, respectively, of the Company's Collateral Trust 5% Bonds (the "Bonds") due in 2001. Direct obligations of the U.S. Government, the cash flows from which approximately coincide as to timing and amount with the scheduled interest and principal payments on the Bonds, are held in trust for the purpose of making such payments. Accordingly, the Bonds are considered to be extinguished. 8. Income Taxes Total income tax expense for the years ended December 31, 1997, 1996 and 1995 was allocated as follows (in thousands): 1997 1996 1995 ------------------------- Income from continuing operations $22,822 $17,703 $15,915 Shareholders' equity, for recognition of unrealized holding gain (loss) on investments available-for-sale 883 93 1,657 ------------------------- $23,705 $17,796 $17,572 ========================= Income tax expense attributable to income from continuing operations differed from the amounts computed by applying the statutory federal income tax rate to pretax income as a result of the following: 1997 1996 1995 ------------------------- Amount computed at statutory federal rate $22,035 $16,855 $14,894 Effect of dividends received exclusion and tax-free interest (914) (908) (835) State taxes (net of federal benefit) 2,238 1,688 1,513 Other (net) (537) 68 343 ------------------------- $22,822 $17,703 $15,915 ========================= The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 1997, 1996 and 1995 are as follows: 1997 1996 1995 --------------------------- Deferred tax assets: Accrued casualty and other reserves $ 5,096 $ 5,200 $ 5,458 Amortization of fiber optic income 245 367 490 Other 415 277 637 ---------------------------- Total deferred tax asset $ 5,756 $ 5,844 $ 6,585 ---------------------------- Deferred tax liabilities: Properties, principally due to differences in depreciation $101,610 $101,462 $102,730 Deferred gain on land sales 28,933 29,030 29,114 Deferred profit on bonds extinguished 1,201 1,430 1,642 Unrealized holding gain on investments available-for-sale 2,078 1,195 1,102 Other 2,350 2,158 1,183 ---------------------------- Total deferred tax liabilities $136,172 $135,275 $135,771 ---------------------------- Net deferred tax liabilities $130,416 $129,431 $129,186 ============================ There was no valuation allowance provided for deferred tax assets as of December 31, 1997 and 1996 as the Company believes the results of future operations will generate sufficient taxable income to realize the deferred tax assets. Included in other current assets are deferred tax assets of $3,468 and $3,478 at December 31, 1997 and 1996, respectively. 9. Segment Information The Company operates principally in two industries: Transportation and Realty. Transportation operations consist primarily of railroad-related activities and some trucking operations. Realty operations are involved in real estate development, rentals and related management and operations of properties. Operating revenues represent sales to unaffiliated customers, as reported in the Company's Consolidated Statements of Income and Retained Earnings. Operating profit is operating revenue less directly traceable costs and expenses. Identifiable assets by industry are those assets that are used in the Company's operations in each industry. Information by industry segment follows (in thousands): 1997 1996 1995 -------------------------------- Operating Revenue: Transportation $184,986 $172,958 $171,016 Realty 65,534 35,073 30,091 -------------------------------- $250,520 $208,031 $201,107 ================================ Operating Profit: Transportation $ 37,277 $ 25,304 $ 23,663 Realty 15,045 12,302 10,965 -------------------------------- $ 52,322 $ 37,606 $ 34,628 ================================ Identifiable Assets: Transportation $395,695 $367,989 $361,862 Realty 422,851 406,487 289,727 Corporate 6,944 15,205 104,621 -------------------------------- $825,490 $789,681 $756,210 ================================ Capital Expenditures: Transportation $ 13,287 $ 14,597 $ 26,572 Realty 45,806 41,036 44,030 -------------------------------- $ 59,093 $ 55,633 $ 70,602 ================================ Depreciation: Transportation $ 15,367 $ 15,853 $ 16,644 Realty 8,731 7,653 5,648 -------------------------------- $ 24,098 $ 23,506 $ 22,292 ================================ 10. Commitments and Contingencies The Company has retained certain self-insurance risks with respect to losses for third-party liability, property damage and group health insurance coverage provided employees. The Company is the defendant and plaintiff in various lawsuits resulting from its operations. In the opinion of management, adequate provision has been made in the financial statements for the estimated liability which may result from disposition of such lawsuits. The Company is subject to proceedings arising out of environmental laws and regulations, which primarily relate to the disposal and use of fuel and oil used in the transportation business. It is the Company's policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals are reviewed and adjusted. The Company is currently a party to, or involved in, legal proceedings directed at the cleanup of four Superfund sites. The Company has accrued its estimated share of the total estimated cleanup costs for these sites. Based upon management's evaluation of the other potentially responsible parties, the Company does not expect to incur additional amounts even though the Company has joint and several liability. Other proceedings involving environmental matters, such as alleged discharge of oil or waste material into water or soil, are pending against the Company. It is difficult to quantify future environmental costs because many issues relate to actions by third parties or changes in environmental regulation. However, based on information presently available, management believes that the ultimate disposition of currently known matters will not have a material effect on the financial position, liquidity, or results of operations of the Company. Environmental liabilities amounted to $2.0 million for 1997, as well as 1996. Environmental liabilities will be paid over an extended period and the timing of such payments cannot be predicted with any confidence. Gran Central Corporation, a wholly-owned subsidiary of the Company, entered into an agreement with the State of Florida Department of Transportation to furnish all land necessary for the construction of the N.W. 106th Street Interchange on the Homestead Extension of the Florida Turnpike and to subsidize any annual operating deficit of the Department for 15 years related to the interchange which is not covered by toll revenues. The maximum assessment amount over the 15 years would be approximately $9.3 million with no annual assessment to exceed approximately $1.1 million. No assessments related to this Agreement have been made. 11. Retirement Plans The Company sponsors two 401(k) plans for its salaried and hourly wage employees. Contributions are at the employees' discretion with upper limits of 6% of compensation before taxes and 10% after taxes. 401(k) Plan for Salaried Employees The amounts of matching contributions by the Company for this plan covering the years 1997, 1996 and 1995 were approximately $334,000, $351,000 and $350,000, respectively. The expenses associated with this plan were approximately $13,000, $12,000 and $13,000 in 1997, 1996 and 1995, respectively. In 1997, the Company matched the employees' contributions $1 for $1 up to the first $1,200 and then $.25 for each $1 contributed up to 6% of employees' contributions. 401(k) Plan for Hourly Wage Employees and/or Employees Covered by Collective Bargaining Agreement This is a non-contributory plan and was instituted in April 1995. The expenses associated with this plan were approximately $6,400 in 1997 and $4,200 in 1996. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT With respect to each Director and Executive Officer of the Registrant, there are set forth below as of December 31, 1997, (1) his name; (2) his age; (3) his positions and offices with the Registrant, as well as principal occupation or employment; (4) the date on which he first held office; and (5) a brief account of his business experience during the last five years. Each Director and Executive Officer has been elected to hold such positions and offices until the next annual election of Directors and Officers of the Registrant, which is to be held on May 20, 1998. To the best knowledge of the Registrant, none of the persons named had any arrangement or understanding with any other person pursuant to his election, and none of the persons named have any family relationship with any other such person. Name, Age, Positions and Date First Held Such Positions, Offices and Offices Business Experience for the Past Five Years _________________________ ______________________________________________ Jacob C. Belin (83) Former Chairman of the Board, St. Joe Paper Director since 1984 Company. Director, St. Joe Corporation. Trustee, Alfred I. duPont Trust. J. Nelson Fairbanks (62) President and Director, U.S. Sugar Corporation. Director since 1989 David M. Foster (63) Attorney, Rogers, Towers, Bailey, Jones & Gay Director since 1995 for more than five years. Director, SunTrust Bank of North Florida, N.A. Director, Gate Petroleum and subsidiaries. Allen C. Harper (53) Chairman/CEO, Esslinger-Wooten-Maxwell, Inc., Director since 1994 Realtors. Chairman and President, First Reserve, Inc. Director, Tri-County Railroad Authority. Chairman, First American Railways, Inc. Director, Vacation Breaks USA, Inc. John H. Mercer, Jr. (84) Retired President, John Mercer Terminal Director since 1984 Warehouse Company. J.J. Parrish, III (44) President, Jesse J. Parrish, Inc. President Director since 1993 and Director, Nevins Fruit Company, Inc. Director and Vice Chairman, Parrish Medical Center. Director, Barnett Bank of Central Florida. W.L. Thornton (69) Prior to May 21, 1997, Chairman of the Board Director since 1984 and Chief Executive Officer, Industries. Prior to May 1995, Chairman and President, Industries. Director, St. Joe Corporation. Trustee, Alfred I. duPont Trust. Carl F. Zellers, Jr. (65) May 21, 1997 elected Chairman, President and Chairman, President, Chief Chief Executive Officer. Prior to May 21, 1997, Executive Officer President and COO of the Registrant. Prior to Director since 1984 May 1995, Vice President, Industries. President, Gran Central Corporation, for more than five years. President of Florida East Coast Railway for more than five years. T. Neal Smith (57) May 21, 1997 elected Treasurer. Vice President, Secretary May 15, 1992 elected Vice President and and Treasurer Secretary. Formerly Treasurer and Assistant Secretary for more than five years. J. Richard Yastrzemski (54) Comptroller of Registrant for more than five Comptroller years. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the annual compensation for the Company's highest paid Executive Officers during 1997, as well as the total compensation paid to those executives for the past three (3) years: Summary Compensation Table All Other Salary Bonus Compensation(1) Name and Principal Position Year ($) ($) ($) W.L. Thornton, Chairman 1997(2) 15,417(4) 6,000(4) 9,112 and CEO 1996 36,000(4) 4,000(4) 9,984 1995 36,000(4) ----- 9,960 C.F. Zellers, Jr., Chairman, 1997(3) 215,250 30,000 11,206 President and CEO 1996 157,500 17,500 8,706 1995 157,500 8,342 T.N. Smith, Vice President, 1997 95,000 5,625 3,600 Secretary and Treasurer 1996 90,000 10,000 2,040 1995 90,000 2,244 ------------- (1) Includes amounts paid for life insurance premiums, personal use of vehicles, matching contributions to 40l(K) Plan and directors' fees. (2) Mr. Thornton retired effective May 21, 1997. (3) Mr. Zellers was President and COO in 1995, 1996 and until May 21, 1997. Mr. Zellers' salary from January 1-May 21, 1997 was $160,000 per annum, and from May 21-December 31, 1997 was $250,000 per annum. (4) Under arrangement approved by the Board of Directors of both FECI and St. Joe Corporation, Mr. Thornton's salary and expenses were paid by St. Joe, with FECI reimbursing St. Joe for 20% of his salary and expenses common to both companies. Expenses incurred for the exclusive benefit of either FECI or St. Joe in connection with his services as Chairman were borne 100% by the benefited company. The salary shown in this table represents only the Company's proportion of Mr. Thornton's salary. This arrangement was discontinued after Mr. Thornton's retirement effective May 21, 1997. Compensation Committee Report The Compensation Committee is responsible for reviewing and approving the compensation policies and programs for the Company's Executive Officers named in the Summary Compensation Table. The Compensation Committee members are all independent non-employee directors and have no interlocking relationships as defined by the Securities and Exchange Commission and were chosen because of their business backgrounds and to ensure that the interests of the shareholders are being served as it relates to all matters of executive compensation. This report covers the actions of the Committee regarding the compensation of the Executive Officers for 1997 and prospectively for 1998. In reviewing performance for 1997 to determine appropriate performance based bonuses, the Committee used a discretionary process. The key factors that the Committee considered in making their determination included the attainment of certain performance measures such as operating profits, revenue increases, expense decreases and individual performance. As noted in the Summary Compensation Table, Mr. Thornton retired from position of Chairman and Chief Executive Officer on May 21, 1997, and Mr. Zellers was elected to the new post of Chairman, President and Chief Executive Officer on this same date. Given Mr. Zellers' contributions to successfully meet the above-mentioned performance measures, and the further contributions given the Special Committee's disposition project, the Committee elected to provide a bonus of $100,000 (40%) of base Chief Executive Officer's salary to Mr. Zellers. In addition, Mr. Zellers' base salary was increased to $275,000 effective January 1, 1998. Bonuses were paid to the other Executive Officers based on the same criteria as for the Chief Executive Officer. These bonuses amounted to approximately 30% of base salary. In addition, the base salaries of these Executive Officers were increased effective January 1, 1998 by approximately 12%. In late-1997, the Committee authorized a reexamination of the Company's compensation philosophy as a necessary step in more closely aligning the compensation of the Executive Officers and other management employees with company performance and the interests of the shareholders. The study is not yet completed, but the main tenets of a revised compensation philosophy are expected to include: Base salaries at the median of comparable companies that generate value from the management and operation of substantial assets, including both transportation and realty. Provide for a competitive but conservative annual incentive based on Company and individual performance. Provide for the granting of stock options in order to align the interest of the executives with shareholders. The latter of these will, of course, require shareholder approval. Deductibility of Compensation Section 162(m) of the Internal Revenue Code generally limits the Company's tax deduction to $1,000,000 for compensation paid to the Chief Executive Officer and the four most highly-compensated Executive Officers who are Executive Officers as of the last day of the applicable year. Exceptions are made, however, for "performance-based" compensation. For 1997, the Committee believes that all compensation paid to Executive Officers is fully deductible. Submitted by the Compensation Committee. J. Nelson Fairbanks, Chairman David M. Foster, Member Allen C. Harper, Member Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Beneficial Owners The following table sets forth information as of March 1, 1998, with respect to persons known to Industries to be the beneficial owners of more than 5% of its outstanding Common Stock: Nature of Number of Percent of Names and Addresses Beneficial Ownership Shares Class (1) Nemours Foundation(2) Sole Voting and 450,224 5.0% 1650 Prudential Drive Dispositive Power Jacksonville, FL 32207 St. Joe Corporation(3) Sole Voting and 4,902,304(4) 54.0% 1650 Prudential Drive Dispositive Power Jacksonville, FL 32207 Franklin Resources, Inc.(5) Sole Voting and 1,333,700 14.7% 51 J.F.K. Parkway Dispositive Power Short Hills, NJ 07078 (1) All percentages shown are rounded to the nearest one-tenth of one percent. (2) As of March 1, 1998, the following persons were directors of the Nemours Foundation: Jacob C. Belin, H.H. Peyton, J.F. Porter, W.T. Thompson, Winfred L. Thornton, and corporate director, Wachovia Bank, N.A., represented by Hugh M. Durden. In such capacities, these directors collectively share voting and dispositive power with respect to Industries' Common Stock owned by the Nemours Foundation and, as such, may be deemed to be beneficial owners of that stock. (3) As of March 1, 1998, the following persons were directors of St. Joe Corporation: Jacob C. Belin, Russell Newton, Jack Quindlen, Walter Revell, Peter Rummell, Chairman, Frank Shaw, Jr., W.L. Thornton and Jack Uible. In such capacities, all directors collectively share dispositive and voting power with respect to Industries' Common Stock owned by St. Joe Corporation. All directors may be deemed to be beneficial owners of Industries' Common Stock owned by St. Joe Corporation. (4) By virtue of its ownership of approximately 54.0% of the outstanding Industries' Common Stock, St. Joe Corporation may be deemed to be not only an "affiliate" but also a "parent" of Industries. (5) Messrs. Charles B. Johnson and Rupert H. Johnson, Jr., principal shareholders of the parent holding company, Franklin Resources, Inc. ("FRI"), exercise voting control and dispositive power over these securities. FRI and the principal shareholders may be deemed to be the beneficial owners of securities held by persons and entities advised by FRI subsidiaries. (b) SECURITY OWNERSHIP OF MANAGEMENT Shown below is information concerning the beneficial ownership of Industries' Common Stock for each director and for all directors and officers as a group as of March 2, 1998. Under rules of the Commission, "beneficial ownership" is deemed to include shares for which the individual, directly or indirectly, has or shares voting and/or dispositive power: Number of Percent of Names Nature of Beneficial Ownership Shares Class (1) J.C. Belin Shared Voting/Dispositive Power 5,352,528(2) 59.0% J.N. Fairbanks D.M. Foster A.C. Harper J.H. Mercer, Jr. Sole Voting/Dispositive Power 100 J.J. Parrish, III W.L. Thornton Sole Voting/Dispositive Power 5,955 0.1% Shared Voting/Dispositive Power 5,352,528(2) 59.0% C.F. Zellers, Jr. Sole Voting/Dispositive Power 124 11 directors and Sole Voting/Dispositive Power 6,179 0.1% officers as a Shared Voting/Dispositive Power 5,352,528(3) 59.0% group (1) All percentages shown are rounded to the nearest one-tenth of one percent. Where no percentage is shown, the amount of Industries' Common Stock owned by the beneficial owner listed is less than one-half of one-tenth of one percent (4,536 shares) of all outstanding Industries' Common Stock. (2) Includes 4,902,304 shares or 54.0% of Industries' Common Stock owned by St. Joe Corporation, and 450,224 shares or 5.0% of Industries' Common Stock owned by the Nemours Foundation. (3) Includes the 4,902,304 and 450,224 listed as beneficially owned by Messrs. Belin and Thornton. However, the same number of shares beneficially owned by these persons is reported only once. (c) CHANGES IN CONTROL The Company knows of no contractual arrangements which may, at a subsequent date, result in a change of control of the Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The financial statements and schedules listed in the accompanying Index to Financial Statements and Financial Statement Schedules are filed as part of this Annual Report. 2. EXHIBITS The Exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual Report. (b) REPORTS ON FORM 8-K 1. Filed November 21, 1997: Reported the withdrawal of St. Joe Corporation's proposal of May 5, 1997. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES [ITEM 14(a)] Consolidated Balance Sheets at December 31, 1997 and 1996 Consolidated Statements of Income and Retained Earnings for each of the three years in the period ended December 31, 1997 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997 Notes to Consolidated Financial Statements Independent Auditors' Report Supplementary Information: Quarterly Financial Data (Unaudited) Financial Statement Schedules: II-Valuation and Qualifying Accounts III-Real Estate and Accumulated Depreciation All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. Financial statements and schedules of Florida East Coast Industries, Inc. (not consolidated) are omitted since it is primarily a holding company and all subsidiaries included in the consolidated financial statements being filed, in the aggregate, do not have minority equity interests and/or indebtedness to any person other than the Company or its consolidated subsidiaries in amounts which together exceed five percent of the total assets as shown by the consolidated balance sheet at the end of any year covered by this Report. INDEX TO EXHIBITS (ITEM 13[a] 3.) S-K Item 601 Documents -------- ------------ (3) (a) Articles of Incorporation* (3) (b) By-Laws* (21) Subsidiaries of Florida East Coast Industries, Inc. (24) Power of Attorney *Incorporated herein by reference to Exhibits filed in connection with Florida East Coast Industries, Inc.'s Registration Statement on Form S-14 as filed with the Securities and Exchange Commission on February 17, 1984 (File No. 2-89530). SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized on February 18, 1998. FLORIDA EAST COAST INDUSTRIES, INC. (Registrant) By: s/s T. Neal Smith, Vice President, Secretary and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated: s/s C.F. Zellers, Jr.* Chairman, President, Chief Executive Officer and Director - 3/15/98 s/s W.L. Thornton* Director - 3/15/98 s/s J. Nelson Fairbanks* Director - 3/15/98 s/s J.C. Belin* Director - 3/15/98 s/s D.M. Foster* Director - 3/15/98 s/s J.H. Mercer, Jr.* Director - 3/15/98 s/s A.C. Harper* Director - 3/15/98 s/s J. J. Parrish, III* Director - 3/15/98 s/s J.R. Yastrzemski* Comptroller - 3/15/98 BY: s/s T. Neal Smith* Attorney-in-Fact *Such signature has been affixed pursuant to Power of Attorney.
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FLORIDA EAST COAST INDUSTRIES, INC. SCHEDULE II (CONSOLIDATED) - VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Dollars in thousands) Balance at Additions Beginning Charged Balance at of Year to Expense Payments End of Year ---------- ---------- -------- ----------- RESERVES INCLUDED IN LIABILITIES 1997 Casualty & other reserves $10,776 $ 6,596 $ 5,938 $11,434[a] 1996 Casualty & other reserves $11,221 $ 6,205 $ 6,650 $10,776[a] 1995 Casualty & other reserves $11,605 $ 4,742 $ 5,126 $11,221[a] [a] Includes $5,143, $5,038 and $5,226 in current liabilities at December 31, 1997, December 31, 1996 and December 31, 1995, respectively. The remainder is included in "Reserves and Other Long-Term Liabilities."
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FLORIDA EAST COAST INDUSTRIES, INC. SCHEDULE III (CONSOLIDATED) - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997, 1996 AND 1995 (in thousands) Initial Cost to Company Description Encumbrances Land ----------- ------------ ---- Duval County Office Buildings (8) -0- $ 604 Office/Showroom/Warehouses (10) -0- 1,502 Office/Warehouses (2) -0- 0 Front Load Warehouse -0- 0 Rail Warehouses -0- 0 Land w/Infrastructure -0- 6,593 Unimproved Land & Misc. Assets -0- 659 St. Johns County Unimproved Land -0- 2,631 Flagler County Unimproved Land -0- 3,218 Volusia County Unimproved Land -0- 3,098 Brevard County Office/Showroom/Warehouse (1) -0- 0 Land w/Infrastructure -0- 3,633 Unimproved Land -0- 3,874 Indian River County Unimproved Land -0- 1 St. Lucie County Unimproved Land -0- 639 Martin County Land w/Infrastructure -0- 1,734 Unimproved Land -0- 2,535 Putnam County Unimproved Land -0- 2 Palm Beach County Office/Showroom/Warehouse (1) -0- 113 Rail Warehouses (2) -0- 449 Cross Docks (2) -0- 117 Land w/Infrastructure -0- 1,581 Unimproved Land -0- 847 Broward County Rail Warehouse (1) -0- 85 Land w/Infrastructure -0- 999 Unimproved Land -0- 1,186 Manatee County Unimproved Land -0- 14 Dade County Cross Dock (1) -0- 137 Double Front Load Warehouse (1) -0- 768 Rail Warehouses (6) -0- 808 Office/Showroom/Warehouses (5) -0- 1,003 Office/Warehouses (8) -0- 1,462 Front Load Warehouses (8) -0- 1,943 Office/Service Center (1) -0- 285 Transit Warehouse (1) -0- 6 Land w/Infrastructure -0- 14,576 Unimproved Land & Misc. Assets -0- 3,757 Orange County Land w/Infrastructure -0- 0 ------- TOTALS $60,859 Initial Cost to Company Costs Capitalized Subsequent to Description Acquisition ----------- ------------ Duval County Office Buildings (8) $ 64,599 Office/Showroom/Warehouses (10) 32,712 Office/Warehouses (2) 11,708 Front Load Warehouse 2,690 Rail Warehouses 2,827 Land w/Infrastructure 11,807 Unimproved Land & Misc. Assets 397 St. Johns County Unimproved Land 408 Flagler County Unimproved Land 1,184 Volusia County Unimproved Land 529 Brevard County Office/Showroom/Warehouse (1) 0 Land w/Infrastructure 106 Unimproved Land 3 Indian River County Unimproved Land St. Lucie County Unimproved Land 4 Martin County Land w/Infrastructure 2,416 Unimproved Land 237 Putnam County Unimproved Land 0 Palm Beach County Office/Showroom/Warehouse (1) 2,984 Rail Warehouses (2) 4,253 Cross Docks (2) 3,787 Land w/Infrastructure Unimproved Land 28 Broward County Rail Warehouse (1) 1,708 Land w/Infrastructure 122 Unimproved Land 111 Manatee County Unimproved Land 87 Dade County Cross Dock (1) 1,018 Double Front Load Warehouse (1) 6,275 Rail Warehouses (6) 28,251 Office/Showroom/Warehouses (5) 18,475 Office/Warehouses (8) 32,421 Front Load Warehouses (8) 28,633 Office/Service Center (1) 2,705 Transit Warehouse (1) 283 Land w/Infrastructure 32,812 Unimproved Land & Misc. Assets 294 Orange County Land w/Infrastructure 8,799 ------ TOTALS $304,673 Carried at Close of Period Land & Bldgs. & Description Land Improv. Improv. Total ----------- ------------ -------- ----- Duval County Office Buildings (8) $ 11,375 $ 53,828 $ 65,203 Office/Showroom/Warehouses (10) 6,627 27,587 34,214 Office/Warehouses (2) 3,834 7,874 11,708 Front Load Warehouse 598 2,092 2,690 Rail Warehouses 632 2,195 2,827 Land w/Infrastructure 18,400 0 18,400 Unimproved Land & Misc. Assets 725 331 1,056 St. Johns County Unimproved Land 3,039 0 3,039 Flagler County Unimproved Land 4,402 0 4,402 Volusia County Unimproved Land 3,627 0 3,627 Brevard County Office/Showroom/Warehouse (1) 0 0 0 Land w/Infrastructure 3,739 0 3,739 Unimproved Land 3,877 0 3,877 Indian River County Unimproved Land 1 0 1 St. Lucie County Unimproved Land 643 0 643 Martin County Land w/Infrastructure 4,150 0 4,150 Unimproved Land 2,772 0 2,772 Putnam County Unimproved Land 2 0 2 Palm Beach County Office/Showroom/Warehouse (1) 599 2,498 3,097 Rail Warehouses (2) 557 4,145 4,702 Cross Docks (2) 1,262 2,642 3,904 Land w/Infrastructure 1,581 0 1,581 Unimproved Land 875 0 875 Broward County Rail Warehouse (1) 405 1,388 1,793 Land w/Infrastructure 1,121 0 1,121 Unimproved Land 1,297 0 1,297 Manatee County Unimproved Land 101 101 Dade County Cross Dock (1) 137 1,018 1,155 Double Front Load Warehouse (1) 1,985 5,058 7,043 Rail Warehouses (6) 8,119 20,940 29,059 Office/Showroom/Warehouses (5) 5,766 13,712 19,478 Office/Warehouses (8) 9,155 24,728 33,883 Front Load Warehouses (8) 9,783 20,793 30,576 Office/Service Center (1) 873 2,117 2,990 Transit Warehouse (1) 3 286 289 Land w/Infrastructure 46,536 852 47,388 Unimproved Land & Misc. Assets 4,011 40 4,051 Orange County Land w/Infrastructure 8,799 0 8,799 -------- -------- --------- TOTALS $171,408 $194,124 $365,532 Depreciable Life Date Used in Calculation Capitalized in Latest Income Accumulated or Acquired Statement ----------- ----------- ------------------- Duval County Office Buildings (8) $ 8,030 1985 3 to 40 years Office/Showroom/Warehouses (10) 5,695 1987 3 to 40 years Office/Warehouses (2) 990 1994 3 to 40 years Front Load Warehouse 19 Rail Warehouse 22 Land w/Infrastructure 716 Unimproved Land & Misc. Assets 194 St. Johns County Unimproved Land 0 Various Flagler County Unimproved Land 0 Various Volusia County Unimproved Land 0 Various Brevard County Office/Showroom/Warehouse (1) 0 1983 3 to 40 years Land w/Infrastructure 0 Various Unimproved Land 0 Various Indian River County Unimproved Land 0 Various St. Lucie County Unimproved Land 0 Various Martin County Land w/Infrastructure 190 Various Unimproved Land 0 Various Putnam County Unimproved Land Palm Beach County Office/Showroom/Warehouse (1) 977 Rail Warehouses (2) 1,371 Cross Docks (2) 1,179 Land w/Infrastructure 0 Unimproved Land 0 Broward County Rail Warehouse (1) 686 1986 3 to 40 years Land w/Infrastructure 0 Various Unimproved Land 0 Various Manatee County Unimproved Land 0 Various Dade County Cross Dock (1) 289 1987 3 to 40 years Double Front Load Warehouse (1) 1,211 1993 3 to 40 years Rail Warehouses (6) 4,517 1988 3 to 40 years Office/Showroom/Warehouses (5) 4,149 1988 3 to 40 years Office/Warehouses (8) 3,692 1990 3 to 40 years Front Load Warehouses (8) 4,242 1991 3 to 40 years Office/Service Center (1) 327 1994 3 to 40 years Transit Warehouse (1) 63 Various 3 to 40 years Land w/Infrastructure 1,002 Various 3 to 40 years Unimproved Land & Misc. Assets 130 Various 3 to 40 years Orange County Land w/Infrastructure 0 1995 ------- TOTALS $39,691 Notes: (A) The aggregate cost of real estate owned at December 31, 1997 for federal income tax purposes is approximately $258,360,000. (B) Reconciliation of real estate owned (in thousands of dollars): 1997 1996 1995 ---- ---- ---- Balance at Beginning of Year $333,830 $266,673 $241,674 Amounts Capitalized 45,806 67,589 25,523 Amounts Retired or Adjusted (14,104) (432) (524) -------------------------------- Balance at Close of Period $365,532 $333,830 $266,673 (C) Reconciliation of accumulated depreciation (in thousands of dollars): 1997 1996 1995 ---- ---- ---- Balance at Beginning of Year $ 33,507 $ 25,922 $ 20,274 Depreciation Expense 8,731 7,653 5,648 Amounts Retired or Adjusted (2,547) (68) 0 -------------------------------- Balance at Close of Period $ 39,691 $ 33,507 $ 25,922
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21. Listing of parent and subsidiaries Parent - Florida East Coast Industries, Inc. Subsidiaries - Florida East Coast Railway Company Florida East Coast Highway Dispatch Company Florida East Coast Inspections, Inc. Florida East Coast Deliveries, Inc. Railroad Concrete Crosstie Corporation Railroad Track Construction Company Operations Unlimited, Inc. Florida Express Carrier, Inc. Gran Central Corporation Dade County Land Holding Company, Inc. International Transit, Inc.
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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, DC 20549, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, hereby constitutes and appoints Carl F. Zellers, Jr. and T.N. Smith as his true and lawful attorneys-in-fact and agent, and each of them with full power to act, without the other in his stead, in any and all capacities, to sign the 1997 Annual Report of Florida East Coast Industries, Inc., on Form 10-K and to file on behalf of the Corporation such Annual Report and amendments with all exhibits thereto, and any and all other information and documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agent, and each of them, full power and authority to do and perform any and all acts and things requisite and ratifying and confirming all that each said attorneys-in-fact and agent or any one of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the date indicated below: s/s C. F. Zellers, Jr., Chairman, s/s T.N. Smith, Vice President, President, CEO and Director Secretary and Treasurer s/s J. Nelson Fairbanks, Director s/s J.C. Belin, Director s/s A.C. Harper, Director s/s D.M. Foster, Director s/s J.H. Mercer, Jr., Director s/s J.J. Parrish, III, Director s/s W.L. Thornton, Director Dated: March 27, 1998

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