SEC Info - Florida East Coast Holdings Corp.

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		Alternative Formats (Word, et al.) Business Certain Relationships and Related Transactions, and Director Independence Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Consolidated Balance Sheets as of December 31, 2012 and 2011 Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011, and 2010 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2012, 2011, and 2010 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2012, 2011, and 2010 Controls and Procedures Directors, Executive Officers and Corporate Governance Executive Compensation Exhibits and Financial Statement Schedules Financial Statements and Supplementary Data Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Mine Safety Disclosures Notes to Consolidated Financial Statements Other Information Part I Part Ii Part Iii Part Iv Principal Accountant Fees and Services Properties Quantitative and Qualitative Disclosures About Market Risk Reports of Independent Registered Public Accounting Firm Risk Factors Security Ownership of Certain Beneficial Owners and Management Selected Financial Data Table of Contents Unresolved Staff Comments
1	1st Page – Filing Submission
"	Table of Contents
"	Part I
"	Item 1. Business
"	Item 1A. Risk Factors
"	Item 1B. Unresolved Staff Comments
"	Item 2. Properties
"	Item 3. Legal Proceedings
"	Item 4. Mine Safety Disclosures
"	Part Ii
"	Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
"	Item 6. Selected Financial Data
"	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
"	Item 8. Financial Statements and Supplementary Data
"	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
"	Item 9A. Controls and Procedures
"	Item 9B. Other Information
"	Part Iii
"	Item 10. Directors, Executive Officers and Corporate Governance
"	Item 11. Executive Compensation
"	Item 12. Security Ownership of Certain Beneficial Owners and Management
"	Item 13. Certain Relationships and Related Transactions, and Director Independence
"	Item 14. Principal Accountant Fees and Services
"	Part Iv
"	Item 15. Exhibits and Financial Statement Schedules
"	Reports of Independent Registered Public Accounting Firm
"	Consolidated Balance Sheets as of December 31, 2012 and 2011
"	Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2012, 2011, and 2010
"	Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2012, 2011, and 2010
"	Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011, and 2010
"	Notes to Consolidated Financial Statements

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2013,

o 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 333-174112

Florida East Coast Holdings Corp.

(Exact name of registrant as specified in its charter)

Florida

27-4591805

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

7411 Fullerton Street, Suite 300,

Jacksonville, Florida

32256

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (800) 342-1131

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No o

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

At the close of business on June 29, 2013 (which is the last day of the second quarter and the required date to use), the aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates of the Registrant was $3.2 million.

As of March 12, 2014, there were 251,726 shares of the Registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K and other information we provide from time to time may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not necessarily limited to, statements relating to future events and financial performance. Words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “appears,” “may,” “will,” “would,” “could,” “should,” “seeks,” “estimates” and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements. We can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this report. Factors that could have a material adverse effect on our operations and future prospects or that could cause actual results to differ materially from our expectations include, but are not limited to, number of external variables over which management has little or no control, including: domestic and international economic conditions; the business environment in industries that produce and consume rail freight; rising fuel costs; competition and consolidation within the transportation industry; the operations of carriers with which the Company interchanges traffic; our transportation of hazardous materials by rail; fluctuation in prices or availability of key materials, in particular diesel fuel; labor difficulties, including strikes and work stoppages; legislative and regulatory developments including rulings by the Surface Transportation Board or the Railroad Retirement Board; disruptions to our technology infrastructure, including computer systems; natural events such as severe weather, hurricanes and floods; and other risks described in this Annual Report under “Risk Factors.” In addition, new risks and uncertainties emerge from time to time, and it is not possible for us to predict or assess the impact of every factor that may cause actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

PART I

ITEM 1. BUSINESS

Overview

In 2013, we provided our services to over 500 customers, and transported over 501,000 units. We transport products such as intermodal containers and trailers, crushed rock (aggregate), automobiles, food, and other industrial projects. We are a major hauler of aggregate in the State of Florida and a key conduit for the transportation of automobiles into South Florida.

We provide a direct route through some of the most highly congested regions of the State of Florida, and we believe that we are able to haul freight often more quickly and more cost effectively than other modes of transportation, such as trucking, as one train can haul the equivalent of up to 280 trucks.

We have direct access to the major south Florida ports of Miami, Everglades (Fort Lauderdale) and Palm Beach through which we transport intermodal containers. We believe that our unique positioning to these ports will help us continue our intermodal volume growth.

In 2013, we generated total operating revenue and operating income of $279.1 million and $72.2 million, respectively, for the year ended December 31, 2013. As of December 31, 2013, we had assets of $905.8 million.

Company Information

The Company is owned by private equity funds managed by affiliates of Fortress Investment Group LLC (“Fortress”). Upon the acquisition, Fortress acquired all of the outstanding stock of Florida East Coast Industries, Inc. (“FECI”) in 2007 and then subsequently FECI sold its rail transportation segment (the “Rail Separation”), which operated as separate legal entities. Concurrent with the Rail Separation, FECR Rail LLC and Florida East Coast Railway Corp. were formed to carry on the activities of the railway.

Florida East Coast Holdings Corp. was incorporated in Florida on January 10, 2011. In January 2011, FECR Rail LLC contributed all of its holdings of the common and preferred shares of Florida East Coast Railway Corp. to Florida East Coast Holdings Corp., whereby Florida East Coast Holdings Corp. became the direct parent of Florida East Coast Railway Corp. Our principal corporate office is located at 7411 Fullerton Street, Suite 300, Jacksonville, Florida 32256, and our telephone number at that location is 1-800-342-1131.

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Customers

As of December 31, 2013, we served approximately 500 customers. In 2013, our 10 largest customers accounted for approximately 41% of our total freight revenue, with our largest customer accounting for approximately 8% of our total freight revenue.

Commercial Arrangements

A substantial portion of our freight revenue is generated under contracts and similar arrangements with either customers located on our line or the Class I railroads with which we connect. Contracts and arrangements vary in terms of duration, pricing, and volume requirements. We collect the majority of our revenue from Class I railroads and other business entities. Moreover, our railroad is often integrated into a customer’s facility and serves as an important component of that customer’s supply chain. In certain circumstances, our customers have made significant capital investments in facilities on or near our railroad (as in the case of industrial plants or major warehouses) or are geographically unable to relocate (as in the case of rock quarries). We believe the quality of our customers and our level of integration with their facilities provide a stable and predictable revenue base. In addition, due to our captive drayage (local trucking) company, FEC Highway Services, L.L.C., and our alliances with the Class I railroads that we connect with in Jacksonville — Norfolk Southern and CSX — we are able to extend our reach throughout North America. Almost all commercial arrangements are subject to some form of fuel surcharge program that protects us from sudden increases in fuel costs. Commercial agreements that are not subject to a fuel surcharge program can typically be cancelled on short notice. Individual contracts and arrangements vary in terms of duration, pricing and volume requirements, but can generally be categorized as follows:

Contracts directly with customers/shippers: In many cases, we maintain a contract with the customer that we directly serve. Typically, the customer has significant rail infrastructure within its facility and is a major shipper or receiver of industrial freight. Contracts stipulate the term and pricing arrangements, and often include minimum customer volume requirements with liquidated damages paid to us to the extent volumes fall below certain levels.

Contracts directly with Class I railroads: We act as an agent for the connecting Class I railroads, with the Class I typically maintaining a contract directly with the customer/shipper for the entire length of haul. The Class I railroad pays us upon our providing the service for the portion of the total haul that occurs on our railroad, and the Class I pays us regardless of whether the customer pays the Class I which results in low credit exposure and timely payment.

Quoted rate, or tariff: In the remaining cases, our railroad generates freight revenue using a rate per unit based on the type of freight service and market environment. Rates can typically be adjusted upon 30-days notice although some of our larger customers often request a private rate that provides more price certainty over a longer period of time. While we do not serve private rate customers under signed contracts in these cases, we have long standing relationships with our customers and, in many instances, we are the only rail service provider available to customers. Moreover, the heavy nature of the freight shipped by the customer and/or the long distances carried competitively positions us favorably versus other modes of transportation.

Non-Freight Revenue

In addition to providing freight services, we also generate non-freight revenue from other sources such as car hire and demurrage (allowing our customers and other railroads to use our railcars for storage or transportation in exchange for a daily fee), real estate lease income, ancillary dray charges, switching (managing and positioning railcars within a customer’s facility), and other transportation services.

A summary of our non-freight revenue generated during 2013 and 2012 is presented in the table below:

	December 31, 2013		December 31, 2012
	(in thousands)
Car hire income	$	6,425	$	6,463
Other non-freight revenue	3,562		4,129
Dray accessorial revenue	2,508		2,132
Real estate lease income	2,174		1,950
Demurrage and Storage	1,989		1,880
Railcar switching	293		390
Locomotive lease revenue	8		294
Total	$	16,959	$	17,238

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Employees

As of December 31, 2013, we had approximately 618 employees, of which approximately 408 employees are represented by the following labor unions: United Transportation Union (“UTU”), train and engine service, Brotherhood of Maintenance of Way Employees (“BMWE”), track maintenance, structures and roadway shop, and International Brotherhood of Electrical Workers (“IBEW”), agents and clerical, carmen, maintenance of equipment foreman, signals and communications, train dispatchers, electricians, machinists, sheetmetal workers and shop laborers. In total, we are party to 9 labor agreements. We have developed a standard template with which to negotiate with the unions and are confident of our ability to satisfy them.

In 2011 and 2012, we successfully ratified bargaining agreements with the UTU and BMWE. The UTU agreement was extended until the end of 2012 and the BMWE agreement was extended until the end of 2014. Under terms of the Railway Labor Act, the collective bargaining agreements that reached the amendable date of December 31, 2012 must maintain the status quo until agreement of modifications is reached. In these cases, work rules and compensation remain unchanged until the new language is concluded and ratified by the represented employee group.

Railroad industry personnel are covered by the Railroad Retirement System instead of Social Security. Our contributions under the Railroad Retirement System have been approximately triple those of employees in industries covered by Social Security. The Railroad Retirement System, funded primarily by payroll taxes on covered employers and employees, includes a benefit roughly equivalent to Social Security (“Tier I”), an additional benefit similar to that allowed in some private defined-benefit plans (“Tier II”), and other benefits. For 2013, the Railroad Retirement System required up to a 20.25% contribution by railroad employers on eligible wages, while the Social Security and Medicare Acts only required a 7.65% contribution on similar wage bases.

Safety

We endeavor to conduct safe railroad operations for the benefit and protection of employees, customers and the communities we serve. Our safety program involves all of our employees and is administered by our safety group. Operating personnel are trained and certified in train operations, hazardous materials handling, personal safety and all other areas subject to federal regulations. Each employee involved in train operations is subject to pre-employment and random drug testing as required by federal regulation. We believe that we comply in all material respects with federal, state, and local regulations. We also participate in committees of the AAR, governmental and industry sponsored safety programs including Operation Lifesaver (the national grade crossing awareness program) and numerous American Short Line and Regional Railroad Association Committees.

Environmental Matters

We are subject to various federal, state and local laws and regulations relating to pollution and the protection of the environment. These include requirements for governing such matters as the management of wastes, the discharge of pollutants into the air and into surface and underground waters, the manufacture and disposal of regulated substances and remediation of contaminated soil and groundwater. Failure to comply with environmental requirements can result in fines and penalties, and may subject us to third party claims alleging personal injury, and/or property damage or seeking restrictions on our operations. Some environmental laws impose strict, and under some circumstances joint and several, liability for costs of investigation and remediation of contaminated sites on current and prior owners or operators of the sites. In addition, some environmental laws are imposed on entities that sent regulated materials to the sites, as well as impose liability for related damages to natural resources.

In September 2006, the Florida Department of Environmental Protection (“FDEP”) notified us and an adjacent property owner that they had been identified as potentially responsible parties (“PRPs”) as a result of an investigation into contaminated groundwater in Fort Pierce, Florida. As of December 31, 2013, we had accrued $1.3 million related to the alleged contamination, of which, $0.3 million is expected to be paid over the next year. In April 2012, we reached an agreement with FDEP that our scope of testing was complete and we can initiate a pilot remediation of the property. We have completed a competitive review of remediation proposals and selected a contractor to begin the pilot in early 2013. The pilot remediation is in the final stages with preliminary effective results in reducing contaminates in the groundwater. Further assessment of the primary source is planned by us to refine the treatment strategy and establish an updated accrual estimate for remediating the site with completion in early second quarter of 2014.

We believe that we operate in material compliance with current environmental laws and regulations. We estimate that any expenses incurred in maintaining compliance with current environmental laws and regulations will not have a material effect on our earnings or capital expenditures. However, there can be no assurance that new, or more stringent enforcement of existing, requirements or discovery of currently unknown conditions will not result in significant expenditures in the future.

Insurance

We maintain liability and property insurance coverage. Our primary liability policies have self-insured retentions of up to $2.0 million per occurrence. In addition, we maintain excess liability policies that provide supplemental coverage for losses in excess of our self-insured retention.

With respect to the transportation of hazardous commodities, our liability policies cover sudden releases of hazardous materials, including expenses related to evacuation, up to the same excess coverage limits and subject to the same self-insured retentions. Personal injuries associated with grade crossing accidents are also covered under liability policies.

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Work related injuries are addressed by the Federal Employers’ Liability Act (the “FELA”), a fault-based system under which resulting claims for injury or death may be resolved by negotiation or litigation. FELA-related claims are covered under our liability insurance policies. Truck owners / operators of our Highway Services business are covered under occupational accident policies.

Our property damage policies, including windstorm coverage, provide coverage for track, infrastructure, business interruption, and all locomotives and rail cars in our custody and control. This policy provides coverage up to $25.0 million per occurrence, subject to self-insurance retention of $0.75 million per occurrence.

Industry

Introduction

The U.S. economy is dependent on the movement of freight ranging from raw materials such as coal, ores, aggregates, lumber and grain to finished goods, such as food products, paper products, automobiles and machinery. Railroads represent the largest component of the freight transportation industry in the United States, carrying more freight than any other mode of transportation. With a network of approximately 138,500 miles of track, railroads link businesses with each other domestically and with international markets through connections with ports and other international terminals. Unlike other modes of transportation, such as trucking (which uses highways, toll roads, etc.) and shipping companies (that utilize ports), railroad operators generally own their infrastructure of track, land and rights of way, and rail yards. This infrastructure, most of which was originally established over 100 years ago, represents a limited supply of assets and a difficult-to-replicate network.

Industry Structure

The AAR classifies railroads operating in the United States into one of three categories based on the amount of revenues and track miles. Class I railroads, those with over $433.2 million in revenues, represent a vast majority of total rail revenues. Regional and local/short line railroads also operate in the United States. The primary function of these smaller railroads is to provide feeder traffic to the Class I carriers.

Class I railroads operate across many different states and concentrate largely, though not exclusively, on long-haul, high density intercity traffic lanes. The six largest railroads in North America are BNSF Railway, Union Pacific, Norfolk Southern, CSX, Canadian National Railway, and Canadian Pacific Railroad Company. Regional railroads typically operate 400-650 miles of track and provide service to selected areas of the country, mainly connecting neighboring states and/or economic centers (including intrastate). Typically short line railroads serve as branch lines connecting customers with Class I railroads. Short line railroads have more predictable and straightforward operations as they generally perform point-to-point service over short distances, without the complex networks associated with the large Class I railroads.

Use of regional and short line railroads is largely driven by interchange traffic between carriers. Typically, a Class I railroad will transport the freight the majority of the distance, with the short line providing the final step of service directly to the customer. Most short line railroads depend on Class I traffic for a substantial portion of their revenue.

Regional and Short line Railroads

The North American short line and regional railroad industry has experienced steady growth over several decades. Short lines and regional railways have always been a part of the rail industry in North America. In the 1800’s, most North American railroads were constructed to serve a local or regional interest. Today’s Class I railroads are descended from hundreds of short lines and regionals that came together in successive waves of consolidation.

During the 1980’s, the number of regional and short line railroads increased dramatically. Deregulation of U.S. railroads simplified abandonment and sales regulations, allowing the major carriers to gain many of the savings of abandonment while preserving the traffic on the rail lines. Carriers created through this divestiture process now account for the majority of regional and short line railroads. Short line and regional railroads today serve important roles in moving freight within their service areas and function as a critical traffic “feeder” network for the Class I railroads.

Over the past decade, the number of regional and short line railroads has remained relatively constant. While some new entrants were formed through spin-offs or divestitures of Class I railroads, they have generally been offset by other existing regional and short lines either exiting the business or being merged with or acquired by other railroads. With the growth of multi-carrier holding companies, such as Genesee & Wyoming, the number of operators of regional and short line railroads has decreased. The consolidation brought on by multi-carrier holding companies has induced a number of shippers with private railroads to sell those railroads to the major short line operators. Similarly, Class I railroads sell and lease rail lines to smaller rail entities in order to address a range of issues impacting costs and productivity.

Short lines and regional railroads have a variety of ownership structures and are owned by shippers, governments, and multi-carrier holding companies.

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Competition

Short line and regional railroads compete against each other and other forms of freight transportation based on cost, location and service. The cost of transporting goods and services via different forms of freight transportation is a major factor in determining which means of transportation a shipper will utilize. With respect to location, potential customers often experience geographic constraints that significantly impact the relative freight transportation costs of different alternatives. For example, a shipper can be constrained by railroad’s trackage, accessible waterways, access to pipelines, and proximity to airports. As a result, short line and regional railroad operators often evaluate the feasibility of other forms of freight transportation available to a customer when developing their rate and service offerings.

Some short line and regional railroad customers have multiple forms of freight transportation available. Depending on circumstances, truck, water, or other railroads may be competitive alternatives for a shipment. In such instances, customers will compare both the relative costs, reliability of on-time delivery and quality of service when determining what mode(s) of transport to use.

Trucking is often considered as a viable alternative to rail transport. Our intermodal freight services (trailers and containers on flat-rail cars) compete directly with trucking carriers. While trucking provides additional delivery location flexibility due to the geographic diversity of North America’s highway network relative to railway network, railroads are substantially more cost competitive along travel routes they serve. Recently, rail transport has become a more cost efficient alternative for shippers moving bulk goods over long distances, because of volatile fuel costs.

Other factors that enhance rail’s competitive advantage over trucking include:

· Capability to transport larger shipment sizes

· Higher density; ratio of product handled in a railcar to a truck is higher

· Ability to transport product over longer distances than trucks offer

· Less dependent on return haul requirements compared to trucking

· Reduced environmental impact, i.e. rail is “greener”

Further, for many shipments, transport options that include alternative railroads are competitive, even where direct service by a second rail carrier is not available. Although we are often the only rail carrier directly serving our customers, we compete directly with other railroads that potentially could deliver freight to our markets and customers via different routes and use of multiple modes of transportation. Our primary rail competition for carload traffic is CSX. However, our railroad is the most direct route to Southern Florida and due to this, Florida East Coast Railway (“FECR”) is the most well tailored to handle intermodal traffic and carries CSX’s intermodal traffic.

Options to ship by water are limited geographically, but when available can be very competitive with rail. Factors that enhance rail’s competitiveness over water options include:

· Capability for rail to transport larger shipments, with higher density as water vessels are limited by water depth and size of shipment

· Railroads have a more direct route between origination and destination compared to vessels

· Rail benefits from lower loading and unloading costs

The railroad industry has increased its share of freight ton-miles compared to other forms of freight transportation over the past quarter century due to its ability to haul heavy products over long distances more efficiently and at a lower cost. Since 1980, the railroad industry has continually improved its cost competitiveness compared to other forms of freight transportation as it consumes less fuel and has lower labor costs per ton transported than other forms of freight transportation. Railroads’ cost per ton-mile has decreased as a result of significant reductions to labor and rolling stock requirements and the spinning off of less dense network segments. According to the AAR, railroads are estimated to be approximately four times more fuel efficient than truck transportation while a single train can haul the equivalent of up to 280 trucks. Additionally, as the price of fuel has increased over the past several years, the fuel efficiency advantage of railroads as compared to other forms of freight transportation has grown. In 1980, one gallon of diesel fuel moved one ton of freight by rail an average of 235 miles, versus 2009 where the equivalent gallon of fuel moved one ton of freight an average of 480 miles by rail — representing a 104% increase over 1980. As a result, the railroad industry’s share of U.S.freight ton-miles has steadily increased from 30% in 1980 to 43% in 2007.

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ITEM 1A. RISK FACTORS

Our operations and financial condition are subject to certain risks that could cause actual operating and financial results to differ materially from those expressed or forecast in our forward-looking statements, including the risks described below and the risks that may be identified in future documents that are filed or furnished to the SEC.

Risks Related to Our Business

Adverse macroeconomic and business conditions, particularly in the State of Florida and the southeast, could have an adverse impact on our business.

The decline in economic activity in the United States and throughout the world may have an adverse impact on our business. The global financial markets may experience significant volatility and disruption. Macroeconomic, business and financial disruptions could have a material adverse effect on our operating results, financial condition and liquidity. In particular, our freight traffic is generally affected by overall economic conditions in Florida and the southeast United States. Our largest carload market, aggregates, is highly dependent upon the residential construction market, the commercial construction market and state and federal highway construction, each of which have been negatively affected by the recent economic conditions. The pace of residential construction as well as the level of state and federal highway and other public projects affect the amount of aggregate loadings that our customers request. During the recent economic downturn, the State of Florida has experienced an unprecedented decline in homebuilding. The condition of international economies, including the Caribbean, South America, Europe and Asian economies, can also affect our intermodal traffic.

We receive significant business from our customers who utilize the Port of Miami and Port Everglades for shipping and cargo activity. Our railroad relies on these Ports to serve cargo ships on behalf of our customers for import and export freight. The decline of imports or exports at these Ports could have a material adverse effect on our operating results, financial condition and liquidity. We plan to establish intermodal container rail service on its own rail line leading into the Port of Miami for an estimated cost to the Company of $9.1 million (see Note 15). In addition, we plan to construct a new Florida East Coast Intermodal Transfer Facility on Port Everglades, Florida for an estimated total cost of approximately $53 million, $30 million of which will be funded through a State Infrastructure Bank (SIB) loan, $18 million of which will be from a Florida Department of Transportation (FDOT) grant and $5 million from our capital budget. We have been awarded the entire $18 million of the FDOT grant as of December 31, 2012. These investments could be at risk should the volumes not support the investments.

Our customers and suppliers are directly affected by economic downturns. As they face credit issues and experience cash flow problems, the demand for our rail services could decrease or our receipt of payment could be delayed. Adverse economic conditions could also affect our costs for insurance and our ability to acquire and maintain adequate insurance coverage for risks associated with the railroad business if insurance companies experience credit downgrades or bankruptcies. Changes in governmental banking, monetary and fiscal policies to stimulate the economy, restore liquidity and increase credit availability may not be effective. It is difficult to determine the depth and duration of any economic and financial market problems and the many ways in which they may impact our customers, suppliers and our business in general. Given the asset-intensive nature of our business, any economic downturn increases the risk of significant asset impairment charges since we are required to assess for potential impairment of non-current assets whenever events or changes in circumstances, including economic circumstances, indicate that the respective asset’s carrying amount may not be recoverable. This may limit our ability to sell our assets to the extent we need, or find it desirable, to do so.

Furthermore, our railroad competes directly with other modes of transportation, including motor carriers, and ship, barge and pipeline operators. If these alternative methods of transportation become more cost-effective to our customers due to macroeconomic changes, or if legislation is passed providing materially greater opportunity for motor carriers with respect to size or weight restrictions, our operating results, financial condition and liquidity could be materially adversely affected.

Worsening of macroeconomic, business and financial conditions, particularly in the State of Florida and the southeast United States, could have a material adverse effect on our operating results, financial condition and liquidity.

Rising fuel costs could materially adversely affect our business.

Fuel costs were approximately 12.4%, 12.8% and 14.1% of our total operating revenue for the years ended December 31, 2013, 2012, and 2011, respectively. Fuel prices and supplies are influenced significantly by international, political and economic circumstances. If fuel supply shortages or unusual price volatility were to arise for any reason, the resulting higher fuel prices would significantly increase our operating costs. Increases in fuel price may be passed along to customers through a “fuel surcharge” or otherwise, though often with delayed effect. However, there are no assurances that these surcharges will cover the entire fuel price increase for a given period, or that competitive market conditions will allow us to pass along this cost.

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As part of our railroad operations, we frequently transport hazardous materials, the accidental release of which could have an adverse effect on our operating results, financial condition and liquidity.

We are required to transport hazardous materials to the extent of our common carrier obligation. An accidental release of hazardous materials could result in significant loss of life and extensive property damage. The associated costs could have an adverse effect on our operating results, financial condition and liquidity. In 2013, approximately 1.0% of our moves were related to hazardous materials.

A majority of our employees belong to labor unions, and strikes or work stoppages could adversely affect our operations.

Many of our employees are union-represented. Our union employees work under collective bargaining agreements with various labor organizations. Our inability to negotiate acceptable contracts with these unions could result in, among other things, strikes, work stoppages or other slowdowns by the affected workers. If our union-represented employees were to engage in a strike, work stoppage or other slowdown, or other employees were to become unionized or their terms and conditions in future labor agreements were renegotiated, we could experience significant disruption of our operations and higher ongoing labor costs.

Because we depend on Class I railroads and certain other customers for a significant percentage of our operations, our business and financial results may be adversely affected if our relationships with Class I carriers and such customers deteriorate.

The railroad industry in the United States is dominated by a small number of Class I carriers that have substantial market control and negotiating leverage. Approximately 55% of our traffic for the year ended December 31, 2013 was interchanged from CSX and Norfolk Southern, each a Class I carrier, and South Central Florida Express, a regional short line railroad. In addition, approximately 53% of our total freight revenue for the year ended December 31, 2013 was derived from Class I traffic. No single customer represented more than 10% of our total freight revenue for the year ended December 31, 2013. Our ability to provide rail service to our customers depends in large part upon our ability to maintain cooperative relationships with Class I carriers and certain other customers with respect to, among other matters, freight rates, car supply, switching, interchange, fuel surcharges and trackage rights (an arrangement where the Company that owns the line retains all rights, but allows another company to operate over certain sections of its track). In addition, loss of customers or service interruptions or delays by our Class I and other interchange partners relating to customers who ship over our track may decrease our revenue. Furthermore, the ability of Class I carriers, in particular CSX and Norfolk Southern, to market and service southbound traffic into the Florida market will affect the amount of traffic we move.

Although our operations served approximately 500 customers in 2013, freight revenue from our 10 largest freight revenue customers accounted for approximately 41.1% of our total freight revenues for the year ended December 31, 2013. In addition, we have three primary aggregate customers with operations in south Florida whose freight revenues represented approximately 13.3% of our total freight revenues for the year ended December 31, 2013 (of the three primary aggregate customers, none accounted for more than 10% of total freight revenue individually). Our revenues are affected by the demand for aggregate material, primarily in Florida, and the ability of these customers to supply this natural raw material efficiently and effectively. Substantial reduction in business with or loss of important customers could have a material adverse effect on our business and financial results.

The track maintenance tax credit was not renewed by Congress after its expiration on December 31, 2013.

In 2013, we received approximately $4.7 million from the assignment of 2012 and 2013 tax credits for certain track maintenance expenditures pursuant to Section 45G of the Internal Revenue Code. In January 2013, Congress passed an extension of Section 45G tax credits for 2012 and 2013 track maintenance expenditures under the Short Line Railroad Rehabilitation and Investment Act of 2013. The Section 45G tax credit expired on December 31, 2013 and has not been extended.

We are subject to environmental and other governmental regulation of our railroad operations, which could impose significant costs.

Our operations and properties are subject to federal, state and local environmental laws and regulations that impose strict, and in certain cases joint and several, liability for such costs, including, among other things, discharge of pollutants into the air, water and soil, the generation, handling, storage, transportation, treatment and disposal of waste and other regulated materials, and the cleanup of contaminated properties and human health and safety. The failure to comply with environmental and other governmental regulations could have a material adverse effect on us. We could incur significant costs, fines and penalties as a result of any allegations or findings to the effect that we have violated or are strictly liable under these laws or regulations. We may be required to incur significant expenses to investigate and remediate environmental contamination. We are also subject to governmental regulation by a significant number of federal, state and local regulatory authorities with respect to our railroad operations and a variety of health, safety, labor, maintenance and other matters.

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New legislation or regulatory changes could impact our or restrict our ability to independently negotiate prices.

Legislation passed by Congress or new regulations issued by federal agencies can significantly affect the revenues, costs and profitability of our business. For instance, in December 2009, a proposed bill called the “Surface Transportation Board Reauthorization Act of 2009” was introduced in the Senate but not advanced. In January 2011, the bill now referred to as the Surface Transportation Board Reauthorization Act of 2011 (“STB Reauthorization Bill”) was reintroduced. The STB Reauthorization Bill, if adopted, could increase government involvement in railroad pricing, service and operations. The proposed legislation also includes provisions that would reduce the ability to price at market levels, and open a carrier’s privately-owned and maintained rail network to competitors where certain conditions are met.

If adopted as proposed, this bill could significantly change the federal regulatory framework of the railroad industry. Several of the changes under consideration could have a significant negative impact on our ability to determine prices for rail services, meet service standards and could force a reduction in capital spending. Statutes imposing price constraints or affecting rail-to-rail competition could adversely affect our profitability.

Severe weather and natural disasters could disrupt normal business operations, which could result in increased costs and liabilities and decreases in revenues.

Our operating assets are located on Florida’s eastern seaboard. Severe weather conditions and other natural phenomena, including hurricanes and other severe storms, fires and floods, may cause significant damage, destruction and business interruptions and result in increased costs, increased liabilities and decreased revenue. Additionally, the operations and properties of some of our customers (especially aggregate suppliers) are also subject to natural disasters, which could significantly reduce the volumes they ship and result in decreased revenue.

We face possible catastrophic loss and liability, and our insurance may not be sufficient to cover our damages or damages to others.

The operation of any railroad carries with it an inherent risk of catastrophe, mechanical failure, collision, and property loss. In the course of our operations, spills or other environmental mishaps, cargo loss or damage, business interruption due to political developments, as well as labor disputes, strikes and adverse weather conditions, could result in a loss of revenues or increased liabilities and costs. Collisions, cargo leaks or explosions, environmental mishaps, or other accidents can cause serious bodily injury, death, and extensive property damage, particularly when such accidents occur in heavily populated areas. Additionally, our operations may be affected from time to time by natural disasters such as hurricanes and other severe storms and floods. The occurrence of a major natural disaster could have a material adverse effect on our operations and financial condition. We maintain insurance that is consistent with industry practice against the accident-related risks involved in the conduct of our business and business interruption due to natural disaster. However, our insurance is subject to a number of limitations on coverage, depending on the nature of the risk insured against. This insurance may not be sufficient to cover our damages or damages to others and this insurance may not continue to be available at commercially reasonable rates. In addition, we are subject to the risk that one or more of our insurers may become insolvent and would be unable to pay a claim that may be made in the future. Even with insurance, if any catastrophic interruption of service occurs, we may not be able to restore service without a significant interruption to operations which could have an adverse effect on our financial condition.

We may face liability for casualty losses that are not covered by insurance.

We have obtained insurance coverage for losses sustained by our railroad arising from personal injury and for property damage in the event of derailments or other incidents. Personal injury claims made by our railroad employees are subject to the Federal Employers’ Liability Act (FELA) rather than state workers’ compensation laws. Currently, we are responsible for the first $2.0 million of expenditures per each incident under our general liability insurance policy and $0.75 million of expenditures per each incident under our property insurance policy. Severe accidents or personal injuries could cause our liability to exceed our insurance limits which might have a material adverse effect on our business and financial condition. Our annual insurance limits are $200.0 million and $25.0 million on liability and property, respectively. In addition, adverse events directly and indirectly attributable to us, including such things as derailments, accidents, discharge of toxic or hazardous materials, or other like occurrences in the industry, can be expected to result in increases in our insurance premiums or our self insured retentions and could result in limitations to the coverage under our existing policies.

Our inability to efficiently utilize our rail car and intermodal fleet could have an adverse effect on our operations and financial condition.

We earn per diem rents on the use of our rail car and intermodal fleet of equipment based on other railroads’ or transportation service providers’ use of the equipment. Future significant downturns in the overall U.S. economy, equipment obsolescence or reduced market demand for our car and/or intermodal fleet, or efforts by other railroads or transportation providers to improve equipment utilization practices or increase or decrease the size of their equipment fleets could affect the utilization of and per diem rents for our equipment. Further, these items could have a negative effect on our operational fluidity, leading to deterioration of service, asset utilization and overall efficiency.

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Shared use of our railroad corridor with passenger railroad operations could have an adverse effect on our ability to utilize our railway efficiently, which could impact our operations and financial condition.

In December 2007, we granted to FDG Passenger ROW Holdings LLC (“FDG Passenger”), a subsidiary of FECI, a permanent, perpetual and exclusive easement for purposes consistent with, or relating to, commuter rail and transit passenger railroad operations, subject to certain exceptions. If FDG Passenger were to commence operating a passenger railroad on our railway corridor pursuant to the right granted by the passenger rail easement, without infrastructure improvement and additional capacity on our network we could be required to reduce our levels of freight volume as a result of sharing the corridor, which could have an adverse effect on our ability to utilize our railway efficiently, which may impact our operations and financial condition. We may also incur additional liability, casualty and property risks as a result of shared use of the corridor with passenger railroad operations, which could also adversely affect our operations and financial condition. In February 2014, we amended this agreement to include an allocation of shared costs.

We depend on our management and key personnel, and we may not be able to operate and grow our business effectively if we lose the services of our management or key personnel or are unable to attract qualified personnel in the future.

The success of our business is heavily dependent on the continued services and performance of our current management and other key personnel and our ability to attract and retain qualified personnel in the future. The loss of key personnel could affect our ability to run our business effectively. Competition for qualified personnel is intense, and there can be no assurance that we will be successful in attracting and retaining such personnel. Although we have entered into employment agreements with certain of our key personnel, these agreements do not ensure that our key personnel will continue in their present capacity with us for any particular period of time. The loss of any key personnel could require one or more remaining key personnel to divert immediate and substantial attention to seeking a replacement or performing the duties of the departed executive. An inability to find a suitable replacement for any departing executive officer on a timely basis could adversely affect our ability to operate and grow our business.

Future acts of terrorism or war, as well as the threat of war, may cause significant disruptions in our business operations.

Terrorist attacks, such as those that occurred on September 11, 2001, as well as the more recent attacks on the transportation systems in Madrid and London, and government response to those types of attacks and war or risk of war may adversely affect our results of operations, financial condition or liquidity. Our rail lines and facilities could be direct targets or indirect casualties of an act or acts of terror. Such acts could cause significant business interruption and result in increased costs and liabilities and decreased revenues, which could have an adverse effect on our operating results and financial condition. Such effects could be magnified where releases of hazardous materials are involved. Any act of terror, retaliatory strike, sustained military campaign or war or risk of war may have an adverse effect on our operating results and financial condition by causing or resulting in unpredictable operating or financial conditions, including disruptions of rail lines, volatility or sustained increase of fuel prices, fuel shortages, general economic decline and instability or weakness of financial markets which could restrict our ability to raise capital. In addition, insurance premiums charged for some or all of our coverage could increase dramatically or certain coverage may not be available to us in the future.

The availability of qualified personnel and an aging workforce may adversely affect our operations.

Changes in demographics, training requirements and the availability of qualified personnel, particularly train crew members, could negatively affect our service levels. Unpredictable increases in demand for rail services may exacerbate these risks and may have an adverse effect on our operating results, financial condition or liquidity.

Risks Related to Our Indebtedness

We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business.

As of December 31, 2013, our total indebtedness was approximately $641 million, including the Senior PIK Toggle Notes and the 8 1 / 8 % Notes, which represented approximately 71% of our total capitalization. Our substantial indebtedness could have important consequences, including:

· increasing our vulnerability to adverse economic, industry or competitive developments;

· requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

· making it more difficult for us to satisfy our obligations with respect to the notes;

· restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

· limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; and

· limiting our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate, placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who therefore may be able to take advantage of opportunities that our leverage prevents us from exploiting.

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Holdings Corp. is a holding company and, therefore, depends on its subsidiaries to service its financial obligations.

Holdings Corp. has no operations of its own and it derives all of its revenues and cash flows from FECR Corp. and its subsidiaries. FECR Corp. is a separate and distinct legal entity and has no obligation, contingent or otherwise, to make any funds available to pay Holdings Corp., whether by dividend, distribution, loan or other payments. Holdings Corp. will depend on FECR Corp. (and any other subsidiaries that Holdings Corp. may form in the future) for dividends and other payments to generate the funds necessary to meet Holdings Corp.’s financial obligations, including payments of principal and interest on the Senior PIK Toggle Notes. Legal and contractual restrictions in agreements governing current and future indebtedness, as well as the financial condition and operating requirements of FECR Corp., may limit Holdings Corp.’s ability to obtain cash from FECR Corp. The indenture governing the 8 1 / 8 % Notes restricts FECR Corp.’s ability to pay cash dividends and make other distributions or loans to Holdings Corp. Although Holdings Corp. is a guarantor with respect to the 8 1 / 8 % Notes, Holdings Corp.’s dependence on its subsidiaries to service its financial obligations results in this guarantee providing little, if any, additional credit support for the 8 1 / 8 % Notes. In addition, the earnings from, or other available assets of, FECR Corp. may not be sufficient to pay dividends or make distributions or loans to enable Holdings Corp. to make payments in respect of the Senior PIK Toggle Notes when such payments are due. Furthermore, even if such earnings were sufficient, the agreements governing the current and future indebtedness of FECR Corp. may not permit FECR Corp. to provide us with sufficient dividends, distributions or loans to fund interest and principal payments on the Senior PIK Toggle Notes when due.

Despite our substantial indebtedness level, we and our subsidiaries will still be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness.

Subject to specified limitations, the indenture governing the notes permits Holding Corp. to incur additional debt. Further, the indenture governing the Senior PIK Toggle Notes, the indenture governing the 8 1 / 8 % Notes and the ABL Facility each permit our subsidiaries to incur additional debt. Currently, FECR Corp. has an outstanding SIB Loan with FDOT. The SIB Loan required as additional collateral through July 1, 2017, a standby letter of credit in the amount of $3 million (the “Standby Letter of Credit Collateral”). On February 1, 2013, the Company posted the Standby Letter of Credit Collateral by accessing the letter of credit line of the ABL Facility, reducing availability under the ABL Facility to $27.0 million. If new debt is added to our or any subsidiary’s current debt levels, the risks described above could intensify.

Inability to refinance the ABL Facility may require the Company to deliver alternative cash collateral or pay down the SIB Loan

The SIB Loan required the borrower to post $3.0 million Standby Letter of Credit with FDOT through July 1, 2017. On February 1, 2013, the Company posted the Standby Letter of Credit Collateral by accessing the letter of credit line of the ABL Facility. The ABL Facility matures on January 25, 2015. In the event the Company is not able to refinance the ABL Facility or obtain another a letter of credit facility, the Company may be required to post $3.0 million cash collateral with FDOT or pay down the SIB Loan by $3.0 million in substitution of the Standby Letter of Credit.

Our debt agreements contain restrictions that will limit our flexibility in operating our business.

The indentures governing the 8 1 / 8 % Notes, Senior PIK Toggle Notes and our ABL Facility contain various covenants that limit our ability to engage in specified types of transactions. The indentures and the ABL Facility covenants limit our and our restricted subsidiaries’ ability to, among other things:

· incur additional indebtedness;

· pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;

· make certain investments;

· sell, transfer or convey certain assets;

· create liens;

· enter into sale and leaseback transactions;

· issue or sell preferred stock;

· in the case of our restricted subsidiaries, restrict them from making dividends or other payments to us;

· in the case of our restricted subsidiaries, guarantee or secure debt;

· engage in transactions with affiliates;

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· create unrestricted subsidiaries; and

· consolidate, merge, sell or otherwise dispose of all or substantially all of our assets and the assets of our subsidiaries (if any) on a consolidated basis.

These covenants could adversely affect our ability to finance our future operations or capital needs and pursue available business opportunities.

In addition, if availability under the ABL Facility is below $7.5 million, we will be subject to a minimum fixed charge coverage ratio (as defined in the ABL Facility) of 1.1 to 1.0. If this covenant becomes operative in the future, events beyond our control, including changes in general economic and business conditions, may affect our ability to meet this financial ratio test. There can be no assurance that we will meet this potential financial ratio test or that our lenders will waive any failure to meet this test.

A breach of any of these covenants or any other restrictive covenants contained in FECR Corp.’s ABL Facility or the indenture governing the Senior PIK Toggle Notes and the indenture governing the 8 1 / 8 % Notes could result in an event of default. If an event of default under FECR Corp.’s ABL Facility, the indenture governing the Senior PIK Toggle Notes or the indenture governing the 8 1 / 8 % Notes occurs, the holders of the affected indebtedness could declare all amounts outstanding, together with accrued interest, to be immediately due and payable, which, in turn, could cause the default and acceleration of the maturity of our or FECR Corp.’s other indebtedness. If we were unable to pay such amounts, the lenders under FECR Corp.’s ABL Facility and noteholders of the 8 1 / 8 % Notes could proceed against the collateral pledged to them.

The SIB Loan contains covenants and conditions that could restrict our ability to draw funds under the SIB Loan.

The SIB Loan contains covenants and conditions to disbursements customarily contained in construction loans and loans from governmental entities. The SIB Loan requires annual audits by the State of Florida as required by Florida law. In addition, FDOT has the right to annul the SIB Loan if a request for disbursement is not made within six months of the first scheduled disbursement (October 1, 2013) or, at anytime, suspend or terminate FDOT’s remaining obligations under the SIB Loan if the ICTF construction project is abandoned or if the ICTF construction project is rendered improbable, infeasible, impossible, or illegal. FDOT also has the right to unilaterally cancel the SIB Loan in the event the Company refuses to allow public access to all documents, papers, letters or other materials subject to the provisions of Chapter 119, Florida Statutes, and made or received in conjunction with the SIB Loan. FDOT’s obligation to make advances under the SIB Loan is contingent upon the annual appropriation of the Florida legislature and there is no assurance that the Florida legislature will make such appropriations.

A default under the SIB Loan may adversely affect the 8 1 / 8 % Notes.

The SIB Loan contains customary events of default, including, failure to make a loan payment when due for more than 5 days, a warranty or representation is found to be untrue in any material respect, a bankruptcy or insolvency, failure to provide or restore the Standby Letter of Credit Collateral, or a material covenant breach or failure to provide notice of a material covenant breach within the times periods set forth in the SIB Loan. As a condition to making the SIB Loan, FDOT required and was granted a first priority lien on certain fixtures (including rail trackage) and equipment included in the collateral securing 8 1 / 8 % Notes. A default under the SIB Loan may result in the seizure of collateral securing the 8 1 / 8 % Notes and default under the indenture governing the 8 1 / 8 % Notes.

We may not be able to generate sufficient cash to service the 8 1 / 8 % Notes, the SIB Loan or our other indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on the notes or our other indebtedness. Any payments we make directly or indirectly to our parent companies would reduce the level of cash available to us to make the scheduled payments in respect of the 8 1 / 8 % Notes, the SIB Loan and other indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance the 8 1 / 8 % Notes or our other indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of the indenture governing the 8 1 / 8 % Notes and existing or future debt instruments may restrict us from adopting some of these alternatives. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

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ITEM 2. PROPERTIES

Track and Equipment

Track

We own a railroad right-of-way, generally 100-feet wide, along the east coast of Florida extending for 351 miles from Jacksonville to Miami, used for our railroad operations. We also own/lease and operate approximately 270 miles of branch, switching and other secondary track, 115 miles of yard track, various rail car marshalling yards, trailer/container and automobile loading and unloading facilities, signaling system facilities, and a number of operating offices, shops and service house buildings.

The mainline is, in general, constructed of 136-pound per yard continuous welded rail supported on concrete cross-ties. The facilities provide a reliable infrastructure for rail operations suited to the business demands of our customers, including unrestricted movement of double-stacked containers, tri-level automobiles and heavier rail axle cars. The branch mainlines, way switching and yard tracks are, for the most part, constructed of 115-pound per yard materials supported by wood ties.

Locomotives and Railcars (“Rolling Stock”)

As of December 31, 2013, we owned or leased 59 diesel electric locomotives, 4,654 freight cars, 1,457 trailers, containers and chassis for highway revenue service, numerous pieces of rail-mounted work equipment and numerous automobiles used in maintenance and transportation operations. Generally, our equipment is in good physical condition, considering its years of service and operating utilization.

A summary of the rolling stock owned and leased by us at the end of 2013 is presented in the table below:

Railcars				Locomotives
Type	Owned	Leased	Total	Horsepower / Unit	Owned	Leased	Total

Open Hopper Cars	852	—	852	2000hp / GP 38—2	5	—	5

Flat Cars	144	3,401	3,545	3000hp / GP 40	1	—	1

Gondolas	24	95	119	3000hp / GP 40—2	20	—	20

Auto:				3000hp / GP 40—3	6	—	6

Carrier Railcar	—	50	50	3000hp / SD 40—2	16	—	16

Racks	88	—	88	4300hp / SD 70M—2	—	11	11

Containers/Chassis:

53ft	162	503	665

40/53 ft	5	337	342

Trailers:

53ft	159	—	159

48ft or less	291	—	291

Other Misc. Railcars	68	19	87

Totals	1,793	4,405	6,198		48	11	59

The average age of our locomotives is 33 years as compared to a depreciable life of 60 years for new locomotives. The average age of our railcars is 30 years as compared to depreciable life of 55 years for a new railcar.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

FECR Rail Holdings, LLC, our ultimate parent, an entity wholly owned by private equity funds managed by affiliates of Fortress, owns approximately 99.03% of our outstanding common stock. There is no established public trading market for our common stock.

ITEM 6. SELECTED FINANCIAL DATA

The following tables summarize selected historical consolidated financial information for our business. You should read these tables along with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business”, and our consolidated historical financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. The historical results are not necessarily indicative of the results of operations to be expected in the future.

The Company is owned by private equity funds managed by affiliates of Fortress Investment Group LLC (“Fortress”). In January 2011, FECR Rail LLC contributed all of its holdings of the Company’s common and preferred shares to Florida East Coast Holdings Corp. (“Holdings Corp.”), whereby Holdings Corp. became the immediate parent of FECR Corp.

The selected historical consolidated financial data for the years ended December 31, 2009 through 2013, have been derived from the audited historical Consolidated Financial Statements of FECR.

	Year Ended December 31, 2009			Year Ended December 31, 2010			Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2013
	(in thousands)
STATEMENT OF OPERATIONS DATA:
Operating revenue	$	181,067		$	200,023		$	213,305		$	246,823		$	279,081

Operating expenses	153,251			157,011			178,308			193,803			206,861

Operating income	27,816			43,012			34,997			53,020			72,220

Interest income (expense)	(54,430		)	(66,250		)	(57,420		)	(58,815		)	(60,135		)

Other income (loss)	(2,880		)	(368		)	(44		)	85			61

Income (loss) before income taxes	(29,494		)	(23,606		)	(22,467		)	(5,710		)	12,146

Provision for income taxes	—			—			14,851			7,604			12,138

Net income (loss)	$	(29,494	)	$	(23,606	)	$	(37,318	)	$	(13,314	)	$	8

	As of December 31,
	2009		2010		2011		2012		2013
	(in thousands)
BALANCE SHEET DATA:
Total assets	$	861,131	$	848,809	$	871,949	$	873,187	$	905,784
Total long-term debt, including current maturities	601,594		601,185		609,854		625,969		641,262
Series A Redeemable Preferred Stock	21,049		23,912		—		—		—
Total stockholders’ equity	199,014		176,094		178,761		165,196		162,444

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. You should read the following discussion in conjunction with our historical consolidated financial statements included in this Annual Report on Form 10-K. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those listed under “Risk Factors.”

Overview

We own and operate a premier 351-mile freight railroad along the east coast of Florida from Jacksonville to Miami. Our railroad is one of only two major freight railroads serving Florida. We operate at a high level of density, which means that we carry a high number of units per track mile. In 2013, we carried approximately 1,430 units per mainline track mile, which we believe is more than any of the Class I railroads in the United States.

In 2013, we transported over 501,000 units on our railroad comprising various types of freight for over 500 customers. We transport products such as intermodal containers and trailers, crushed rock (aggregate), automobiles, food, and other industrial products. We are a major hauler of aggregate in the State of Florida and a key conduit for the transportation of automobiles into South Florida.

Our Business

We generate rail-operating revenues primarily from both the movement of freight in conventional freight cars and intermodal shipments of containers and trailers on flatcars. We count each move of a freight car, container or trailer on our line as one unit. We also generate revenue from dray moves (drayage is the movement of containers or trailers by truck to and from the rail yard). Non-freight operating revenues are derived from car hire and demurrage (allowing our customers and other railroads to use our railcars for storage or transportation in exchange for a daily fee), real estate lease income, ancillary dray charges, switching (managing and positioning railcars within a customer’s facility), and other transportation services.

Our operating expenses consist of salaries (approximately 70% of our work force is covered by collective bargaining agreements), related payroll taxes and employee benefits, depreciation (primarily reflecting our capital requirements for maintaining current operations), insurance and casualty claim expenses, diesel fuel, repairs billed to/from others (generally, a net credit received from repairs of foreign cars on our line less repairs paid by us for our cars on a foreign line), property taxes, material and supplies, purchased services (contract labor and professional services), and other expenses.

Managing Business Performance

We manage our business performance by attempting to (i) grow our freight and non-freight revenue, (ii) drive financial improvements through a variety of cost-savings initiatives, and (iii) strive to utilize assets to maximum capacity while still supporting future growth, and (iv) continued focus on safety to lower the risks and costs associated with operating our business.

Changes in units and revenue per unit (“RPU”) have a direct impact on freight revenue. We continue to implement more effective pricing by carefully analyzing pricing decisions to improve our freight revenue per unit. As a consequence, our operating ratio, which we define as total operating expenses divided by total operating revenues, continues to be a key metric which we evaluate. We deem operating ratio as an important metric to measure our operational performance, however, operating ratio is not a measure as defined under U.S. GAAP.

2013 Highlights

· Operating revenue increased $32.3 million primarily driven by ongoing yield management efforts and increased volumes.

· Expenses increased $13.1 million mostly driven by labor & benefits and purchased services, partially offset by a reduction in other expenses. The labor and benefits increase was driven by hiring additional union labor in anticipation of increased retirements. In addition, the Company continues to increase its direct sales force.

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· Operating income increased $19.2 million, or 36.2%, to $72.2 million.

· Operating ratio was 74.1% a 4.4 basis point increase from 2012.

		2013		2012		2011
Volume		501,962		475,667		428,120

(dollars in thousands)
Revenue	$	279,081		$	246,823		$	213,305
Expenses	206,861			193,803			178,308
Operating income	$	72,220		$	53,020		$	34,997
Operating Ratio	74.1		%	78.5		%	83.6		%

Financial Results of Operations

Comparison of Operating Results for the Year Ended December 31, 2013 and 2012

Operating Revenue

The following table compares freight revenues, units, and average freight revenue per unit (RPU) for the year ended December 31, 2013 and 2012 (in thousands, except units and RPU):

	Year ended December 31,
	Units*				Revenue						RPU
	2013	2012	% Var		2013		2012		% Var		2013		2012		% Var
Intermodal	385,007	372,996	3	%	$	165,238	$	148,928	11	%	$	429	$	399	8	%
Crushed Stone (Aggregate)	69,195	62,683	10	%	40,780		36,213		13	%	589		578		2	%
Food Products	12,082	11,053	9	%	13,610		12,451		9	%	1,126		1,126		—
Motor Vehicles & Equipment	11,185	8,493	32	%	15,425		11,569		33	%	1,379		1,362		1	%
Chemicals	7,026	4,022	75	%	11,574		6,785		71	%	1,647		1,687		(2	)%
Other	17,467	16,420	6	%	15,495		13,639		14	%	887		831		7	%
Carload Subtotal	116,955	102,671	14	%	96,884		80,657		20	%	828		786		5	%
Total Freight Revenue	501,962	475,667	6	%	262,122		229,585		14	%	522		483		8	%
Non-Freight					16,959		17,238		(2	)%
Total Revenue					$	279,081	$	246,823	13	%

* The units for 2012 have been restated to conform to the 2013 presentation. In June 2012, we made a policy change and began including certain Intermodal revenue empty container moves.

Intermodal revenue increased in line with both RPU and higher volume. The increase in RPU was due to improved yield management as we strived to price to the value of our service. The increase in volume is a result of continued efforts to convert truck freight to rail.

Net carload revenue increased primarily due to:

· Chemicals revenues increased primarily due to increased ethanol shipments related to a new transload facility coming on-line.

· Motor Vehicles & Equipment revenues increased primarily due to a new multi-year contract that began in the fourth quarter of 2012.

· Crushed Stone (Aggregate) revenues increased primarily due to increases in infrastructure projects in Florida and the expansion of the Fort Lauderdale airport.

· Food Products revenues increased driven by additional volumes from new and existing customers.

· Other revenues increased primarily due to ongoing yield management efforts.

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Non-freight revenues decreased primarily due to the expiration of an administration fee that ended December 31, 2012.

Operating Expenses

The following table sets forth the operating revenue and expenses for our consolidated operations for the periods indicated (dollars in thousands):

	Year ended December 31,
	2013		2012		$ Variance
Operating revenue	$	279,081	$	246,823	$	32,258
Operating expenses:
Labor and benefits	55,381		48,585		(6,796		)
Purchased services	54,422		44,808		(9,614		)
Diesel fuel	34,598		31,689		(2,909		)
Depreciation and amortization	26,228		27,013		785
Equipment rents	16,430		13,423		(3,007		)
Net loss on sale and impairment of assets	630		3,351		2,721
Other expenses	19,172		24,934		5,762
Total operating expenses	$	206,861	$	193,803	$	(13,058	)
Operating income	$	72,220	$	53,020	$	19,200

Operating expenses increased to $206.9 million for the year ended December 31, 2013, from $193.8 million for the year ended December 31, 2012, an increase of $13.1 million, or 6.7%. Set forth below is additional detail regarding changes in our operating expenses:

· Labor and benefits increased due to additional headcount. The increase was driven by hiring additional union labor in anticipation of increased retirements. In addition, the Company continues to increase its direct sales force.

· Purchased services increase was mainly due to increased volume which resulted in increased purchased transportation and lift expenses.

· Diesel fuel increased primarily due to an increase in the volume of fuel used, partially offset by lower fuel price.

· Depreciation and amortization remained relatively consistent for the comparable periods.

· Equipment rents increased mainly due to increased car hire expense, as well as increased rental expense for leased containers associated with higher intermodal volumes.

· Net loss on sale and impairment of assets decreased due to the impairment loss related to hopper cars in 2012.

· Other expenses decreased mainly due to the reinstatement of the track maintenance agreement reimbursement program (Internal Revenue Code Section 45G Tax Credit), which was not in place in 2012.

Other Income (Expense)

Interest Expense (net of interest income). Interest expense increased $1.3 million, or 2.2%, to $60.1 million for the year ended December 31, 2013 from $58.8 million for the year ended December 31, 2012. The increase in interest expense is due to increased debt related to the interest on the Senior PIK Toggle Notes which were paid in kind.

Other Income (Loss). Other income (loss) remained relatively consistent for the comparable periods.

Provision for Income Taxes. For the year ended December 31, 2013, we believe that it is more likely than not that our net operating losses expected to be generated by the Company in 2013 will expire unused. Accordingly, we recognized tax expense in the amount of $12.1 million for the year ended December 31, 2013. For the year ended December 31, 2012, we recognized tax expense in the amount of $7.6 million.

Comparison of Operating Results for the Year Ended December 31, 2012 and 2011

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Operating Revenue

The following table compares freight revenues, units, and average freight revenue per unit (RPU) for the years ended December 31, 2012 and 2011 (in thousands, except units and RPU):

	Year ended December 31,
	Units*				Revenue						RPU
	2012	2011	% Var		2012		2011		% Var		2012		2011		% Var
Intermodal	372,996	350,608	6	%	$	148,928	$	129,000	15	%	$	399	$	368	8	%
Crushed Stone (Aggregate)	62,683	42,738	47	%	36,213		25,729		41	%	578		602		(4	)%
Food Products	11,053	8,828	25	%	12,451		10,344		20	%	1,126		1,172		(4	)%
Motor Vehicles & Equipment	8,493	6,583	29	%	11,569		8,714		33	%	1,362		1,324		3	%
Chemicals	4,022	3,831	5	%	6,785		6,647		2	%	1,687		1,735		(3	)%
Other	16,420	15,532	6	%	13,639		14,110		(3	)%	831		908		(8	)%
Carload Subtotal	102,671	77,512	32	%	80,657		65,544		23	%	786		846		(7	)%
Total Freight Revenue	475,667	428,120	11	%	229,585		194,544		18	%	483		454		6	%
Non-Freight					17,238		18,761		(8	)%
Total Revenue					$	246,823	$	213,305	16	%

* The units for 2011 and 2012 have been restated to conform to the 2013 presentation. In June 2012, we made a policy change and began including certain Intermodal revenue empty container moves.

Net carload revenue increased primarily due to:

· Crushed Stone (Aggregate) revenues increased primarily due to increases in infrastructure projects in Florida and the expansion of the Fort Lauderdale airport.

· Motor Vehicles & Equipment revenues increased due to continued volume recovery from the earthquakes in Japan during 2011, and increased volumes for other car manufacturers, as well as price improvements. In addition, revenues increased due to a new multi-year contract that began in the fourth quarter of 2012.

· Food Products revenues increased primarily driven by a customer’s manufacturing facility coming back online at the beginning of 2012.

· Chemicals revenues remained relatively consistent for the comparable periods.

· Other revenues decreased primarily due to lower housing related shipments

Non-freight revenues decreased primarily due to the sale of locomotives that were previously under lease.

Operating Expenses

The following table sets forth the operating revenue and expenses for our consolidated operations for the periods indicated (dollars in thousands):

	Year ended December 31,
	2012		2011		$ Variance
Operating revenue	$	246,823	$	213,305	$	33,518
Operating expenses:
Labor and benefits	48,585		46,622		(1,963		)
Purchased services	44,808		35,979		(8,829		)
Diesel fuel	31,689		29,987		(1,702		)
Depreciation and amortization	27,013		27,249		236
Equipment rents	13,423		11,607		(1,816		)
Net loss on sale and impairment of assets	3,351		1,906		(1,445		)
Other expenses	24,934		24,958		24
Total operating expenses	$	193,803	$	178,308	$	(15,495	)
Operating income	$	53,020	$	34,997	$	18,023

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We expect that our cash flows from operations and existing credit facilities will be sufficient to meet our ongoing operating requirements, to fund capital expenditures for property, plant and equipment, and to satisfy our debt requirements. In addition, we closed the $30 million State Infrastructure Bank loan (the “SIB Loan”) on September 26, 2012. The purpose of the SIB Loan is to fund the costs associated with our construction of a new Florida East Coast Intermodal Transfer Facility (the “ICTF”) at Port Everglades which will serve our domestic and international segments. Proceeds of the SIB Loan will be advanced by the Florida Department of Transportation (“FDOT”) as construction proceeds on the ICTF. The total construction costs of the ICTF are expected to be $53 million, $30 million of which will be funded by the SIB Loan, $18 million of which will be funded by a grant from FDOT, and the balance of $5 million from our capital budget. Our current projections of cash flows from operations and the availability of funds under our ABL Facility (as further described below) are expected to be sufficient to fund our maturing debt and contractual obligations in the next several years. No assurance can be made that we will be able to meet our financing and liquidity needs as currently contemplated. See “Risk Factors—Risks Related to Our Indebtedness.”

Holdings Corp. is a holding company and, therefore, depends upon the performance of and distributions from our subsidiaries to meet its debt service obligations (including interest payments) under the Senior PIK Toggle Notes. Legal and contractual restrictions in agreements governing current and future indebtedness, as well as the financial condition and operating requirements of our direct subsidiary, FECR Corp., may limit Holdings Corp.’s ability to obtain cash from FECR Corp. The indenture governing the 8 1 / 8 % Notes and the ABL Facility contain covenants that restrict FECR Corp.’s ability to pay cash dividends and make other distributions or loans to Holdings Corp. The earnings from, or other available assets of, FECR Corp. may not be sufficient to pay dividends or make distributions or loans to enable Holdings Corp. to make payments in respect of the notes when such payments are due. In addition, even if such earnings were sufficient, we cannot assure you that the agreements governing the current and future indebtedness of FECR Corp. will permit FECR Corp. to provide us with sufficient dividends, distributions or loans to fund interest and principal payments on the notes when due. Holdings Corp. will be forced to accrue interest on a “paid-in-kind” basis, to the extent that distributions from FECR Corp. are not sufficient to fulfill the interest obligations under the Senior PIK Toggle Notes. Any interest accrued on a “paid-in-kind” basis will increase the overall cost of Holdings Corp.’s borrowings, as well as the cash ultimately required to fully satisfy Holdings Corp.’s obligations, under the Senior PIK Toggle Notes. We paid $8.5 million interest due on August 1, 2013 in cash.

We have implemented capital spending programs designed to assure the ability to provide safe, efficient and reliable transportation services. For 2013, we invested approximately $48.0 million on capital expenditures of which approximately 57% will be used to sustain core infrastructure. The remaining capital investments are for locomotives, freight cars, technology and high return growth or productivity investments such as the new construction of the ICTF in Port Everglades which will serve our growing intermodal line of business.

We are committed to maintaining and improving our existing infrastructure and to position ourselves for long-term growth through expanding capacity. As such, it is expected that the Company’s capital investments for 2014 will be significantly higher than previous years.

In January 2014, we entered into a Locomotive Purchase Agreement with General Electric Company. The agreement provides for the Company to purchase twenty-four locomotives for a purchase price of approximately $55.4 million. The Company has not finalized the financing of the locomotive purchase, however, anticipates that it may be a combination of current working capital and additional borrowings.

Further, we expect to complete the ICTF at Port Everglades which will be partially funded by the SIB Loan. Remaining capital investments for 2014 will be concentrated on further expanding our mainline track to provide greater capacity for the future as well as maintaining our core infrastructure.

We are continually evaluating market and regulatory conditions that could affect our ability to generate sufficient returns on capital investments. We may revise our future estimates for capital spending as a result of changes in business conditions, tax legislation or the enactment of new laws or regulations. Although new legislation or regulations could have a material adverse effect on our operations and financial performance in the future, we cannot predict the manner or severity of such impact. However, we continue to take steps and explore opportunities to reduce the impact of our operations on the environment, including investments in new technologies, reducing fuel consumption and increasing fuel efficiency and lowering emissions.

Cash Flow Information for the Years ended December 31, 2013, 2012, and 2011

Operating Activities

Cash generated by operating activities was $39.3 million for the year ended December 31, 2013 compared to cash provided by operating activities of $33.5 million for the year ended December 31, 2012. The increase in cash provided by operating activities of $5.8 million was primarily due to changes in working capital for the corresponding periods.

Cash generated by operating activities was $33.5 million and $35.5 million for the years ended December 31, 2012 and 2011, respectively. The decrease in cash provided by operating activities of $2.0 million was primarily due to changes in working capital for the corresponding periods.

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Investing Activities

Cash used in investing activities was $45.8 million for the year ended December 31, 2013 compared to cash used in investing activities of $21.8 million for the year ended December 31, 2012. The increase in cash used by investing activities of $24.0 million was primarily related to an increase in capital expenditures for various projects in 2013 of $25.6 million, partially offset by proceeds from the sale of assets of $1.6 million primarily related to the 2013 sale of hopper freight cars.

Cash used in investing activities was $21.8 million and $11.8 million for the years ended December 31, 2012 and 2011, respectively. The increase in cash used by investing activities of $10.0 million was primarily related to the release of the interest reserve account of $4.0 million related to a 2011 refinancing as well as a reduction in proceeds from the sale of assets of $9.3 million off-set by a reduction in purchases of property of $3.3 million.

Financing Activities

Cash provided by financing activities was $2.2 million for the year ended December 31, 2013 compared to cash used in financing activities of $2.2 million for the year ended December 31, 2012. The increase of cash provided by financing activities of $4.4 million was primarily due to proceeds from the issuance of long-term debt of $6.4 million and reduced financing costs of $0.2 million, partially offset by additional purchases of common shares outstanding of $2.2 million.

Long-term Debt

Senior Secured Notes

On January 25, 2011, FECR Corp. sold $475.0 million of 8 1 / 8 % Senior Secured Notes due 2017 (“Senior Secured Notes” or “8 1 / 8 % Notes”) in a private offering, for gross proceeds of $475.0 million.

In connection with the issuance of the Senior Secured Notes, FECR Corp. and certain of its subsidiaries also entered into the Asset-Based Lending (“ABL”) Facility. The ABL Facility matures on January 25, 2015 and bears interest at FECR Corp.’s option of: (a) a base rate determined in the greater of (1) the prime rate of the administrative agent, (2) federal funds effective rate plus 1 / 2 of 1%, or (b) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits in London interbank market for the interest period relevant to such borrowing. The applicable margin with respect to (a) base rate borrowings will be 2.25%, and (b) LIBOR borrowings will be 3.25%. Obligations under the ABL Facility are secured by a first-priority lien on the ABL Collateral.

The Senior Secured Notes are secured by first-priority liens on substantially all of the tangible and intangible assets of FECR Corp. and its subsidiary guarantors’ (other than the ABL collateral securing the ABL Facility) and a second-priority lien on ABL collateral. The guarantors are defined primarily as existing and future wholly owned domestic restricted subsidiaries. FECR Corp. may redeem the Senior Secured Notes at 104.063% of their principal amount. The premium then reduces to 102.031% commencing on February 1, 2015 and then 100% on February 1, 2016 and thereafter.

The ABL Facility and indenture governing the Senior Secured Notes contain various covenants and restrictions that limits FECR Corp. and its restricted subsidiaries’ ability to incur additional indebtedness, pay dividends, make certain investments, sell or transfer certain assets, create liens, designate subsidiaries as unrestricted subsidiaries, consolidate, merge or sell substantially all the assets, and enter into certain transactions with affiliates. It is anticipated that proceeds from any future borrowings will be used for general corporate purposes.

State Infrastructure Bank Loan

On September 26, 2012, Florida East Coast Railway, L.L.C. entered into a SIB Loan with FDOT. The SIB Loan provides for a loan of $30 million to fund, in part, the costs associated with the construction of a new Florida East Coast ICTF in Port Everglades which will serve our domestic and international business segments. Proceeds of the SIB Loan will be advanced by FDOT as construction proceeds on the ICTF. The total cost of the ICTF construction project is approximately $53 million, $30 million of which will be funded through the SIB Loan, $18 million of which will be from a FDOT grant (the “FDOT Grant”) and the balance of $5 million from our capital budget. We were awarded the entire $18 million of the FDOT Grant as of December 31, 2012.

Interest will accrue on the advanced principal amount of the SIB Loan at the rate of 3.50% per annum, compounded annually, using an actual-days-elapsed/365 day counting convention. Both principal and interest payments are payable in annual installments as follows: interest payments commence on the SIB Loan on October 1, 2013, and principal repayments commence on the SIB Loan on October 1, 2015. The SIB Loan will be amortized over 20 years.

The SIB Loan is fully and unconditionally guaranteed by the Florida East Coast Railway, L.L.C. In addition, as a condition to making the SIB Loan, FDOT required a first priority lien on certain fixtures (including rail trackage) and equipment included in the collateral securing the Senior Secured Notes. The SIB Loan specifically excludes land, rail equipment and motor vehicles from its lien. As a condition to FDOT making the first loan disbursement under the SIB Loan, the Company was required to post as additional collateral through July 1, 2017, a standby letter of credit in the amount of $3.0 million payable to FDOT, as beneficiary (the “Standby Letter of Credit Collateral”). On February 1, 2013, the Company posted the Standby Letter of Credit Collateral by accessing the letter of credit line of the ABL Facility, reducing availability under the ABL Facility to $27.0 million. The SIB Loan permits the Company, in lieu of posting the Standby Letter of Credit Collateral, at any time upon prior notice, to either pay down the principal of the SIB Loan by $3 million or substitute cash collateral.

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Senior PIK Toggle Notes

On February 11, 2011, Holdings Corp. sold $130.0 million of 10 1 / 2 % / 11 1 / 4 % Senior Payment in Kind Toggle Notes due 2017 (the “Senior PIK Toggle Notes”) in a private offering, for net proceeds of $127.7 million. The Senior PIK Toggle Notes are senior unsecured obligations that are not guaranteed by any of Holdings Corp.’s subsidiaries.

Holdings Corp. may redeem the notes in whole or in part at a redemption price of 102.5%, and 100%, plus accrued and unpaid interest thereon during the periods as follows: February 1, 2014 through January 31, 2015; and February 1, 2015 and thereafter, respectively.

The Senior PIK Toggle Notes will pay interest semi-annually in arrears on each February 1 and August 1, commencing on August 1, 2011. Thereafter and up to February 1, 2016, Holdings Corp. may elect to pay interest on the Senior PIK Toggle Notes (1) entirely in cash at a rate of 10.5% , (2) entirely by increasing the principal amount of the note or by issuing new notes for the entire amount of the interest payment, at a rate per annum equal to the cash interest rate of 10.5% plus 75 basis points (in each case, PIK interest), or (3) 50% as cash interest and 50% as PIK interest. After February 1, 2016, interest will be payable entirely in cash.

The Company could be subject to certain interest deduction limitations if the Senior PIK Toggle Notes were treated as “applicable high yield discount obligations” within the meaning of Section 163(i)(1) of the Internal Revenue Code, as amended. In order to avoid such treatment, the Company would be required to redeem for cash a portion of each Senior PIK Toggle Note then outstanding at the end of the accrual period ending August 1, 2016. The portion of a Senior PIK Toggle Note required to be redeemed is an amount equal to the excess of the accrued original issue discount as of the end of such accrual period, less the amount of interest paid in cash on or before such date, less the first-year yield (the issue price of the debt instrument multiplied by its yield to maturity). The redemption price for the portion of each Senior PIK Toggle Note so redeemed would be 100% of the principal amount of such portion plus any accrued interest on the date of redemption. The Company elected to pay in cash the interest payment due on August 1, 2013 in the amount of $8.5 million.

The net proceeds of the issuance of the Senior PIK Toggle Notes were used to redeem the Company’s Series B Perpetual Preferred Stock for the carrying value of $125.0 million and accrued interest of $1.1 million. As a result, none of the Series B Perpetual Preferred Stock were further issued and outstanding.

Covenants

The indentures governing the Senior PIK Toggle Notes, the 8 1 / 8 % Notes and our ABL Facility contain certain covenants that limits and restricts us, and our restricted subsidiaries’ ability to, among other things, incur additional indebtedness; issue preferred and disqualified stock; purchase or redeem capital stock; make certain investments; pay dividends or make other payments on loans or transfer property; sell assets; enter into certain types of transactions with affiliates involving consideration in excess of $5.0 million; create liens on certain assets; and sell all, or substantially all, of our assets or merge with or into another company. In addition, if availability under the ABL Facility is below $7.5 million during any future period, FECR Corp. will be subject to a minimum fixed charge coverage ratio (as defined in the ABL Facility) of 1.1 to 1.0. As of December 31, 2013, we were in compliance with all debt covenants.

Contractual Obligations

The following table represents the minimum future payments on our long-term debt and our existing lease obligations as of December 31, 2013 (in thousands).

	Total		2014-2015		2016-2017		2018		After 2018
Long-term debt (1)	$	705,812	$	1,061	$	678,047	$	1,176	$	25,529
Interest payments on long-term debt(2)	186,460		96,879		80,402		935		8,245
Operating lease obligations	18,668		9,042		6,314		935		8,245
Hialeah operating lease obligations(3)	15,948		10,500		5,448		—		—
Material Purchase obligations(4)	4,072		4,072		—		—		—
Total contractual obligations	$	930,961	$	121,554	$	770,210	$	3,991	$	35,205

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(1) The long-term debt balance includes PIK interest payment that we have elected to PIK on February 1, 2014 of approximately $9.1 million, as well as the unamortized original issue discount of $1.5 million.

(2) The semi-annual interest payment of the 8 1 / 8 % Senior Secured Notes has been paid through August 31, 2013. The remaining interest payments are due on February 1 and August 1 of each year, through and including February 1, 2017.

The first, second, third and fourth semi-annual interest payments on the Senior PIK Toggle Notes were paid in kind on August 1, 2011, February 1, 2012, August 1, 2012 and February 1, 2013, respectively. In addition, the Company has elected to pay in kind the interest payment due on February 1, 2014. The remaining interest payments are due on February 1 and August 1 of each year, through and including August 1, 2017. We may elect to pay interest on the Senior PIK Toggle Notes (1) entirely in cash, at a rate of 10.5%, (2) entirely by increasing the principal amount of the note or by issuing new notes for the entire amount of the interest payment, at a rate per annum equal to the cash interest rate of 10.5% plus 75 basis points (in each case, PIK interest), or (3) 50% as cash interest and 50% as PIK interest up to February 1, 2016. After February 1, 2016, interest will be payable entirely in cash. If we were to elect to pay all remaining interest payments in cash, with the exception of the first, second, third and fourth payments on August 1, 2011, February 1, 2012, August 1, 2012 and February 1, 2013, respectively, the interest would be as reflected in the table above. Our ability to pay the Senior PIK Toggle Notes interest payments will be governed by net cash flows provided by operating activities each applicable year.

(3) The cancellable rail yard lease agreement is included in the operating lease obligations in the table above.

The rail yard lease agreement was amended and restated on January 24, 2011. Under the restated agreement, base rent commenced on January 1, 2011 at $4.5 million per annum with a 2.5% escalation clause per year for 25 years and will automatically renew for additional five year periods. Under the amended agreement, we may terminate the agreement after five years (as reflected in the table above) upon a two year notice to terminate, and we have the option to purchase the property at fair market value upon written notice of such intent and the payment of a non-refundable 3% deposit.

(4) The Company has committed to purchase cranes for approximately $4.1 million related to the Port Everglades ICTF project.

Critical Accounting Policies

Our Consolidated Financial Statements have been prepared in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experiences and assumptions believed to be reasonable under the circumstances and re-evaluate them on an ongoing basis. Those estimates form the basis for our judgments that affect the amounts reported in the Consolidated Financial Statements. Actual results could differ from our estimates under different assumptions or conditions. Our significant accounting policies, which may be affected by our estimates and assumptions, are more fully described in Note 2 “Summary of Significant Accounting Policies” in our audited Consolidated Financial Statements.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Although we believe the policies summarized below to be the most critical, other accounting policies also have significant effect on our financial statements and certain of these policies also require the use of estimates and assumptions.

The critical financial statement accounts that are subject to significant estimation are reserves for litigation, casualty and environmental matters, deferred income taxes and property, plant and equipment depreciation methods.

In accordance with FASB Contingencies Topic, an accrual for a loss contingency is established if information available prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred or an asset has been impaired and can be reasonably estimated. These estimates have been developed in consultation with outside counsel handling our defense in these matters and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. Subsequent to changes to those estimates are reflected in our statements of operations in the period of change.

Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, future taxable income, and the expected timing of the reversals of existing temporary differences. If we are unable to generate sufficient future taxable income, or there is a material change in the statutory tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to establish an additional valuation allowance against a portion of our deferred tax asset, resulting in an increase in our effective tax rate and adverse effect on earnings. Additionally, changes in our estimates regarding the statutory tax rates to be applied to the reversal of deferred tax assets and liabilities could materially affect our effective tax rate.

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Property, plant and equipment comprised 87.4% of our total assets as of December 31, 2013. These assets are stated at cost, less accumulated depreciation. We utilize the group-life method to classify, depreciate and retire the majority of our assets. Under the group-life method, assets with similar characteristics and intended use are assigned an asset class with a specific life. Assets are either recorded individually (locomotives, freight cars, vehicles, etc.) or as a “mass” asset (rail, ties, ballast, etc.) at the time of capitalization. All depreciable assets use the straight line method for depreciation based on an average life of the asset class.

We determine the estimated service lives of depreciable railroad property by means of depreciation studies. Our depreciation studies take into account the following factors:

· Statistical analysis of historical patterns of use and retirements of each of our asset classes;

· Evaluation of any expected changes in current operations and the outlook for the continued use of the assets;

· Evaluation of technological advances and changes to maintenance practices; and

· Comparison of asset groups to the same asset groups with peer companies.

Our policy is to perform life studies approximately every eight years. Estimated service lives of depreciable railroad property may vary over time due to changes in physical use, technology, asset strategies, and other factors that will have an impact on the retirement profiles of our assets. Historically, depreciation expense has not materially changed based on the results of our life studies. If recent changes in the mix of our traffic from heavier cargo (stone, gravel and aggregates) to lighter cargo (intermodal containers) are sustained, future life studies may result in an increase in the life of our track assets. Changes in asset lives due to the results of the life studies are applied on a prospective basis and could significantly impact future periods’ depreciation expense, and thus, the results of operations.

We completed life studies for our rolling stock assets during the year ended December 31, 2012. The life study indicated that the actual lives of certain rolling stock assets were different than the estimated useful lives used for depreciation purposes in our financial statements. As such, we changed our estimates of the useful lives of certain rolling stock assets to better reflect the estimated periods during which these assets will remain in service. The effect of this change in estimate during the year ended was to reduce depreciation expense by $0.6 million. Changes in asset lives due to the results of the life studies are applied on a prospective basis and could significantly impact future periods’ depreciation expense, and thus, our results of operations. Annually, depreciation expense is expected to be reduced by approximately $1.7 million.

Under normal retirements or sale of assets, no gain or loss is recorded. The net asset value (cost less accumulated depreciation minus any proceeds) for a retirement or sale of asset is charged back to accumulated depreciation, and the net asset value is amortized over the remaining life of its assigned asset class. Expenditures that increase asset value or extend the useful life are capitalized. Repair and maintenance expenditures (track inspections, locomotive running repairs, repair of broken rail, rail grinding, etc.) are charged to expense when the work is performed. We review the carrying value of our property for impairment whenever an event or changes in circumstances indicate the carrying value of an asset or asset grouping may not be recoverable from the undiscounted cash flows expected to be generated over its remaining useful life.

For a complete description of our accounting policies, see Note 2 “Summary of Significant Accounting Policies” to our audited Consolidated Financial Statements included elsewhere in this Form 10-K.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update to the Comprehensive Income Topic in the Accounting Standards Codifications (“ASC”). This update requires separate presentation of the components that are reclassified out of accumulated other comprehensive income either on the face of the financial statements or in the notes to the financial statements. This update also requires companies to disclose the income statement line items impacted by any significant reclassifications, such as the amortization of pension adjustments. These items are required for both interim and annual reporting for public companies and became effective for the Company beginning with the Quarterly Report on Form 10-Q for the three month period ending March 31, 2013.

Off Balance Sheet Arrangements

We currently have no off balance sheet arrangements.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth the name, age and position of our directors and executive officers, as of December 31, 2013.

Name	Age	Position
Wesley R. Edens	52	Chairman of the Board of Directors
Joseph Adams, Jr.	56	Director
Randal A. Nardone	58	Director
James R. Hertwig	62	President and Chief Executive Officer
John Brenholt	51	Executive Vice President and Chief Financial Officer
Francis (Fran) Chinnici	51	Senior Vice President, Engineering and Mechanical
Robert Ledoux	55	Senior Vice President, General Counsel and Corporate Secretary
Andrew (Andy) Westhoff	60	Senior Vice President, Sales and Marketing
Thomas Ballas	64	Vice President, Human Resources
Melissa (Missy) Westerman	39	Vice President and Corporate Controller
William R. Costantini	50	Vice President and Chief Transportation Officer

Wesley R. Edens, has served on the Board of Florida East Coast Railway Corp. since 2008 and serves as the Chairman. Mr. Edens is founding principal and Co-Chairman of the board of directors of Fortress and has been a principal and the Chairman of the Management Committee of Fortress since co-founding the same in May 1998. Previously, Mr. Edens served as Chief Executive Officer of Fortress from inception to August 2009. Mr. Edens has primary investment oversight of Fortress private equity and publicly traded alternative businesses. Mr. Edens is Chairman of the board of directors of each of the following companies: Aircastle Limited, Brookdale Senior Living Inc., Eurocastle Investment Limited, GateHouse Media, Inc., Mapeley Limited, and Newcastle Investment Corp. and a director of GAGFAH S.A. and Penn National Gaming Inc. Mr. Edens was Chief Executive Officer of Global Signal Inc. from February 2004 to April 2006 and Chairman of the board of directors from October 2002 to January 2007. Mr. Edens serves in various capacities in the following two registered investment companies: Chairman, Chief Executive Officer and Trustee of Fortress Registered Investment Trust and Fortress Investment Trust II. Mr. Edens previously served on the boards of the following publicly traded company and registered investment companies: Crown Castle Investment Corp. (merged with Global Signal Inc.) from January 2007 to July 2007; Fortress Brookdale Investment Fund LLC, from August 13, 2000 (deregistered with the SEC in March 2009); Fortress Pinnacle Investment Fund, from July 24, 2002 (deregistered with the SEC in March 2008); and RIC Coinvestment Fund LP, from May 10, 2006 (deregistered with the SEC in June 2009). Prior to forming Fortress, Mr. Edens was a partner and managing director of BlackRock Financial Management Inc., where he headed BlackRock Asset Investors, a private equity fund. In addition, Mr. Edens was formerly a partner and managing director of Lehman Brothers. Mr. Edens received a B.S. in Finance from Oregon State University.

Mr. Edens brings strong leadership, extensive business and managerial experience, and a tremendous knowledge of our Company and the transportation-related industry, to the Board. In addition, Mr. Edens brings his broad strategic vision to our Company and the Board. Further, his experience on the boards of other public companies, including serving as chairman of the board, provides our Board with insights into how boards at other companies address issues similar to those faced by the Company.

Joseph P. Adams, Jr., has served on the Board of Florida East Coast Railway Corp. since 2008. Mr. Adams is Managing Director at Fortress, within the Private Equity Group. He serves as Deputy Chairman of Aircastle Limited and has been a member of its board since August 2, 2006. Previously, Mr. Adams was a partner at Brera Capital Partners and at Donaldson, Lufkin & Jenrette where he was in the transportation industry group. In 2002, Mr. Adams served as the first Executive Director of the Air Transportation Stabilization Board. Mr. Adams received a BS in Engineering from the University of Cincinnati and an MBA from the Harvard Business School.

Mr. Adam’s experience, including his role serving as Deputy Chairman on a number of boards for portfolio companies of Fortress, provides the Board with insights into how boards at other companies address issues similar to those faced by the Company. In addition, his experience as a private equity investor and investment and merchant banker provides the Board with valuable insights on financial, strategic planning and investor relations matters, particularly as it relates to transportation-related industries.

Randal A. Nardone , has served on the Board of Florida East Coast Railway Corp. since 2008. Mr. Nardone is a director of Alea Group Holdings (Bermuda) Ltd., GAGFAH S.A. and Eurocastle Investment Limited. Mr. Nardone was previously a managing director of UBS from May 1997 to May 1998. Prior to joining UBS in 1997, Mr. Nardone was a principal of BlackRock Financial Management, Inc. Prior to joining BlackRock, Mr. Nardone was a partner and a member of the executive committee at the law firm of Thacher Proffitt & Wood. Mr. Nardone received a B.A. in English and Biology from the University of Connecticut and a J.D. from Boston University School of Law.

As a result of his past experiences, Mr. Nardone has extensive credit, private equity finance and management expertise, extensive experience as an officer and director of public companies and a deep familiarity with our Company, all of which provide him the qualifications and skills to serve as a director.

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James Hertwig has served as President and Chief Executive Officer of Florida East Coast Railway Corp. since July 2010. Mr. Hertwig brings his 40 years of freight transportation experience to this position. Prior to joining Florida East Coast Railway Corp., Mr. Hertwig served as President of CSX Intermodal, Inc., a leading supplier of rail-based freight transportation in North America based in Jacksonville, Florida. Prior to joining CSX Intermodal, Inc., Mr. Hertwig spent nearly 9 years as President of Landstar Logistics, a transportation services company, and one of the largest truckload carriers in North America. During 1994 and 1995, Mr. Hertwig served as President and CEO of Carolina Freight Carriers Corporation and also as Chairman and CEO of Red Arrow Freight Lines, two large regional LTL carriers. Prior to 1994, Mr. Hertwig spent 8 years as President and CEO of Con-Way Intermodal, a multimodal truckload service provider and international non vessel operating common carrier (NVOCC). Mr. Hertwig also spent 13 years holding key management positions at CF Motor Freight, a nationwide LTL carrier. Mr. Hertwig began his carrier in the transportation industry in 1971 as a dock foreman with Associated Transport in Erie, Pennsylvania. Mr. Hertwig has served on the Board of Directors for the Florida Trucking Association and the Executive Committee of the Transportation Research Board. Mr. Hertwig also serves on the Board of Directors of the Intermodal Transportation Institute at the University of Denver and is beginning his third term on the Board of Directors for the Intermodal Association of North America.

John Brenholt has served as Executive Vice President and Chief Financial Officer of Florida East Coast Railway Corp. since November 2010 and has over 20 years experience in the distribution and transportation industries. Prior to joining the Company, from 2007 to 2010, Mr. Brenholt was the Executive Vice President and Chief Financial Officer for Schneider National, Inc., a provider of truckload, logistics and intermodal services headquartered in Green Bay, Wisconsin. Mr. Brenholt also served as Senior Vice President and Chief Financial Officer for Vistar Corporation and Corporate Express, Inc. Mr. Brenholt has also held finance positions of progressively greater responsibility at Terex Corporation and Deloitte & Touche. Mr. Brenholt received his B.B.A from the University of Wisconsin—Milwaukee in 1986.

Francis (Fran) Chinnici joined Florida East Coast Railway in 2013 after a 29 year career with CSX Transportation where he held positions in Operations and Finance. As an engineering graduate of Penn State University, Fran began his railroad career in 1984 with the Chessie System Railroad as Metallurgical Engineer in the Research and Test Department at Huntington, WV. He held positions of increasing responsibility in Mechanical and Transportation, and served as Vice President Purchasing and Materials in Jacksonville, FL for the 9 years prior to his departure. As Senior Vice President — Engineering and Mechanical, he is responsible for ensuring service excellence with track, design and construction projects, signaling, locomotives and rolling equipment. He also oversees the Purchasing and Materials team who ensure that this service level is achieved at the lowest total cost of ownership. In addition to his undergraduate from Penn State, Fran received an MBA from Jacksonville University in 1997. Fran served for several years as a Board Member and Chairman of RailMarketplace, Inc., a consortium purchasing organization funded by the Class I Railroads. And, in the community, he has been on the Board for the Juvenile Diabetes Research Foundation, North Florida Chapter since 2004. He served as the Board President from 2008-2011.

Robert Ledoux has served as Senior Vice President, General Counsel and Corporate Secretary of Florida East Coast Railway Corp. since July 2011. Mr. Ledoux has more than 25 years of legal and management experience in corporate law and business and transportation transactions. Prior to joining the Company, Mr. Ledoux worked at CSX Transportation, Inc. for 9 years in various legal positions, including Assistant General Counsel for public project initiatives, engineering, passenger services, and Intermodal. Mr. Ledoux graduated with a BS degree in Business Administration from the University of New Hampshire, a JD degree from George Mason University, and an MBA from Virginia Tech. Mr. Ledoux is affiliated with the Virginia State Bar, the Maryland State Bar, the Florida State Bar and the American Corporate Counsel Association.

Andrew (Andy) Westhoff joined Florida East Coast Railway in March 2012 as Senior Vice President, Sales and Marketing. Mr. Westhoff has an extensive railroad background, having held finance and commercial roles with CSX Transportation for more than 20 years. His most recent position was Director of Yield Management — Intermodal. Prior to joining CSX, Mr. Westhoff was with the accounting firm of Ernst & Young, and has maintained his CPA throughout his business career.

Thomas R. Ballas serves as Vice President, Human Resources for Florida East Coast Railway. Mr. Ballas re-joined the Company in 2011, having previously worked with FEC for over thirty-five years. During his absence, Mr. Ballas provided human resource and rail labor relations consulting services. He is responsible for all human resource functions for the company including recruiting, performance management, labor relations and health and welfare benefits. Mr. Ballas holds a Bachelor of Arts degree in Psychology from the University of North Florida and has received his Professional in Human Resources and Senior Professional in Human Resources Certificates from the Society of Human Resource Management.

Melissa (Missy) Westerman is Vice President and Controller for Florida East Coast Railway. She has more than 16 years of experience in accounting and corporate finance. Prior to joining FEC in 2013, Ms. Westerman worked at CSX Transportation, Inc. for 12 years in various roles including Assistant Vice President, Assistant Controller, and Assistant Vice President Capital Planning and Enterprise Risk Management. Before then, Ms. Westerman was with an accounting firm, Arthur Andersen. She graduated from the University of Florida with both Master’s and Bachelor’s degrees in Accounting and is a Certified Public Accountant.

William R. Costantini joined Florida East Coast Railway in 2013 as Vice President and Chief Transportation Officer. He is responsible for the FEC rail transportation network and terminal operations. Prior to joining FEC, Mr. Costantini served 28 years in the US Marine Corp. His most recent position was Military Assistant to the Assistant Commandant of the Marine Corps in Washington, DC.

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ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Set out below is a discussion and analysis of the 2013 compensation program for our Chief Executive Officer (the “CEO”), our Chief Financial Officer, and the three other most highly compensated executive officers who were serving as such at December 31, 2013 (and with respect to whom we are required to provide compensation disclosure under SEC rules). This discussion and analysis should be read together with the Summary Compensation Table below and the additional narrative and tables that follow and support it.

Compensation Objectives and Philosophy

Our primary compensation goals for our named executive officers are to attract, motivate and retain the most talented and dedicated executives and to align annual and long-term incentives for those executives with enhancing shareholder value. To achieve these goals, our compensation program:

· Delivers a mix of fixed and at-risk compensation through a combination of base salary, an annual bonus opportunity and restricted stock unit grants; and

· Balances short-term and long-term goals by delivering a substantial portion of total compensation through restricted stock unit grants, the value of which is directly related to our performance.

Our board of directors evaluates our performance, including achievement of key investment and capital raising goals, and the individual performance of each named executive officer with a goal of setting overall compensation at levels that it believes are appropriate. The board of directors does not engage in “benchmarking” or compare the compensation of our named executive officers to a peer group of companies. Nor have we or our board of directors retained a compensation consultant to review our policies and procedures with respect to executive compensation, although the board of directors may elect in the future to retain a compensation consultant if it determines that doing so would assist it in implementing and maintaining our compensation programs.

Employment Agreements

Each of our presently employed named executive officers (Messrs. Hertwig, Brenholt, Ledoux, Westhoff and Chinnici) is party to an employment agreement with us (and/or Florida East Coast Railway, L.L.C.) that governs the terms and conditions of their employment.

The agreements with Messrs. Hertwig, and Brenholt became effective July 1, 2010, and November 8, 2010, respectively. Messrs. Hertwig and Brenholt each had an initial two-year term that expired July 1, 2012 and November 8, 2012, respectively, and that automatically renews for successive one-year terms absent 60 days’ notice. The agreements provide for:

· An annual base salary $400,000 for Mr. Hertwig and $350,000 for Mr. Brenholt that may be increased (but not decreased) at the discretion of Mr. Hertwig (or, in the case of the agreement with Mr. Hertwig, at the discretion of our board of directors);

· An annual bonus opportunity of 50% of base salary (with a maximum of 200% of base salary for both Messrs. Hertwig and Brenholt) payable based on our strategic and financial performance as a whole, as well as the contribution of the executive to that performance, as determined in our sole discretion, with up to 50% of any realized bonus payable in our discretion in the form of restricted stock units vesting in three equal installments over a period of three years following grant;

· An initial grant of restricted stock units with a value of $1,000,000 and $750,000 for Messrs. Hertwig and Brenholt, respectively, vesting in three annual installments commencing January 1, 2012 and;

· Additional annual restricted stock unit grants for three years commencing in 2011 (each with a value of $500,000 and $350,000 for Messrs. Hertwig and Brenholt, respectively) with vesting dependent upon attainment of specified EBITDA goals for the year of grant.

The agreements with each of Messrs. Hertwig and Brenholt also include certain restrictive covenants (including a one-year nonsolicitation obligation and nondisparagement and confidentiality obligations).

The agreement with Mr. Ledoux became effective on June 27, 2011. The agreement is for an indefinite term of at-will employment and provides for:

· An annual base salary of $190,000 (which was increased to $220,000 effective April 1, 2013) for Mr. Ledoux.

· An annual bonus opportunity beginning in 2011 of 35% of base salary with a maximum of 70% (which was increased to 40% with a maximum of 80% effective April 1, 2013) as determined in our sole discretion payable in cash or in a mix of cash and restricted stock units vesting in three equal installments over a period of three years following grant; and

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· Annual restricted stock unit grants for three years commencing in 2011 (each with a value of $100,000) with vesting dependent upon attainment of specified EBITDA goals for the year of grant.

The agreements with Messrs. Westhoff and Chinnici became effective March 1, 2012 and January 17, 2013, respectively. Each agreement is for an indefinite term of at-will employment and provides for:

· An annual base salary of $190,000 (which was increased to $215,000 effective April 1, 2013) for Mr. Westhoff and $225,000 for Mr. Chinnici.

· An annual bonus opportunity beginning in 2012 of 35% of base salary with a maximum of 70% (which was increased to 40% with a maximum of 80% effective April 1, 2013) as determined in our sole discretion payable in cash or in a mix of cash and restricted stock units vesting in three equal installments over a period of three years following grant for Mr. Westhoff and an annual bonus opportunity beginning in 2013 of 40% of base salary with a maximum of 80% as determined in our sole discretion payable in cash or in a mix of cash and restricted stock units vesting in three equal installments over a period of three years following grant for Mr. Chinnici; and

· Annual restricted stock unit grants for three years commencing in 2012 (each with a value of $100,000) with vesting dependent upon attainment of specified EBITDA goals for the year of grant for Mr. Westhoff and annual restricted stock grants for three years commencing in 2013 (each with a value of $125,000) with vesting dependent upon attainment of specified EBITDA goals for the year of grant for Mr. Chinnici.

The severance provisions of the various employment agreements are described under “Severance/Change in Control Benefits” below.

Role of Executives in Establishing Compensation

Our named executive officers are not in any way directly responsible for determining our CEO’s compensation, although they may provide information to the board of directors that will be relevant to its evaluation of our CEO’s compensation (for instance, in terms of our performance). By contrast, the CEO plays a more active role in determining the compensation of the other named executive officers, who are his subordinates. He regularly advises the board of directors of his own evaluation of their job performance and, from time to time, offers for consideration by the board of directors his own recommendations for their compensation levels. The board of directors has the discretion to consider these recommendations in making compensation determinations. As noted above, the CEO has the authority (in consultation with the board of directors) to increase (but not decrease) the compensation of the named officers.

Elements of Compensation

Our compensation program for our named executive officers relies principally on base salary, an annual bonus and restricted stock unit grants. Base salaries are intended to complement the at-risk components of our compensation program (annual bonus and restricted stock unit grants) by assuring that the executives will receive an appropriate minimum level of compensation. Other benefits—such as a 401(k) plan and welfare benefits—are provided on a basis that are no more favorable to the executives than other salaried employees. We do not view perquisites as a significant element of our compensation program.

Effective October 15, 2012, we adopted an unfunded, nonqualified deferred compensation plan for the purpose of providing a select group of our management and independent contractors, including our named executive officers, with the opportunity to voluntarily defer receipt of a portion of their compensation (including base salary, performance-based compensation, and commissions). The Company also has the discretion to make contributions to the plan on behalf of participants. All amounts deferred by participants are notionally invested in investment funds as directed by the executive. Deferred compensation under the plan is payable in cash in a lump sum payment, or, in certain circumstances, in annual installments over a term equal to or less than 15 years, as determined by each participant at the time of enrollment.

Determinations regarding any one element of compensation will affect determinations regarding each other element of compensation because our goal is to set overall compensation for our named executive officers at an appropriate level. In this regard, the board of directors takes into account the extent to which different compensation elements are at risk. Accordingly, for example, the amount of salary paid to a named executive officer is considered in determining the amount of any bonus award, though we do not expect the relationship among the elements to be formulaic because of the need to balance the likelihood that the at-risk components of the compensation will actually be paid at any particular level.

As described above, the compensation levels of the named executive officers are largely determined by the terms of their respective employment agreements. Those terms were established for each executive based upon the scope of his or her respective responsibilities, the competition for qualified executives and, as applicable, compensation levels at recent prior employment.

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2013 Compensation of our Named Executive Officers

Set forth below is information concerning the cash and non-cash compensation earned by, awarded to or paid to our named executive officers for 2013.

Summary Compensation Table for 2013

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock/Unit Awards ($) (1)	All Other Compensation ($) (2)	Total ($)
James Hertwig	2013	400,000	700,000	221,771	19,205	1,340,976
Chief Executive Officer and President	2012	400,000	600,000	198,687	8,122	1,206,809
	2011	400,000	225,000	—	5,025	630,025

John Brenholt	2013	350,000	437,500	132,648	15,496	935,644
Executive Vice President and Chief Financial Officer	2012	350,000	350,000	97,343	5,390	803,233
	2011	350,000	207,750	—	14,947	572,697

Robert Ledoux	2013	215,000	176,000	22,799	8,247	422,046
Senior Vice President and General Counsel and Corporate Secretary	2012	197,500	140,000	17,335	5,179	360,014
	2011	97,923	76,000	—	2,327	176,250

Andrew J Westhoff	2013	208,750	172,000	22,799	4,620	408,169
Senior Vice President, Sales & Marketing	2012	158,333	133,000	—	25,231	316,564
	2011	—	—	—	—	—

Francis J Chinnici	2013	206,250	180,000	22,799	6,987	416,036
Senior Vice President — Engineering, Mechanical & Purchasing	2012	—	—	—	—	—
	2011	—	—	—	—	—

Joel Haka (3)	2013	112,068	—	45,598	357,861	515,527
Executive Vice President — Chief Operating Officer	2012	350,000	262,500	88,676	6,105	705,281
	2011	299,744	182,000	615,648	28,770	1,126,162

Notes:

(1) Amounts in this column reflect the aggregate grant date fair value of restricted stock units granted to each of our named executive officers on February 8, 2013, computed in accordance with applicable accounting guidance. For a discussion of the assumptions made in the valuation of the restricted stock unit awards reported in this column, see Note 10 to the Consolidated Financial Statements.

(2) For all, amounts are attributable to the Company’s match of their 2013 401(k) contribution, cell phone stipends, company paid life insurance, signing bonus, and severance. Included in the “All Other Compensation” column and this footnote the amount of any Company contributions under the Florida East Coast Railway Deferred Compensation Plan.

(3) Effective April 11, 2013, Mr. Haka resigned from the position of Executive Vice President and Chief Operating Officer of the Company.

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Grants of Plan Based Awards for 2013

Name	Grant Date	All Other Stock Awards: Number of Shares of Stock or Units (#) (1)		Grant Date Fair Value of Stock Awards ($)
Mr. Hertwig	February 8, 2013	107	(2)	221,771
Mr. Brenholt	February 8, 2013	64	(2)	132,648
Mr. Ledoux	February 8, 2013	11	(2)	22,799
Mr. Westhoff	February 8, 2013	11	(2)	22,799
Mr. Chinnici	February 8, 2013	11	(2)	22,799
Mr. Haka	February 8, 2013	22	(2)	45,598

Notes:

(1) Pursuant to the applicable Restricted Stock Unit Award Agreement, as amended, upon vesting, each restricted stock unit entitles the holder thereof to a number of shares of Holdings Corp. having a fair market value at the time of settlement equal to the value of one common unit of FECR Rail Holding, LLC (a “FECR Rail Holding, LLC Interest”) (or, if Holdings Corp. is prohibited at the relevant time from issuing equity securities to the holder, one FECR Rail Holding, LLC Interest). Dividend equivalents are payable on each unvested restricted stock unit in an amount equal to the dividends paid with respect to one FECR Rail Holding, LLC Interest.

(2) These shares vest 33% on January 1, 2014, 33% on January 1, 2015 and 34% on January 1, 2016. There is a retirement clause accelerating vesting for anyone who has reached age 60.

Outstanding Equity Awards at Fiscal Year End for 2013

	Stock Awards
Name	Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)(4)
Mr. Hertwig	479	(1)	1,370,955
Mr. Hertwig	100	(2)	286,212
Mr. Brenholt	318	(1)	910,154
Mr. Brenholt	49	(2)	140,244
Mr. Brenholt	64	(3)	183,176
Mr. Ledoux	9	(2)	25,759
Mr. Ledoux	11	(3)	31,483
Mr. Westhoff	0	(3)	0
Mr. Chinnici	11	(3)	31,483
Mr. Haka	0		0

Notes:

(1) These shares vest 33% on January 1, 2012, 33% on January 1, 2013 and 34% on January 1, 2014.

(2) These shares vest 33% on January 1, 2013, 33% on January 1, 2014 and 34% on January 1, 2015.

(3) These shares vest 33% on January 1, 2014, 33% on January 1, 2015 and 34% on January 1, 2016. There is a retirement clause accelerating vesting for anyone who has reached age 60.

(4) Based on a value per share of Company stock of $2,862.12 as of December 31, 2013.

Stock Vested for 2013

Name	Number of Shares Acquired on Vesting (#)		Value Realized on Vesting ($)
Mr. Hertwig	620	(1)	1,285,031
Mr. Brenholt	330	(1)	683,968
Mr. Ledoux	4	(1)	8,291
Mr. Westhoff	11	(2)	27,413
Mr. Chinnici	0		0
Mr. Haka	465	(1)	963,773

Notes:

(1) Based on a value per share of Company stock of $2,072.63 as of the time of vesting.

(2) Based on a value per share of Company stock of $2,492.07 as of the time of vesting.

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Nonqualified Deferred Compensation for 2013

Name	Executive Contributions in Last Fiscal Year ($) (1)	Aggregate Earnings in Last Fiscal Year ($)	Aggregate Balance at Last Fiscal Year End ($)
Mr. Hertwig	0	0	0
Mr. Brenholt	0	0	0
Mr. Ledoux	0	0	0
Mr. Westhoff	51,725	0	51,725
Mr. Chinnici	0	0	0
Mr. Haka	8,203	0	8,203

Notes:

(1) Each named executive officer’s contribution is included in such named executive officer’s salary and/or bonus for 2013, as reported in the Summary Compensation Table.

Florida East Coast Railway Deferred Compensation Plan. Our Deferred Compensation Plan provides a select group of our management and independent contractors, including our named executive officers, with the opportunity to voluntarily defer receipt of a portion of their compensation (including base salary, performance-based compensation, and commissions). Under the terms of the plan, participants can elect to defer, on a pre-tax basis, up to 90% of their base salary, and up to 100% of any performance based compensation or commissions. The Company may also make discretionary contributions to the plan, as well as certain other contributions to the plan in an amount determined by the Company in its sole discretion for each plan year.

Participants are always 100% vested in their own deferral contributions and in Company discretionary contributions, but certain other Company contributions vest 20% per year of service with the Company. However, even participants with less than five years of service become fully vested in any other Company contributions upon death, disability, retirement at age 65 or older, or a “change in control event” as defined in the plan. If a participant’s deferred compensation account is not otherwise fully vested on the date of such participant’s separation from service, the portion of such account that is not fully vested will be forfeited.

Each participant’s deferred compensation account, including any Company contributions, are credited with investment returns determined as if such account were invested in one or more investment funds made available by the plan administrator. Each participant elects the investment funds in which the participant’s deferred compensation account is deemed to be invested. In the event a participant fails for any reason to make an effective election of the investment return to be credited to the participant’s account, the investment return credited to such participant’s account will be determined by the plan administrator.

Participants in the plan, or their beneficiaries, may receive distributions from the plan in the event of a qualifying separation from service, death, disability, or unforeseeable emergencies. A change in control event, however, is not a qualifying distribution event.

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Potential Payments Upon Termination or Change in Control

As described above in “Executive Compensation—Compensation Discussion and Analysis—Severance/Change in Control Benefits,” we make certain severance and change in control benefits available to our named executive officers. The following chart sets forth the payments the respective named executive officers would have received had the requisite triggering event occurred as of December 31, 2013; the value shown in respect of the accelerated vesting of the restricted stock units is based upon a value per share of Company stock of $2,862.12 as of December 31, 2013. In addition to the benefits shown below, each of our named executive officers are entitled to a death benefit equal to their base salary (but not in excess of $150,000).

		Employees
Name	Compensation Element	Not For Cause or Good Reason Termination		Not For Cause or Good Reason Termination Following a Change of Control (1)
Mr. Hertwig	Cash Severance	$	400,000	$	400,000
	Accelerated Vesting of Restricted Stock Units	1,511,199		1,657,167
	Total	$	1,911,199	$	2,057,167

Mr. Brenholt	Cash Severance	$	350,000	$	350,000
	Accelerated Vesting of Restricted Stock Units	1,038,950		1,233,574
	Total	$	1,388,950	$	1,583,574

Mr. Ledoux	Cash Severance	$	0	$	220,000
	Accelerated Vesting of Restricted Stock Units	0		57,242
	Total	$	0	$	277,242

Mr. Westhoff	Cash Severance	$	0	$	215,000
	Accelerated Vesting of Restricted Stock Units	0		0
	Total	$	0	$	215,000

Mr. Chinnici	Cash Severance	$	0	$	225,000
	Accelerated Vesting of Restricted Stock Units	0		31,483
	Total	$	0	$	256,483

Notes:

(1) These amounts do not reflect any cutback in cash severance or accelerated vesting of restricted stock units by reason of the “golden parachute” limitations set forth in Section 280G of the Internal Revenue Code.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the total number of shares of common stock beneficially owned, and the percent so owned. Holdings Corp. was incorporated on January 10, 2011. On January 25, 2011, FECR Rail LLC contributed all of its holdings of FECR Corp’s common and preferred shares in exchange for 250,555 newly issued common shares of Holdings Corp. As a result, FECR Rail LLC became the direct parent of Holdings Corp., whereas Holdings Corp. became the direct parent of FECR Corp. The percentage of beneficial ownership of our common stock is based on 251,726 shares of common stock of Holdings Corp. issued and outstanding as of March 12, 2014.

	Number of Shares Beneficially Owned(1)
Name of Beneficial Owner(1)	Number of Shares	Percent
Executive Officers and Directors(2)
Wesley R. Edens(3)	250,000	99.3	%
Joseph P. Adams, Jr.	—	—
Randal A. Nardone	—	—
James R. Hertwig	688	*
John Brenholt	473	*
Tom Ballas	2	*
Andy Westhoff	—	—
Robert Ledoux	4	*
Fran Chinnici	—	—
Joel Haka	—	—
All directors and executive officers as a group (10 persons)	251,167	99.8	%
5% stockholders
FECR Rail Holding, LLC(3)	251,167	99.8	%

* Less than 1%.

Notes:

(1) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days of the date hereof, are deemed outstanding for computing the percentage ownership of the person holding such options or warrants but are not deemed outstanding for computing the percentage of any other person. Except in cases where community property laws apply we believe that each stockholder possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. The beneficial owners listed in this table do not, individually or as a group, have the right to acquire beneficial ownership over any other shares of our common stock.

(2) The address of each officer or director listed in this table is: c/o Florida East Coast Railway Corp., 7411 Fullerton Street, Suite 300, Jacksonville, Florida 32256.

(3) FECR Rail Holding, LLC, which is our ultimate parent, is owned by the following: (i) each of Fortress Investment Fund IV (Fund A) L.P., Fortress Investment Fund IV (Fund B) L.P., Fortress Investment Fund IV (Fund C) L.P., Fortress Investment Fund IV (Fund D) L.P., Fortress Investment Fund IV (Fund E) L.P., Fortress Investment Fund IV (Fund F) L.P., Fortress Investment Fund IV (Fund G) L.P., Fortress Investment Fund IV (Coinvestment Fund A) L.P., Fortress Investment Fund IV (Coinvestment Fund B) L.P., Fortress Investment Fund IV (Coinvestment Fund C) L.P., Fortress Investment Fund IV (Coinvestment Fund D) L.P., Fortress Investment Fund IV (Coinvestment Fund F) L.P. and Fortress Investment Fund IV (Coinvestment Fund G) L.P. (collectively, the “Fund IV Fund”); (ii) each of Fortress Investment Fund V Co. (Fund A) L.P., Fortress Investment Fund V Co. (Fund B) L.P., Fortress Investment Fund V Co. (Fund C) L.P., Fortress Investment Fund V Co. (Fund D) L.P., Fortress Investment Fund V Co. (Fund F) L.P., and (iii) Fortress Florida Coinvestment Fund LP (“FFCF LP”).

Each of the Fortress Fund IV Fund and Fortress Fund V Fund is party to a management agreement with FIG LLC, which is wholly owned by Fortress Operating Entity I LP (“FOE I”). FFCF LP’s general partner is Fortress Florida Coinvestment Fund GP LLC and its managing member is Principal Holdings I LP (“PH I”). FOE I’s general partner is FIG Corp. PH I’s general partner is FIG Asset Co. LLC. Each of FIG Corp. and FIG Asset Co. LLC is a wholly owned subsidiary of Fortress Investment Group LLC (“Fortress”). As of December 31, 2010, Wesley R. Edens owned approximately 14.14% of Fortress. By virtue of his ownership interest in Fortress and certain of its affiliates, Mr. Edens has voting or investment power with respect to all outstanding shares of FECR Rail Holding, LLC and may be deemed to beneficially own such shares. Mr. Edens disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address of all entities listed above is c/o Fortress Investment Group LLC, 1345 Avenue of the Americas, New York, New York 10105.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Lease Agreements

We, through our wholly owned indirect subsidiary Florida East Coast Railway, L.L.C., began leasing our Hialeah rail yard in December 2007 from FDG Hialeah LLC, an entity owned by investment funds managed by affiliates of Fortress. On January 24, 2011, we entered into an amended and restated lease, which, among other things: extends the date to vacate to December 31, 2035 (unless we elect not to renew the lease); provides for an annual rental fee of $4.5 million a year (subject to a 2.5% annual increase); provides us the right to purchase certain land from FDG Hialeah LLC at a mutually determined fair market value; provides FDG Hialeah LLC the right to require us to relocate (at its expense) from such land to comparable property with competitive rental rates. The amended and restated lease is cancellable after five years with a two year notice requirement. The Railway paid $5.0 million, $5.0 million, and $6.0 million, for the rail yard base rent for the years ended December 31, 2013, 2012, and 2011, respectively.

Through Florida East Coast Railway, L.L.C., we lease space for our headquarters from Flagler Development Company, L.L.C. through 2018. For the years ended December 31, 2013, 2012 and 2011, we paid $1.5 million, $0.7 million and $2.2 million in rent, respectively. A portion of this office space is being sublet to RailAmerica (currently owned by Genesee & Wyoming), an entity partially owned by investment funds managed by affiliates of Fortress. Under the sublease agreement, which is subject to the terms and conditions of the corporate headquarters agreement with Flagler Development Company, L.L.C., we billed RailAmerica $0.9 million, $1.0 million and $2.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. The amounts above include fees for management services during the transition period subsequent to the Rail Separation, as well as management services related to our right-of-way for the corresponding periods.

In addition, during the year ended December 31, 2011, the Company received proceeds of $4.5 million from the sale of locomotives that had previously been under lease to RailAmerica. The Company had a net receivable from RailAmerica of zero, zero and $0.1 million as of December 31, 2013, 2012, and 2011, respectively. Subsequent to October 1, 2012, RailAmerica is no longer considered a related party, due to a change in ownership.

During 2011, the Company entered into an agreement with RailAmerica’s wholly-owned subsidiary, Atlas Road Construction, L.L.C., to provide engineering and construction services for the Port of Miami project. The Company incurred net charges of zero million, $2.2 million and $9.6 million, for the years ended December 31, 2013, 2012, and 2011, respectively. As of December 31, 2013, 2012, and 2011, we had an outstanding payable balance ofzero, zero, and $0.6 million, respectively.

The Company rents chassis equipment for ordinary business operations from TRAC Intermodal, an entity owned by funds managed by affiliates of Fortress. These rents are based on current market rates for similar assets. During the years ended December 31, 2013, 2012 and 2011, the Company paid rents in the amount of $1.1 million, $0.7 million and $0.6 million, respectively.

Other Agreements/Transactions

In January 2011, we contributed $140.0 million to FECR Corp. to repay a portion of the amounts outstanding under the existing debt. In addition, in January and February 2011, we received a contribution of $16.0 million from FECR Rail LLC.

We also completed the sale and issuance of our Series B Perpetual Preferred Stock, par value $0.01 in January 2011 for an aggregate consideration of $125.0 million to an affiliate of FECI commonly owned by affiliates of Fortress. The Series B Perpetual Preferred Stock carried an interest cumulatively at an amount of 20% per annum. In February 2011, we executed our Refinancing and redeemed the Series B Perpetual Preferred Stock for the carrying value of $125.0 and accrued interest of $1.1 million.

Review, Approval or Ratification of Transactions with Related Persons

Given the ownership structure and management of the Company, we have not adopted policies and procedures for the review, approval, or ratification of transactions required to be reported pursuant to Item 404(a) of Regulation S-K.

Director Independence

We have no securities listed for trading on a national securities exchange or in an automated inter-dealer quotation system of a national securities association, which has requirements that a majority of our board of directors be independent. For purposes of complying with the disclosure requirements of the SEC we have adopted the definition of independence used by the New York Stock Exchange. Under the New York Stock Exchange’s definition of independence, none of our directors are independent.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The financial statements filed as part of this report are listed separately in the Index of Consolidated Financial Statements on page F-1 of this Annual Report on Form 10-K.

(b) Exhibits.

Exhibit No.		Description

3.1		Certificate of Incorporation of Florida East Coast Holdings Corp., incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (Registration No. 333-174112) filed on May 10, 2011.

3.2		By-laws of Florida East Coast Holdings Corp., incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (Registration No. 333-174112) filed on May 10, 2011.

4.1		Indenture, dated as of February 11, 2011, between Florida East Coast Holdings Corp. and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-4 (Registration No. 333-174112) filed on May 10, 2011.

4.2		Indenture, dated as of January 25, 2011, by and among, Florida East Coast Railway Corp., the guarantors named therein and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to Florida East Coast Railway Corp.’s Registration Statement on Form S-4 (Registration No. 333-173954) filed on May 5, 2011.

4.3		Form of 10 1 / 2 % / 11 1 / 4 % Senior PIK Toggle Notes due 2017 (included as part of Exhibit 4.1), incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-4 (Registration No. 333-174112) filed on May 10, 2011.

4.4		Form of 8 1 / 8 % Senior Secured Notes due 2017 (included as part of Exhibit 4.2), incorporated by reference to Exhibit 4.3 to Florida East Coast Railway Corp.’s Registration Statement on Form S-4 (Registration No. 333-173954) filed on May 5, 2011.

4.5		First Supplemental Indenture, dated as of March 14, 2012, by and among, Florida East Coast Holdings Corp., Florida East Coast Railway Corp., the existing guarantors named therein, and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.5 to Florida East Coast Holdings Corp.’s Annual Report on Form 10-K (Registration No. 333-174112) filed on March 15, 2012.

10.1		Credit Agreement, dated as of January 25, 2011, by and among, Florida East Coast Railway Corp., Bank of America, N.A., as administrative agent, and Merrill Lynch, Pierce, Fenner, & Smith Incorporated, as sole lead arranger and sole bookrunner, and a syndicate of financial institutions and institutional lenders, incorporated by reference to Exhibit 10.1 to Florida East Coast Railway Corp.’s Registration Statement on Form S-4/A (Registration No. 333-173954) filed on August 2, 2011.

10.2		Assumption Agreement, dated as of March 15, 2011, by and between Miami Dade County and Florida East Coast Railway, L.L.C, incorporated by reference to Exhibit 10.2 to Florida East Coast Railway Corp.’s Registration Statement on Form S-4 (Registration No. 333-173954) filed on May 5, 2011.

10.3		Amended and Restated Lease Agreement, dated as of January 1, 2011, by and between FDG Hialeah LLC and Florida East Coast Railway, L.L.C., incorporated by reference to Exhibit 10.3 to Florida East Coast Railway Corp.’s Registration Statement on Form S-4 (Registration No. 333-173954) filed on May 5, 2011.

10.4**		Employment Agreement, dated as of May 24, 2011, by and among Florida East Coast Railway L.L.C., FECR Rail Corp. and James R. Hertwig, incorporated by reference to Exhibit 10.4 to Florida East Coast Railway Corp.’s Registration Statement on Form S-4 (Registration No. 333-173954) filed on May 5, 2011.

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10.5**		Employment Agreement, dated as of November 8, 2010, by and among Florida East Coast Railway L.L.C., FECR Rail Corp. and John A. Brenholt, incorporated by reference to Exhibit 10.5 to Florida East Coast Railway Corp.’s Registration Statement on Form S-4 (Registration No. 333-173954) filed on May 5, 2011.

10.8**		Employment Agreement, dated as of June 17, 2011, by and among Florida East Coast Railway L.L.C., FECR Rail Corp. and Robert Ledoux, incorporated by reference to Exhibit 10.8 to the Company’s Form 10-K filed on March 13, 2013.

10.10**		Form of Consulting Agreement, incorporated by reference to Exhibit 10.9 to Florida East Coast Railway Corp.’s Registration Statement on Form S-4 (Registration No. 333-173954) filed on May 5, 2011.

10.11**		Form of Restricted Stock Unit Award Agreement, incorporated by reference to Exhibit 10.10 to Florida East Coast Railway Corp.’s Registration Statement on Form S-4 (Registration No. 333-173954) filed on May 5, 2011.

10.12		Employee Services Agreement, effective as of January 1, 2010, by and between Florida East Coast Railway, L.L.C. and RailAmerica, Inc., incorporated by reference to Exhibit 10.13 to Florida East Coast Railway Corp.’s Registration Statement on Form S-4/A (Registration No. 333-173954) filed on June 14, 2011.

10.13**		Form of Amendment to Restricted Stock Unit Award Agreement, incorporated by reference to Exhibit 10.14 to Florida East Coast Railway Corp.’s Registration Statement on Form S-4/A (Registration No. 333-173954) filed on August 2, 2011.

10.14**		The Executive Nonqualified Excess Plan Adoption Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 18, 2012.

10.15**		The Executive Nonqualified Excess Plan Document, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 18, 2012.

10.16		State-Funded State Infrastructure Bank Loan Agreement, effective as of September 26, 2012, among the State of Florida Department of Transportation, FEC PEVT, LLC, the Borrower, and Florida East Coast Railway, L.L.C., the Guarantor, incorporated by reference to Exhibit 10.1 to Florida East Coast Holdings Corp.’s Form 8-K filed on October 2, 2012.

10.17		Port Everglades Intermodal Container Transfer Facility Lease and Operating Agreement, dated January 31, 2012, between Broward County, Florida, as lessor, and Florida East Coast Railway, L.L.C. and Assignment and Assumption of Lease, dated September 26, 2012 made by Florida East Coast Railway, L.L.C., as assignor, and FEC PEVT, LLC, as assignee, incorporated by reference to Exhibit 10.2 to Florida East Coast Holdings Corp.’s Form 8-K filed on October 2, 2012.

10.19**		Employment Agreement dated March 1, 2012, by and among Florida East Coast Railway, L.L.C. and Andrew Westhoff.

10.20**		Employment Agreement dated January 17, 2013, by and among Florida East Coast Railway, L.L.C. and Francis J. Chinnici.

10.21**		Change in Control Agreement dated December 2, 2013, by and among Florida East Coast Railway, L.L.C. and Andrew Westhoff.

10.22**		Change in Control Agreement dated December 2, 2013, by and among Florida East Coast Railway, L.L.C. and Francis Chinnici.

10.23**		Change in Control Agreement dated December 2, 2013, by and among Florida East Coast Railway, L.L.C. and Robert Ledoux.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FLORIDA EAST COAST HOLDINGS CORP.


By:		/s/ *John Brenholt*
		Name:	John Brenholt

		Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)


	Dated: March 12, 2014

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature	Title	Date

/s/ *James R. Hertwig*	President and Chief Executive Officer (Principal Executive	March 12, 2014
James R. Hertwig	Officer)

/s/ *John Brenholt*	Executive Vice President and Chief Financial Officer (Principal	March 12, 2014
John Brenholt	Financial Officer and Principal Accounting Officer)

/s/ *Wesley R. Edens*	Director	March 12, 2014
Wesley R. Edens

/s/ *Joseph Adams, Jr.*	Director	March 12, 2014
Joseph Adams, Jr.

/s/ *Randal A. Nardone*	Director	March 12, 2014
Randal A. Nardone

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FLORIDA EAST COAST HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except for share amounts)

	December 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	36,087		$	40,400
Restricted cash	126			126
Accounts receivable, net	52,084			34,380
Materials and supplies	7,373			3,577
Deferred income taxes	1,979			2,374
Prepaid and other current assets	2,899			2,476
Assets held for sale	777			1,839

Total current assets	101,325			85,172
Noncurrent assets:
Property, plant and equipment, less accumulated depreciation	791,907			772,429
Investments in non-affiliates	74			74
Intangible assets, less accumulated amortization	164			220
Other assets	12,314			15,291

Total noncurrent assets	804,459			788,014

Total assets	$	905,784		$	873,186

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	47,767		$	42,277
Taxes payable	268			326
Deferred revenue	877			906
Other current liabilities	2,713			954

Total current liabilities	51,625			44,463
Deferred income taxes	36,598			24,837
Long-term debt	641,262			625,969
Other long-term liabilities	13,855			12,721

Total liabilities	743,340			707,990
Stockholders’ equity:
Series A Perpetual Preferred Stock, $0.01 par value, 1,000,000 shares authorized, 24,151 shares issued and outstanding as of December 31, 2013 and 2012	—			—
Series B Perpetual Preferred Stock, $0.01 par value, 150,000 shares authorized, none issued and outstanding as of December 31, 2013 and 2012	—			—
Common stock, $0.01 par value, 1,000,000 shares authorized; 251,726 issued and outstanding as of December 31, 2013; and 252,106 issued and outstanding as of December 31, 2012	3			3
Additional paid-in capital	287,532			286,085
Accumulated deficit	(123,936		)	(119,770		)
Accumulated other comprehensive loss	(1,155		)	(1,122		)

Total stockholders’ equity	162,444			165,196

Total liabilities and stockholders’ equity	$	905,784		$	873,186

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-3

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FLORIDA EAST COAST HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands)

	Years Ended December 31,
	2013			2012			2011
Operating revenue	$	279,081		$	246,823		$	213,305
Operating expenses:
Labor and benefits	55,381			48,585			46,622
Purchased services	54,422			44,808			35,979
Fuel	34,598			31,689			29,987
Depreciation and amortization	26,228			27,013			27,249
Equipment rents	16,430			13,423			11,607
Net loss on sale and impairment of assets	630			3,351			1,906
Other expenses	19,172			24,934			24,958

Total operating expenses	206,861			193,803			178,308

Operating income	72,220			53,020			34,997

Interest expense (net of interest income)	(60,135		)	(58,815		)	(57,420		)
Other income (expense)	61			85			(44		)

Income (Loss) before income taxes	12,146			(5,710		)	(22,467		)
Provision for income taxes	12,138			7,604			14,851

Net income (loss)	$	8		$	(13,314	)	$	(37,318	)

Other comprehensive loss:

Actuarial loss associated with pension plan	(33		)	(272		)	(149		)

Realized loss on sale of marketable securities	—			2			—

Other comprehensive loss	(33		)	(270		)	(149		)

Comprehensive loss	$	(25	)	$	(13,584	)	$	(37,467	)

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-4

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FLORIDA EAST COAST HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except for share amounts)

	Number of Common Shares Issued		Par Value		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
Balance as of December 31, 2010	250,555		$	3	$	243,948		$	(67,154	)	$	(703	)	$	176,094

Net loss	—		—		—			(37,318		)	—			(37,318		)
Other comprehensive loss	—		—		—			—			(149		)	(149		)
Purchase of common shares outstanding	(495	)	—					(560		)	—			(560		)
Issuance of common shares outstanding	883		—		—			—			—			—
Contribution from FECR Rail LLC	—		—		16,000			—			—			16,000
Proceeds from issuance of preferred shares	—		—		125,000			—			—			125,000
Redemption of preferred share units	—		—		(126,111		)	—			—			(126,111		)
Reclassification of preferred shares to equity	—		—		24,151			—			—			24,151
Share-based compensation					1,654			—			—			1,654

Balance as of December 31, 2011	250,943		$	3	$	284,642		$	(105,032	)	$	(852	)	$	178,761

Net loss	—		—		—			(13,314		)	—			(13,314		)
Other comprehensive loss	—		—		—			—			(270		)	(270		)
Purchase of common shares outstanding	(1,177	)	—					(1,424		)	—			(1,424		)
Issuance of common shares outstanding	2,340		—		—			—			—			—
Share-based compensation					1,443			—			—			1,443

Balance as of December 31, 2012	252,106		$	3	$	286,085		$	(119,770	)	$	(1,122	)	$	165,196

Net income	—		—		—			8			—			8
Other comprehensive loss	—		—		—			—			(33		)	(33		)
Purchase of common shares outstanding	(1,699	)	—		—			(4,174		)	—			(4,174		)
Issuance of common shares outstanding	1,319		—		—			—			—			—
Share-based compensation	—		—		1,447			—			—			1,447

Balance as of December 31, 2013	251,726		$	3	$	287,532		$	(123,936	)	$	(1,155	)	$	162,444

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-5

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FLORIDA EAST COAST HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2013			2012			2011
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)	$	8		$	(13,314	)	$	(37,318	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	26,228			27,013			27,249
Amortization of debt financing fees	3,576			3,541			3,614
Net loss on sale and impairment of assets	630			3,351			1,906
Share-based compensation costs	1,447			1,690			1,800
Deferred taxes	12,156			7,604			14,859
Interest paid in kind	8,592			15,835			6,906
Other	—			(1		)	68
Changes in operating assets and liabilities:
Accounts receivable	(17,704		)	(3,295		)	(5,238		)
Prepaid and other current assets	(423		)	(339		)	209
Materials and supplies	(3,196		)	(364		)	(293		)
Other assets and deferred charges	(287		)	320			308
Accounts payable and accrued expenses	5,595			1,101			18,559
Accrued interest	(104		)	—			—
Taxes payable	(58		)	(6,610		)	212
Deferred revenue	(29		)	(2,949		)	152
Other current liabilities	1,759			243			17
Other long-term liabilities	1,101			(340		)	2,485

Net cash provided by operating activities	39,291			33,486			35,495

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of properties and equipment	(48,006		)	(22,403		)	(25,668		)
Release of interest reserve account	—			—			4,008
Proceeds from disposition of assets	2,188			612			9,864

Net cash used in investing activities	(45,818		)	(21,791		)	(11,796		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution from FECR Rail LLC	—			—			16,000
Payment on long-term debt	—			—			(601,185		)
Proceeds from issuance of long-term debt	6,388			—			602,725
Purchase of common stock outstanding	(4,174		)	(1,991		)	(558		)
Proceeds from issuance of preferred shares	—			—			125,000
Redemption of preferred share units (including interest paid)	—			—			(126,111		)
Financing costs	—			(209		)	(17,971		)

Net cash provided by (used in) financing activities	2,214			(2,200		)	(2,100		)

Net increase (decrease) in cash and cash equivalents	(4,313		)	9,495			21,599
Cash and cash equivalents at beginning of period	40,400			30,905			9,306

Cash and cash equivalents at end of period	$	36,087		$	40,400		$	30,905

Supplemental cash flow information:
Cash paid for interest	$	47,064		$	38,594		$	25,066

The accompanying notes are an integral part of the Consolidated Financial Statements.

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FLORIDA EAST COAST HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of the Business and Basis of Presentation

The accompanying Consolidated Financial Statements of Florida East Coast Holdings Corp. and its subsidiaries (the “Company” or “Holdings Corp.”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The Company’s rail transportation operations are conducted through its direct wholly owned subsidiary Florida East Coast Railway Corp. (“FECR Corp.”), and its indirect wholly owned subsidiaries, Florida East Coast Railway, L.L.C. and FEC Highway Services, L.L.C. (collectively, the “Railway”). The Railway operates a premier Class II railroad along 351 miles of mainline track between Jacksonville and Miami, Florida, serving some of the most densely populated areas of Florida. Additionally, the Railway owns and operates approximately 270 miles of branch, switching and other secondary track and 115 miles of yard track, all within Florida. The Railway has the only private coastal right-of-way between Jacksonville and Miami and is the exclusive rail-service provider to the Port of Palm Beach, Port Everglades (Fort Lauderdale), and the Port of Miami.

Formation of Florida East Coast Holdings Corp.

On July 26, 2007, private equity funds managed by affiliates of Fortress Investment Group LLC (collectively, “Fortress”) acquired all of the outstanding stock of Florida East Coast Industries, Inc. (“FECI”), a then publicly held company. As part of the acquisition of FECI (herein referred to as the “Fortress Acquisition”), Fortress assumed a portion of FECI’s long-term debt and repaid the remaining outstanding debt and took FECI private.

On December 31, 2007, FECI’s rail transportation segment was transferred to private equity funds managed by affiliates of Fortress (the “Rail Separation”). Concurrent with the Rail Separation, FECR Rail LLC and FECR Corp. were formed to carry on the activities of FECI’s rail transportation segment.

Florida East Coast Holdings Corp., was incorporated in Florida on January 10, 2011 to hold the investments of the Company.

On January 25, 2011, FECR Rail LLC contributed all of its holdings of FECR Corp.’s common and preferred shares in exchange for 250,555 newly issued common shares of Holdings Corp. As a result, FECR Rail LLC became the immediate parent of Holdings Corp., whereas Holdings Corp. became the immediate parent of FECR Corp.

The following is a summary of entities included in the Consolidated Financial Statements:

· Florida East Coast Holdings Corp. (a wholly owned subsidiary of FECR Rail LLC)

· Florida East Coast Railway Corp. (also known as “Railway”) (a wholly owned subsidiary of Florida East Coast Holdings Corp.):

· Florida East Coast Railway, L.L.C., and its subsidiaries;

· FEC Highway Services, L.L.C.

2. Summary of Significant Accounting Policies

Principles of Consolidated Financial Statements

The accompanying Consolidated Financial Statements of the Company include all wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Consolidated Financial Statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

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Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less at the date of purchase to be cash equivalents. 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.

Restricted Cash

Restricted cash consists of cash that is held by the Company in interest reserve accounts to hold the cash collateral related to the Company’s credit facility, letters of credit, and to hold cash in escrow accounts for long-term incentive cash awards for employees.

Allowance for Doubtful Accounts

Allowance for doubtful accounts are recorded by management based on the Company’s historical experience of bad debts to sales, analysis of accounts receivable aging, and specific identification of customers in financial distress, e.g., bankruptcy or poor payment record. Management reviews material past due balances on a monthly basis. Account balances are charged against the allowance when management determines it is probable that the receivable will not be recovered. Activity in the Company’s allowance for doubtful accounts was as follows:

	Year Ended December 31,
	2013			2012			2011
	(in thousands)
Balance, beginning of year	$	1,219		$	1,053		$	1,051
Provisions	377			307			354
Recoveries	27			35			24
Charges	(420		)	(176		)	(376		)
Balance, end of year	$	1,203		$	1,219		$	1,053

Materials and Supplies

Materials and supplies are stated principally at average cost, which is not in excess of replacement cost. Materials are stated at an amount that does not exceed estimated realizable value.

Property, Plant and Equipment

Railway Properties

Railway properties are stated at cost, and are depreciated and amortized on a straight-line method over the useful life.

The following describes the depreciation methodologies applied for the significant asset groups of the Company:

a) Track and Related Assets

For track and related assets, the Company uses the group method of depreciation under which a single depreciation rate is applied to the gross investment. The Company reevaluated the useful lives of its track and related assets and established new depreciable lives based on a life study performed by valuation experts (as further described below) during 2004 through 2006 for bridges and 2005 for other track assets. The assets were also reviewed by valuation experts in connection with the Fortress Acquisition in 2007.

b) Rolling Stock

For rolling stock (such as locomotives and freight cars), the Company uses the group method of depreciation. Assets are specifically identified and utilize straight-line depreciation methods on a per asset basis based on the depreciation rate for the average life for the respective asset class. The Company reevaluated the useful lives of its rolling stock and established new depreciable lives based on a life study performed by valuation experts during 2012 (see below for further discussion). The assets were also reviewed by valuation experts in connection with the Fortress Acquisition in 2007.

Under the group life method, the service lives and salvage values for each group of assets are determined by completing periodic life studies and applying management’s assumptions regarding the service lives of its properties. A life study is the periodic review of asset lives for group assets conducted and analyzed by the Company’s management with the assistance of a third-party expert. The results of the life study process determine the service lives for each asset group under the group method. There are several factors taken into account during the life study and they include statistical analysis of historical life, retirements and salvage data for each group of property, evaluation of current operations, review of the previous assessment of the condition of the assets and the outlook for their continued use, consideration of technological advances and maintenance schedules and comparison of asset groups to peer companies.

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The Company’s policy is to perform life studies approximately every eight years. During 2012, the Company performed a life study over its rolling stock. The life study indicated that the actual lives of certain rolling stock assets were different than the estimated useful lives used for depreciation purposes in the Company’s financial statements. As a result, the Company changed its estimates of the useful lives of certain rolling stock assets to better reflect the estimated periods during which these assets will remain in service. Changes in asset lives due to the results of the life studies are applied on a prospective basis and will impact future periods’ depreciation expense, and thus, the Company’s results of operations.

Real Estate Properties

Real estate properties are stated at historical cost (such as land, building and building improvements) and are specifically identified. The Company reevaluated the useful lives of its building and improvements and established new depreciable lives on reviews performed by valuation experts in connection with the Fortress Acquisition in 2007.

Capital Expenditures

Rail operations are capital intensive and the Company accounts for these costs in accordance with U.S. GAAP. Routine repairs and maintenance costs, for all asset categories, are expensed as incurred. The Company self-constructs portions of its track structure and rebuilds certain of its rolling stock. In addition to direct labor and material, certain indirect costs are capitalized. The Company defines capital projects as any purchase of an asset that has an expected useful life greater than one year. Additionally, any expenditure which significantly increases an asset’s value or extends its useful life is capitalized.

The majority of the Company’s capital expenditures are related to track and rolling stock. Annual program work for rail, turnouts, surfacing, undercutting, bridges, locomotive and freight car overhauls are capitalized. Normal repairs, inspections, and maintenance costs are expensed as incurred, which includes track inspections, locomotive running repairs, repair of broken rail, and rail grinding. The Company incurs certain direct labor, contract service and other costs associated with the development and installation of internal-use computer software. Costs for newly developed software or significant enhancements to existing software are capitalized. Research, preliminary project planning, operations, maintenance and training costs are charged to operating expense when the work is performed.

Disposals and Retirements

Railroad Properties

Upon normal sale or retirement of track assets and rolling stock, costs less net salvage value are charged to accumulated depreciation and no gain or loss is recognized. As part of the life studies performed, an assessment will be made of the recorded amount of accumulated depreciation. Any deficiency (or excess), including any deferred gains or losses, will be amortized as a component of depreciation expense over the remaining useful life of the asset group until the next required life study. Since the overall assumption with group life method is that the assets within the group on average have the same life and characteristics, it is therefore concluded that the deferred gains and losses offset over time.

The Company utilizes a first-in, first-out approach to track assets and related asset retirements. Generally, the Company estimates the historical cost of the replaced assets using historical accounting records and/or inflation indices published by the Bureau of Labor Statistics which are applied to the replacement value based on the age of the retired asset. These indices closely correlate with the major cost of the materials comprising the applicable road assets.

In the event that large groups of assets are removed from service as a result of unusual acts or sales, resulting gains and losses are recognized immediately. These acts are not considered to be in the normal course of business and are therefore recognized when incurred. Examples of such acts would be the major destruction of assets due to significant storm damage (e.g., major hurricanes) and the sale, disposal or abandonment of a rail line segment.

Real Estate Properties

Upon retirement or disposal of any of the land, land improvements, building and building improvements, and other fixed assets, resulting gains and losses are recognized in earnings.

Impairment of Long-Lived Assets

The Company reviews the carrying value of its property for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset grouping may not be recoverable from the undiscounted future net cash flows expected to be generated over its remaining useful life. If impairment is identified, a loss would be reported to the extent that the carrying value of the related assets exceeds the fair value of those assets as determined by valuation techniques applicable in the circumstances. Losses from impairment of assets are charged to net loss on sale and impairment of assets within operating expenses.

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Comprehensive Income (Loss)

Comprehensive income (loss) is the changes in equity of an enterprise except those resulting from shareholder transactions. Accumulated other comprehensive income (loss) consists of the following (in thousands):

	December 31,
	2013			2012
Actuarial loss associated with pension plan	$	(1,155	)	$	(1,118	)
Unrealized loss on marketable securities	—			(4		)
Accumulated other comprehensive loss	$	(1,155	)	$	(1,122	)

Share-Based Compensation

Certain key employees and executives of the Company are the recipients of employment agreements that have restricted share benefits. Furthermore, the Company granted restricted share benefits to non-employees (executives of affiliates of the Company, herein referred to as “consultants”) to provide strategic consulting services to the Company. Share-based compensation is accounted for using the fair value based method prescribed by ASC 718, Compensation—Stock Compensation. Management determines fair value based on valuations performed by Fortress. Generally, the fair value of restricted shares is based on a valuation approach including the market-based approach using current market multiples as well as the income approach utilizing a discounted cash flow analysis, performed on a quarterly basis. For share-based awards issued to employees, a compensation charge is recorded against earnings based on the grant date fair value of the award. The Company uses a straight-line method of accounting for compensation costs related to share-based payment awards that contain pro rata vesting provisions. For transactions with consultants in which services are performed in exchange for the Company’s common stock or other equity instruments, the transactions are recorded on the basis of the fair value of the service received or the fair value of the equity instruments issued, whichever is more readily measurable at the date performance is complete or service is provided.

Income Taxes

The Company follows the asset and liability method of accounting for income taxes, as such, 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 basis. 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. 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. Future tax benefits, such as net operating loss carry forwards and alternative minimum tax credit carry forwards, are recognized to the extent that realization of these benefits is considered to be more likely than not.

As of and during the periods ended December 31, 2013, 2012, and 2011, the Company did not have any uncertain tax positions.

Revenue Recognition

The Company recognizes freight revenue after the freight has been moved from origin to destination, which is not materially different from the recognition of revenue as shipments progress due to the relatively short length of the Company’s railroads. Other revenue, which includes car hire, storage fees, and fuel surcharge on dray moves, is recognized when the service is performed.

Disclosures about Fair Value of Financial Instruments

ASC 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. Various inputs are considered when determining the fair value of financial instruments. These inputs are summarized below:

· Level 1 — observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.

· Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.).

· Level 3 — significant unobservable inputs (including the Company’s own assumptions in determining the fair value of financial instruments.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments held by the Company:

· Current assets and current liabilities: cash and cash equivalents, accounts receivable, as well as accounts payable and accrued expenses, as reflected in the consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments.

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· Long-term debt: the fair value of the Company’s Senior Secured Notes and Senior Payment in Kind Toggle Notes (the “Senior PIK Toggle Notes”) is based on secondary market indicators (quoted market prices) at the date of measurement (Level 2 inputs). The fair value of the SIB Loan is based on observable market inputs (Level 1 inputs) due to the drawdown occurring within the year ended December 31, 2013.

The carrying amounts and estimated fair values of the Company’s financial instruments were as follows (in thousands):

	December 31, 2013
	Carrying Amount		Fair Value
Cash and cash equivalent	$	36,087	$	36,087
Senior Secured Notes	475,000		495,663
Senior PIK Toggle Notes	159,874		165,037
SIB Loan	6,388		6,388

Environmental Remediation and Compliance

Costs associated with environmental compliance and preventing future contamination that are estimable and probable are accrued and expensed, or capitalized as appropriate. Expected remediation and monitoring costs relating to the remediation of an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are accrued and expensed in the period that such costs become estimable. Liabilities are recognized for remedial activities when they are probable and the remediation cost can be reasonably estimated.

Contingencies

The Company’s policy is to reserve for certain contingencies consisting primarily of various claims and lawsuits resulting from its operations in accordance with ASC 450, Contingencies. In the opinion of management, appropriate reserves have been made for the estimated liability that is probable of resulting from disposition of such matters. Management’s opinion, and ultimately, the reserve recorded in the financial statements, is based on known facts and circumstances. In certain circumstances, management uses the services of outside counsel and experts to help evaluate the facts and circumstances and considers their professional judgment in establishing the appropriate reserve. The ultimate resolution of these contingencies may be for an amount greater or less than the amount estimated by management.

3. Recent Accounting Pronouncements

4. Related-Party Transactions

Management and facility and equipment rents

The Company incurred net charges of $1.5 million, $0.7 million, and $2.2 million for management services and facility rents to affiliates of FECI for the years ended December 31, 2013, 2012, and 2011, respectively. The net charges include management services incurred during the transition period subsequent to the Rail Separation, as well as management services related to our right-of-way and rents for space leased from FECI for office space. As of December 31, 2013, and 2012, respectively, the Company had an outstanding receivable of $0.1 million and zero, from or to FECI, respectively.

In addition, the Company allocated net proceeds of zero, $1.0 million, and $2.6 million for management services, and facility and equipment rents to affiliates of RailAmerica, Inc. (“RailAmerica”) for the years ended December 31, 2013, 2012, and 2011, respectively. RailAmerica was an entity partially owned by investment funds managed by affiliates of Fortress. Subsequent to October 1, 2012, RailAmerica is no longer considered a related party, due to a change in ownership.

Effective June 1, 2011, the Company entered into an agreement with RailAmerica’s wholly-owned subsidiary, Atlas Road Construction, L.L.C., to provide engineering and construction services for the Port of Miami project (see Note 15). The Company incurred net charges of zero, $2.2 million, and $9.6 million for the years ended December 31, 2013, 2012, and 2011, respectively. As of December 31, 2013, and 2012 the Company had no outstanding payable.

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The Company rents chassis equipment for ordinary business operations from TRAC Intermodal, an entity indirectly owned by funds managed by affiliates of Fortress. These rents are based on current market rates for similar assets. During the years ended December 31, 2013, 2012, and 2011, the Company paid rents at the amounts of $1.1 million, $0.7 million, and $0.6 million, respectively. As of December 31, 2013 and 2012, the Company had an outstanding payable of $0.1 million and $0.1 million, respectively.

Lease of FECI’s rail yard

On January 24, 2011, the Company entered into an amended and restated rail yard lease, which, among other things: extends the date to vacate to December 31, 2035 (unless the Company elects not to renew the lease); commencing on January 1, 2011, provides for an annual rental fee of $4.5 million a year (subject to a 2.5% annual increase); provides the Company the right to purchase certain land from FECI at a mutually determined fair market value; provides FECI with the right to relocate the Company (at its expense) from such land to comparable property with competitive rental rates. The lease is cancellable after five years with a two year notice requirement. The Railway paid $5.0 million, $5.0 million and $6.0 million for the rail yard base rent for the years ended December 31, 2013, 2012, and 2011, respectively.

5. Property, Plant and Equipment

Property, plant and equipment consist of the following:

As of December 31, 2013	Cost	Accumulated Depreciation	Net Book Value	Estimated Useful Life (c)
(in thousands)
Land and Rights of Way	342,182	n/a	342,182	n/a
Road
Rail & Other Track Material	136,073	38,499	97,574	16-45 years
Signals & Interlockers	89,629	29,415	60,214	7-38 years
Ties	87,616	11,378	76,238	20-50 years
Bridges & Culverts	83,108	11,646	71,462	14-61 years
Ballast	41,958	3,388	38,570	30-43 years
Other (a)	8,878	4,803	4,075	10-50 years

Total Road	447,262	99,129	348,133

Locomotives, Transportation, and Other Equipment
Freight Cars	28,671	5,509	23,162	7-55 years
Locomotives	27,418	8,259	19,159	3-60 years
Work Equipment and Other (b)	24,478	13,951	10,527	3-29 years
Trailers	5,756	2,586	3,170	5-20 years

Total Locomotives, Transportation, and Other Equipment	86,323	30,305	56,018
Buildings and Improvements	30,215	8,449	21,766	10-50 years
Construction-In-Progress	23,808	n/a	23,808	n/a

	929,790	137,883	791,907

(a) Includes Grade Crossings, Fences, and Signs.

(b) Includes Roadway Machines, Shop Machinery, Work Equipment, Computer Equipment, Cranes, Packers & Ramps, and Automobiles.

(c) The estimated useful lives of the property, plant and equipment includes both the assets acquired at the “Rail Separation” and the assets purchased subsequently. The estimated lives are derived from the most recent life studies performed (see Note 2).

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As of December 31, 2012	Cost	Accumulated Depreciation	Net Book Value	Estimated Useful Life (c)
(in thousands)
Land and Rights of Way	342,182	n/a	342,182	n/a
Road
Rail & Other Track Material	132,168	31,503	100,665	16-45 years
Signals & Interlockers	89,290	24,071	65,219	7-38 years
Ties	86,085	9,288	76,797	20-50 years
Bridges & Culverts	82,105	9,634	72,471	14-61 years
Ballast	38,960	2,696	36,264	30-43 years
Other (a)	8,801	3,730	5,071	10-50 years

Total Road	437,409	80,922	356,487

Locomotives, Transportation, and Other Equipment
Freight Cars	27,707	4,946	22,761	7-55 years
Locomotives	22,450	6,979	15,471	3-60 years
Work Equipment and Other (b)	21,623	12,757	8,866	3-29 years
Trailers	4,324	2,887	1,437	5-20 years

Total Locomotives, Transportation, and Other Equipment	76,104	27,569	48,535
Buildings and Improvements	30,167	7,012	23,155	10-50 years
Construction-In-Progress	2,070	n/a	2,070	n/a

	887,932	115,503	772,429

(a) Includes Grade Crossings, Fences, and Signs.

(b) Includes Roadway Machines, Shop Machinery, Work Equipment, Computer Equipment, Cranes, Packers & Ramps, and Automobiles.

Depreciation and amortization expenses, including assets recorded under capital leases, were $26.2 million, $27.0 million, and $27.2 million for the years ended December 31, 2013, 2012, and 2011, respectively.

6. Income Taxes

For the years ended December 31, 2013, 2012 and 2011, the Company recorded deferred income tax expense of $12.2 million, $7.6 million, and $14.9 million, respectively. Income tax expenses differed from the amounts computed by applying the statutory federal income tax rate to pretax income as a result of the following:

	Year Ended December 31, 2013		Year Ended December 31, 2012			Year Ended December 31, 2011
	(in thousands)
Amount computed at statutory federal rate	$	4,251	$	(1,998	)	$	(7,882	)
State taxes (net of federal benefit)	434		(204		)	(805		)
Valuation allowance	7,295		9,827			23,874
Other (net)	176		(21		)	(328		)
	$	12,156	$	7,604		$	14,859

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities were as follows:

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	December 31,
	2013			2012
	(in thousands)
Deferred tax assets:
Net operating loss carryforward	$	109,223		$	108,869
Allowance for doubtful accounts	464			470
Deferred revenue	338			350
Accrued pension obligations	866			1,182
Tax benefit for deferred compensation	2,261			2,621
Accrued casualty and other liabilities	1,498			1,676
Tax credits carryforward	2,468			2,468
Other	597			105

Total deferred tax assets	117,715			117,741
Valuation allowance	(59,813		)	(52,518		)

Net deferred tax assets	57,902			65,223

Deferred tax liabilities:
Property, plant and equipment	92,457			87,601
Other	63			86

Total deferred tax liabilities	92,520			87,687

Net deferred tax liabilities	$	34,618		$	22,464

A valuation allowance against deferred tax assets is required if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company established a valuation allowance of $59.8 million, $52.5 million and $42.6 million as of December 31, 2013, 2012 and 2011, respectively, to reduce deferred tax assets to their expected realizable value at December 31, 2013.

The Company has net operating loss carryforwards as of December 31, 2013, as follows:

· U. S.—$282.2 million (expiration periods: 2028—2033)

· Florida—$292.3 million (expiration periods: 2028—2033)

As of December 31, 2013 and 2012, the Company does not have any uncertain tax positions. As of December 31, 2013, the U.S. taxing jurisdiction remains open to examination for the years 2012, 2011, and 2010.

7. Long-Term Debt

Debt consisted of the following:

	December 31,
	2013		2012
	(in thousands)
Senior Secured Notes	$	475,000	$	475,000
Senior PIK Toggle Notes (net of original discount of $1,464)	159,874		150,969
ABL Credit Facility	—		—
SIB Loan	6,388		—

Total debt	641,262		625,969
Less: Current maturities	—		—

Long-term debt, less current maturities	$	641,262	$	625,969

Interest expense was $42.0 million on the Senior Secured Notes and $18.1 million on the PIK Toggle Notes for the year ended December 31, 2013. Interest expense was $41.6 million on the Senior Secured Notes and $17.2 million on the PIK Toggle Notes for the year ended December 31, 2012. Interest expense was $43.6 million on the Senior Secured Notes and $13.9 million on the PIK Toggle Notes for the year ended December 31, 2011.

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On January 25, 2011, FECR Corp. sold $475.0 million of 81/8% Senior Secured Notes due 2017 (“Senior Secured Notes” or “8 1 / 8 % Notes”) in a private offering, for gross proceeds of $475.0 million.

Sale and Issuance of Series B Perpetual Preferred Stock

On January 25, 2011, the Company completed the sale and issuance of its Series B Perpetual Preferred Stock, par value $0.01 per share (“Series B Perpetual Preferred Stock”) for an aggregate consideration of $125.0 million to an affiliate of FECI commonly owned by affiliates of Fortress. The Series B Perpetual Preferred Stock carried interest cumulatively at the amount of 20% per annum.

Shareholder Contribution of FECR Rail LLC

In January and February 2011, FECR Rail LLC contributed an aggregate $16.0 million to the Company.

The proceeds of the sale of the Series B Perpetual Preferred Stock and $15.0 million of the FECR Rail LLC contribution to the Company were further contributed to FECR Corp. This contribution of $140.0 million together with the proceeds of the issuance of the Senior Secured Notes were used to repay outstanding debt of approximately $601.2 million, to pay certain fees and expenses incurred in connection with the offering of the 8 1 / 8 % Notes, and for general corporate purposes.

PIK Toggle Notes

On February 11, 2011, Holdings Corp. sold $130.0 million of 10 ½ / 11 ¼% Senior Payment in Kind Toggle Notes due 2017 (the “Senior PIK Toggle Notes”) in a private offering, for net proceeds of $127.7 million. The Senior PIK Toggle Notes are senior unsecured obligations that are not guaranteed by any of Holdings Corp.’s subsidiaries.

Holdings Corp. may redeem the notes in whole or in part at a redemption price of 102.5%, and 100%, plus accrued and unpaid interest thereon for the subsequent periods as follows: February 1, 2014 through January 31, 2015; and February 1, 2015 and thereafter, respectively.

The Senior PIK Toggle Notes will pay interest semi-annually in arrears on each February 1 and August 1. Until February 1, 2016, Holdings Corp. may elect to pay interest on the Senior PIK Toggle Notes (1) entirely in cash at a rate of 10.5% , (2) entirely by increasing the principal amount of the note or by issuing new notes for the entire amount of the interest payment, at a rate per annum equal to the cash interest rate of 10.5% plus 75 basis points (in each case, PIK interest), or (3) 50% as cash interest and 50% as PIK interest. After February 1, 2016, interest will be payable entirely in cash.

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SIB Loan

On September 26, 2012, the Company entered into a State Infrastructure Bank Loan (the “SIB Loan”) with the Florida Department of Transportation (“FDOT”). The SIB Loan provides for a loan of $30 million to fund, in part, the costs associated with the construction of a new Florida East Coast Intermodal Container Transfer Facility (the “ICTF”) in Port Everglades, Florida, which will serve the Company’s domestic and international business segments. Proceeds from the SIB Loan will be advanced by FDOT as construction proceeds on the ICTF. The total construction cost of the ICTF construction project is approximately $53 million, $30 million of which will be funded through the SIB Loan, $18 million of which will be from a FDOT grant (the “FDOT Grant”) and the balance of $5 million from the Company’s capital budget. As of December 31, 2012, the Company had been awarded the entire FDOT Grant of $18 million. As of December 31, 2013 and 2012, the Company has borrowed $6.4 million and none, respectively.

8. Pension and other Benefit Programs

The Company sponsors two 401(k) plans, which are available to the Company’s employees. Contributions are at the employee’s discretion, subject to maximum limits imposed by the IRS (generally, $17,500 for 2013, $17,000 for 2012 and $16,500 for 2011), and an additional contribution up to 10% of after-tax compensation, also subject to maximum limits imposed by the IRS. Total contributions in 2013, 2012, and 2011, including the Company’s match if any, were limited by IRS regulations to $51,000 per participant for 2013, $50,000 per participant for 2012 and $49,000 per participant for 2011.

The 401(k) Plan for Salaried Employees —In accordance with the terms of the plan, the Company matched the employee’s contributions up to the first $1,200 contributed by the employee. For employee contributions in excess of $1,200, the Company matched $0.25 for every $1.00 in pretax employee contributions up to the IRS maximum limits. The amounts of matching contributions by the Company were $0.4 million, $0.3 million, and $0.2 million, for the years ended December 31, 2013, 2012, and 2011, respectively.

401(k) Plan for Hourly Wage Employees and/or Employees Covered by Collective Bargaining Agreement —This is a limited contributory plan that was instituted in April 1995. In 2002, train and engine hourly employees became eligible for a Company matching contribution of $0.20 for every $1.00 of employee contributions up to $200 annually. In 2006, boilermakers, electricians, machinists, shop laborers, and signal and communication workers also became eligible for the same matching contributions. In 2009, the International Brotherhood of Electrical Workers (“IBEW”), carmen, agents, clerical workers, dispatchers, and foreman also became eligible for the same matching contributions. The amounts of matching contributions for the years ended December 31, 2013, 2012, and 2011 were immaterial.

Pension Plan —The Company adopted an unfunded defined benefit plan covering previous officers of the Company in 1998. The benefits are based on years of service and the employee’s compensation during the five years before retirement. The Company curtailed this plan in 1999, causing no additional benefits to accrue to covered officers. The following chart summarizes the benefit obligations and includes rate assumptions associated with the defined benefit plan for the years ended December 31, 2013, 2012, and 2011:

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	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011
	(in thousands)
Balance obligation at beginning of period	$	3,666		$	3,651		$	3,740
Interest cost	167			159			180
Actuarial loss	33			272			149
Benefits paid	(416		)	(416		)	(418		)
Benefit obligation at end of period	$	3,450		$	3,666		$	3,651
Discount rate assumed	3.5		%	2.5		%	3.25		%

As of December 31, 2013 and 2012, the total accrued liability related to the benefit obligation was $3.5 million and $3.7 million, respectively. Of the total liability, $3.0 million and $3.2 million were classified in other long-term liabilities in the consolidated balance sheet as of December 31, 2013 and 2012, respectively. The remaining balance of $0.5 million and $0.5 million, for the years ended December 31, 2013 and 2012, respectively, was presented as other current liabilities in the consolidated balance sheet. As of December 31, 2013 and 2012, accumulated other comprehensive loss included $1.2 million and $1.1 million, respectively, of unrealized losses related to the benefit plan. Assuming no change in participation, the Company expects to incur benefit payments of $0.2 million per year over the next five years.

9. Preferred Stock

The Company has 24,151 shares of Series A Redeemable Preferred Stock (the “preferred shares) issued and outstanding. These preferred shares are held by FECR Rail LLC. Dividends accumulate at the rate of 15% per annum, subject to limitations on distributions by the Company imposed by the terms of any financing, swap, or other agreement. The Company was able to redeem in whole or in part the preferred shares at any time.

As of December 31, 2013 and 2012, the total unpaid preferred yield was $12.3 million, and $7.5 million, respectively, on the then 19,809 preferred share units with a carrying value of $19.8 million for both years.

10. Share-Based Compensation

A summary of the fair value of nonvested shares is as follows:

	Shares		Weighted- average fair value per share at grant date		Fair value of nonvested shares at grant date
					(in thousands}

Outstanding as of December 31, 2010	4,392		$	698.89	$	3,069.5

Granted	1,240		992.98		1,231.3
Vested	(799	)	699.29		(558.7		)
Cancelled	(76	)	713.19		(54.2		)

Outstanding as of December 31, 2011	4,757		$	775.26	$	3,687.9

Granted	539		1,333.47		718.7
Vested	(1,765	)	768.31		(1,356.1		)
Cancelled	(1,213	)	917.94		(1,113.5		)

Outstanding as of December 31, 2012	2,318		$	835.84	$	1,937.5

Granted	237		2,072.63		491.2
Vested	(1,448	)	963.91		(1,395.7		)
Cancelled	(58	)	1,411.46		(81.9		)

Outstanding as of December 31, 2013	1,049		$	906.65	$	951.1

Share-based compensation expenses related to restricted stock grants for the years ended December 31, 2013, 2012, and 2011, were $1.4 million, $1.7 million, $1.8 million, respectively.

During 2013 the Company added a retirement eligible clause that permits restricted stock grants to vest immediately once the grantee reaches age 60.

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Exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”), for the foregoing issuances is based on Section 4(2) of the Act and Regulation D, promulgated thereunder. The foregoing issuances were compensatory in nature and were made without cost to the recipients, other than the provision of services.

As of December 31, 2013, there was $0.2 million of unrecognized compensation expense related to unvested restricted share compensation arrangements, which is expected to be recognized over a weighted average period of 0.3 years. The total fair value of shares vested during the years December 31, 2013, 2012, and 2011 was $1.4 million, $1.4 million, and $1.0 million, respectively.

11. Commitments and Contingencies

The Company is the defendant and plaintiff in various lawsuits resulting from its operations. In the opinion of management, appropriate provisions have been made in the Consolidated Financial Statements for the estimated liability that is probable of resulting from disposition of such matters. The Company maintains comprehensive liability insurance for bodily injury and property claims, but is self-insured or maintains a significant self-insured retention for these exposures.

In September 2006, the Florida Department of Environmental Protection (“FDEP”) notified the Company and an adjacent property owner that they had been identified as potentially responsible parties (“PRPs”) as a result of an investigation into contaminated groundwater in Fort Pierce, Florida. As of December 31, 2013, and 2012, the Company had accrued $1.3 million and $1.5 million, respectively, related to the alleged contamination. Of the $1.3 million accrued at December 31, 2013, $0.3 million is expected to be paid over the next year. FDEP and the Company agreed in April 2012 that the Company’s scope of testing is complete and the Company can initiate a pilot remediation of the property. The Company completed selection of a contractor and initiated the pilot remediation in early 2013. The pilot remediation is in the final stages with preliminary effective results in reducing contaminates in the groundwater. Further assessment of the primary source is planned by the Company to refine the treatment strategy and establish an updated accrual estimate for remediating the site with completion in early second quarter of 2014.

In addition to the above site, the Company monitors a small number of other sites leased to others, or acquired by the Company or its subsidiaries. Based on management’s ongoing review and monitoring of these sites, and the ability to seek contribution or indemnification from the PRPs, the Company does not expect to incur material additional costs.

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.

In addition, the Company had accrued approximately $0.1 million and $0.6 million related to various other environmental incidents as of December 31, 2013 and 2012, respectively.

These liabilities are accrued when estimable and probable in accordance with the Contingencies Topic in the ASC. Actual settlements and claims received could differ. The final outcome of these matters cannot be predicted with certainty. Considering the legal defenses currently available, the liabilities that have been recorded and other factors, it is the opinion of management that none of these items individually, when finally resolved, will have a material effect on the Company’s financial condition, results of operations or liquidity. Should a number of these items occur in the same period, however, they could have a material effect on the Company’s financial condition, results of operations or liquidity in that particular period.

The Company is obligated under several noncancellable operating leases covering its facilities and equipment (primarily locomotives, trailers, and office and computer equipment). The lease terms are from one to ten years.

Future minimum payments under the leases, including applicable sales tax, are as follows (in thousands):

2014	$	9,993
2015	9,549
2016	8,968
2017	2,794
2018	1,880
Thereafter	1,432
	$	34,616

As previously described in Note 4, on January 24, 2011, the Company entered into an amended and restated rail yard lease, which, among other things, extends the date to vacate to December 31, 2035 (unless the Company elects to terminate the lease or purchase the land), provides for an annual rental fee of $4.5 million a year (subject to a 2.5% annual increase), provides the Company with the right to purchase certain land from FECI’s affiliate at a mutually determined fair market value, and provides FECI’s affiliate with the right to relocate the Company (at its expense) from such land to comparable property with competitive rental rates. The lease is cancellable after five years, with a two-year notice requirement.

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12. Customers

The Company’s aggregate business represents approximately 15% of total revenues for the year ended December 31, 2013. The top three aggregate customers represent approximately 12%, 11% and 11% of the Railway’s total revenues for the years ended December 31, 2013, 2012 and 2011, respectively. The Railway’s revenues are affected by the demand for aggregate material, primarily in Florida, and the ability of these customers to supply, efficiently and effectively, this natural raw material. In addition, outside of the three primary aggregate customers, one customer represents approximately 11% total revenues for the year ended December 31, 2011. No single customer represented more than 10% of total revenues for the years ended December 31, 2013 and 2012.

While there are no assurances, the Railway’s customers expect to have adequate reserves of minable aggregate material to satisfy demand in the foreseeable future. For the years ended December 31, 2013, 2012, and 2011, aggregate loads accounted for approximately $40.8 million, $36.2 million, and $25.7 million of freight revenue, respectively, or 16%, 16%, and 13%, respectively, of the Railway’s freight revenues.

13. Impairment of Assets

During the fourth quarter of 2013, the Company reviewed the serviceable status of the hopper car fleet. The Company identified 70 hoppers that will no longer be used and recorded an impairment charge of $0.4 million to adjust their carrying value to their fair value (Level 2 fair value measurement) based on current scrap value obtained from third-party price quotations. As a result, the Company classified these hopper cars as held for sale at December 31, 2013. In addition, the Company reviewed their locomotive fleet and identified 3 locomotives that will no longer be used and recorded an impairment charge of $0.2 million to adjust their carrying value to their fair value (Level 2 fair value measurement) based on current re-sale and scrap value obtained from third-party price quotations. As a result, the Company classified these locomotives as held for sale at December 31, 2013.

During the fourth quarter of 2012, the Company reviewed the serviceable status of the hopper car fleet. The Company identified 227 hoppers that will no longer be used and recorded an impairment charge of $3.5 million to adjust their carrying value to their fair value (Level 2 fair value measurement) based on current scrap value obtained from third-party price quotations. As a result, the Company classified these hopper cars as held for sale at December 31, 2012. The Company sold the 227 hoppers during 2013 for $1.8 million.

14. Track Maintenance Agreement

The Company entered into a Track Maintenance Agreement with an unrelated third-party customer (the “Shipper”). Under the agreement, the Shipper paid for qualified railroad track maintenance expenditures during the fiscal year in exchange for the assignment of railroad track miles, which permits the Shipper to claim certain tax credits pursuant to Section 45G of the Internal Revenue Code. The track maintenance tax credit was not renewed until January 2013; however, the extension did include retroactive tax credit reimbursement for 2012 and 2013. Therefore, no 45G maintenance reimbursement was reflected in the 2012 financial statements. For the year ended December 31, 2013, the Company recorded $4.7 million, of maintenance expenditures. The $4.7 million recorded includes the credits earned for 2012 and 2013. This amount is included in other expenses as a reduction to expense in the Consolidated Statements of Operations and Comprehensive Loss. As of December 31, 2013, the Company has a net outstanding receivable of zero.

15. Port Activity

In October 2010, Miami-Dade County, owner of the Port of Miami, was awarded a $22.8 million federal grant under the U.S. Department of Transportation’s Transportation Investment Generating Economic Recovery II (“TIGER”) program to rehabilitate the port’s rail bridge and construct new rail facilities on port property (“on-port project”). In addition to the $22.8 million TIGER grant, an additional $2.3 million will be funded by Port Miami. These projects will enable cargo to be moved directly from the port’s facility to an inland distribution center and alleviate traffic congestion in and around the port.

On September 20, 2011, Miami-Dade County entered into a Rail Bridge Construction Agreement with the Company. Under this agreement, the Company is responsible for the administration of the construction work for the Bascule Bridge over Biscayne Bay which connects the Company’s Port Lead to the Port of Miami. The Company is reimbursed for all of the costs incurred. For the years ended December 31, 2013 and 2012, the Company incurred costs of $1.7 million and $5.2 million, respectively. As of December 31, 2013 the Company had an outstanding receivable of $0.3 million.

The TIGER grant also includes funding for the Port Rail Intermodal Apron (“apron”). This consists of construction of an intermodal apron running parallel to the full length of the tracks at Port Miami. The apron will include securing fencing, a radiation portal and inspection infrastructure, and crossing improvements. The Company will be reimbursed for all of the costs incurred. For the years ended December 31, 2013 and 2012, the Company incurred costs of $6.9 million and zero, respectively. As of December 31, 2013, the Company had an outstanding receivable of $6.9 million.

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The Company has established intermodal container rail service on its own rail line leading into Port Miami at an estimated total cost of $18.3 million (“off-port project”). The Company signed an agreement with FDOT on January 24, 2011, in which FDOT will participate in funding of the “off-port project” and will reimburse the Company an estimated $9.1 million of the total cost. As of December 31, 2012, the Company had incurred approximately $18.3 million of capital expenditures related to the Port Miami off-port project. Of this amount, the Company has reduced this capital expenditure by $9.1 million with grant proceeds. As of December 31, 2013, the Company has completed the first phase of this project.

On March 15, 2011, the Company entered into an Assumption Agreement with Miami-Dade County. Under the agreement, the Company will perform track improvements in the Hialeah Yard to better accommodate current and future customers to include double stack containers coming from the Port of Miami. The Company will be reimbursed for all of the costs incurred. For the years ended December 31, 2013 and 2012, the Company incurred costs of $1.2 million and zero, respectively. As of December 31, 2013, the Company had an outstanding receivable of $1.2 million.

On January 31, 2012, the Company entered into a Port Everglades Intermodal Container Transfer Facility Lease and Operating Agreement with Broward County. The agreement was ratified by Broward County on March 20, 2012. The term of the agreement is 30 years with two 10-year options. The Agreement was subject to the closing of the SIB Loan with FDOT. The SIB Loan closed on September 26, 2012. The Agreement provides the Company the land needed to construct an intermodal facility to serve its domestic and international business segments. The total construction cost is approximately $53 million, $30 million of which will be funded through the SIB Loan, $18 million from a FDOT grant and the balance of $5 million from the Company’s capital budget. The Company has been awarded the entire $18 million FDOT grant as of December 31, 2012. Upon project commencement, the Company will be reimbursed for half of the corresponding expenditures, not to exceed the $18 million FDOT grant. For the years ended December 31, 2013 and 2012, the Company has incurred costs of $23.2 million and zero, respectively. As of December 31, 2013, the Company had an outstanding receivable of $7.4 million.

16. Concentration of Labor

As of December 31, 2013, the Company had approximately 618 employees, of which approximately 408 employees are represented by three labor unions. All three labor union union agreements have or will expire by the end of 2014. Under terms of the Railway Labor Act, the collective bargaining agreements that reach the amendable date must maintain the status quo until agreement of modifications is reached. In these cases, work rules and compensation remain unchanged until the new language is concluded and ratified by the represented employee group.

17. Subsequent Events

On January 30, 2014, the Company entered into a Locomotive Purchase Agreement with General Electric Company (the “Agreement”). The Agreement provides for the Company to purchase twenty-four locomotives for a purchase price of approximately $55.4 million.

In January 2014, the Company received additional SIB Loan funds of approximately $2.0 million.

18. Guarantor Condensed Consolidated Financial Statements

Holdings Corp. was incorporated on January 10, 2011. In January 2011, all of the equity interests in FECR Corp. were transferred from FECR Rail LLC to Holdings Corp., whereby Holdings Corp. became the direct parent of FECR Corp. Holdings Corp. is a holding company and has no direct operations or material assets other than its wholly owned interest in FECR Corp. All of Holdings Corp.’s operations are conducted through its subsidiaries. The only material differences between Holdings Corp. and FECR Corp. are the separate Senior PIK Toggle Notes issued by Holdings Corp. and its related accounts, including deferred financing costs, amortization, payment of interest and payment of taxes. Where information or an explanation is provided that is substantially the same for each company, such information or explanation has been combined. Where information or an explanation is not substantially the same for each company, we have provided separate information and explanation.

The Consolidating Financial Statements herein present consolidating financial data for Holdings Corp. (on a parent only basis), FECR Corp. (on an issuer only basis), an elimination column for adjustments to arrive at the information for the parent company and subsidiaries on a consolidated basis and the parent company and subsidiaries on a consolidated basis as of December 31, 2013 and 2012 and for each of the three years ended December 31, 2013.

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Condensed consolidating balance sheets as of December 31, 2013.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)		Eliminations for Consolidation			Consolidation
Current assets:
Cash and cash equivalents	$	34		$	36,053	$	—		$	36,087
Restricted cash	—			126		—			126
Accounts receivable, net	—			52,084		—			52,084
Materials and supplies	—			7,373		—			7,373
Deferred income taxes	(439		)	2,418		—			1,979
Prepaid and other current assets	1			2,898		—			2,899
Assets held for sale	—			777		—			777

Total current assets	(404		)	101,729		—			101,325
Noncurrent assets:
Property, plant and equipment, less accumulated depreciation	—			791,907		—			791,907
Investments in affiliates	415,598			—		(415,598		)	—
Investments in non-affiliates	—			74		—			74
Intangible assets, less accumulated amortization	—			164		—			164
Other assets	1,254			26,349		(15,289		)	12,314

Total noncurrent assets	416,852			818,494		(430,887		)	804,459

Total assets	$	416,448		$	920,223	$	(430,887	)	$	905,784
Current liabilities:
Accounts payable and accrued expenses	$	—		$	47,767	$	—		$	47,767
Taxes payable	—			268		—			268
Deferred revenue	—			877		—			877
Other current liabilities	—			2,713		—			2,713

Total current liabilities	—			51,625		—			51,625
Deferred income taxes	(439		)	37,037		—			36,598
Long-term debt	159,874			481,388		—			641,262
Other long-term liabilities	22,852			6,292		(15,289		)	13,855

Total liabilities	182,287			576,342		(15,289		)	743,340

Total stockholders’ equity (deficit)	234,161			343,881		(415,598		)	162,444

Total liabilities and stockholders’ equity	$	416,448		$	920,223	$	(430,887	)	$	905,784

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Condensed consolidating balance sheets as of December 31, 2012.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)		Eliminations for Consolidation			Consolidation
Current assets:
Cash and cash equivalents	$	34		$	40,366	$	—		$	40,400
Restricted cash	—			126		—			126
Accounts receivable, net	—			34,380		—			34,380
Materials and supplies	—			3,577		—			3,577
Deferred income taxes	(271		)	2,645		—			2,374
Prepaid and other current assets	1			2,475		—			2,476
Assets held for sale	—			1,839		—			1,839

Total current assets	(236		)	85,408		—			85,172
Noncurrent assets:
Property, plant and equipment, less accumulated depreciation	—			772,429		—			772,429
Investments in affiliates	415,597			—		(415,597		)	—
Investments in non-affiliates	—			74		—			74
Intangible assets, less accumulated amortization	—			220		—			220
Other assets	1,606			16,326		(2,641		)	15,291

Total noncurrent assets	417,203			789,049		(418,238		)	788,014

Total assets	$	416,967		874,457		$	(418,238	)	$	873,186
Current liabilities:
Accounts payable and accrued expenses	$	—		42,277		$	—		$	42,277
Taxes payable	—			326		—			326
Deferred revenue	—			906		—			906
Other current liabilities	—			954		—			954

Total current liabilities	—			44,463		—			44,463
Deferred income taxes	(271		)	25,108		—			24,837
Long-term debt	150,969			475,000		—			625,969
Other long-term liabilities	9,802			5,560		(2,641		)	12,721

Total liabilities	160,500			550,131		(2,641		)	707,990

Total stockholders’ equity (deficit)	256,467			324,326		(415,597		)	165,196

Total liabilities and stockholders’ equity	$	416,967		874,457		$	(418,238	)	$	873,186

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Condensed consolidating statement of operations for the year ended December 31, 2013.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)			Eliminations for Consolidation		Consolidation
Operating revenue	$	—		$	279,081		$	—	$	279,081
Operating expenses:
Labor and benefits	—			55,381			—		55,381
Purchased services	—			54,422			—		54,422
Fuel	—			34,598			—		34,598
Depreciation and amortization	—			26,228			—		26,228
Equipment rents	—			16,430			—		16,430
Net loss on sale and impairment of assets	—			630			—		630
Other expenses	—			19,172			—		19,172

Total operating expenses	—			206,861			—		206,861

Operating income	—			72,220			—		72,220

Interest expense (net of interest income)	(18,133		)	(42,002		)	—		(60,135		)
Other expense	—			61			—		61

Gain (Loss) before income taxes	(18,133		)	30,279			—		12,146
Provision for income taxes	—			12,138			—		12,138

Net income (loss)	$	(18,133	)	$	18,141		$	—	$	8
Other comprehensive loss:
Actuarial loss associated with pension plan	—			(33		)	—		(33		)
Comprehensive (loss) income	$	(18,133	)	$	18,108		$	—	$	(25	)

Condensed consolidating statement of operations for the year ended December 31, 2012.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)			Eliminations for Consolidation		Consolidation
Operating revenue	$	—		$	246,823		$	—	$	246,823
Operating expenses:
Labor and benefits	—			48,585			—		48,585
Purchased services	—			44,808			—		44,808
Fuel	—			31,689			—		31,689
Depreciation and amortization	—			27,013			—		27,013
Equipment rents	—			13,423			—		13,423
Net loss on sale and impairment of assets	—			3,351			—		3,351
Other expenses	—			24,934			—		24,934

Total operating expenses	—			193,803			—		193,803

Operating income	—			53,020			—		53,020

Interest expense (net of interest income)	(17,212		)	(41,603		)	—		(58,815		)
Other expense	—			85			—		85

(Loss) Gain before income taxes	(17,212		)	11,502			—		(5,710		)
Provision for income taxes	—			7,604			—		7,604

Net (loss) income	$	(17,212	)	$	3,898		$	—	$	(13,314	)
Other comprehensive income (loss):
Actuarial loss associated with pension plan	—			(272		)	—		(272		)
Realized loss on sale of marketable securities	—			2			—		2
Comprehensive (loss) income	$	(17,212	)	$	3,628		$	—	$	(13,584	)

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Condensed consolidating statement of operations for the year ended December 31, 2011.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)			Eliminations for Consolidation		Consolidation
Operating revenue	$	—		$	213,305		$	—	$	213,305
Operating expenses:
Labor and benefits	—			46,622			—		46,622
Purchased services	397			35,582			—		35,979
Fuel	—			29,987			—		29,987
Depreciation and amortization	—			27,249			—		27,249
Equipment rents	—			11,607			—		11,607
Net loss on sale and impairment of assets	—			1,906					1,906
Other expenses	—			24,958			—		24,958

Total operating expenses	397			177,911			—		178,308

Operating income	(397		)	35,394			—		34,997

Interest expense (net of interest income)	(13,860		)	(43,560		)	—		(57,420		)
Other expense	—			(44		)	—		(44		)

Loss before income taxes	(14,257		)	(8,210		)	—		(22,467		)
Provision for income taxes	—			14,851			—		14,851

Net loss	$	(14,257	)	$	(23,061	)	$	—	$	(37,318	)
Other comprehensive loss:
Actuarial loss associated with pension plan	—			(149		)	—		(149		)
Comprehensive loss	$	(14,257	)	$	(23,210	)	$	—	$	(37,467	)

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Table of Contents

Condensed consolidating statement of cash flows for the year ended December 31, 2013.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)			Eliminations for Consolidation			Consolidation
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)	$	(18,133	)	$	18,141		$	—		$	8
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	—			26,228			—			26,228
Amortization of debt financing fees	663			2,913			—			3,576
Gain on sale and impairment of assets	—			630			—			630
Share-based compensation costs	—			1,447			—			1,447
Deferred taxes				12,156			—			12,156
Interest paid in kind	8,592			—			—			8,592
Other	—			—			—			—
Changes in operating assets and liabilities:
Restricted cash	—			—			—			—
Accounts receivable	—			(17,704		)	—			(17,704		)
Prepaid and other current assets	—			(423		)	—			(423		)
Materials and supplies	—			(3,196		)	—			(3,196		)
Other assets and deferred charges	—			(12,935		)	12,648			(287		)
Accounts payable and accrued expenses	—			5,595			—			5,595
Accrued interest (short-term)	—			(104		)	—			(104		)
Taxes payable	—			(58		)	—			(58		)
Deferred revenue	—			(29		)	—			(29		)
Other current liabilities	—			1,759			—			1,759
Other long-term liabilities	13,052			697			(12,648		)	1,101

Net cash provided by operating activities	4,174			35,117			—			39,291

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of properties and equipment	—			(48,006		)	—			(48,006		)
Proceeds from disposition of assets	—			2,188			—			2,188

Net cash used in investing activities	—			(45,818		)	—			(45,818		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt	—			6,388			—			6,388
Purchase of common stock outstanding	(4,174		)	—			—			(4,174		)

Net cash provided by (used in) financing activities	(4,174		)	6,388			—			2,214
Net decrease in cash and cash equivalents	—			(4,313		)	—			(4,313		)
Cash and cash equivalents at beginning of period	34			40,366			—			40,400

Cash and cash equivalents at end of period	$	34		$	36,053		$	—		$	36,087

Supplemental cash flow information:
Cash paid for interest	$	8,470		$	38,594		$	—		$	47,064

F-25

Table of Contents

Condensed consolidating statement of cash flows for the year ended December 31, 2012.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)			Eliminations for Consolidation			Consolidation
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) income	$	(17,212	)	$	3,898		$	—		$	(13,314	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	—			27,013			—			27,013
Amortization of debt financing fees	632			2,909			—			3,541
Gain on sale and impairment of assets	—			3,351			—			3,351
Share-based compensation costs	—			1,690			—			1,690
Deferred taxes				7,604			—			7,604
Interest paid in kind	15,835			—			—			15,835
Other	—			(1		)	—			(1		)
Changes in operating assets and liabilities:
Accounts receivable	—			(3,295		)	—			(3,295		)
Prepaid and other current assets	—			(339		)	—			(339		)
Materials and supplies	—			(364		)	—			(364		)
Other assets and deferred charges	(652		)	(1,669		)	2,641			320
Accounts payable and accrued expenses	(4		)	1,105			—			1,101
Taxes payable	—			(6,610		)	—			(6,610		)
Deferred revenue	—			(2,949		)	—			(2,949		)
Other current liabilities	—			243			—			243
Other long-term liabilities	3,382			(1,081		)	(2,641		)	(340		)

Net cash provided by operating activities	1,981			31,505			—			33,486

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of properties and equipment	—			(22,403		)	—			(22,403		)
Proceeds from disposition of assets	—			612			—			612

Net cash used in investing activities	—			(21,791		)	—			(21,791		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of common stock outstanding	(1,991		)	—			—			(1,991		)
Financing costs	—			(209		)	—			(209		)

Net cash used in financing activities	(1,991		)	(209		)	—			(2,200		)

Net increase (decrease) in cash and cash equivalents	(10		)	9,505			—			9,495
Cash and cash equivalents at beginning of period	44			30,861			—			30,905

Cash and cash equivalents at end of period	$	34		$	40,366		$	—		$	40,400
Supplemental cash flow information:
Cash paid for interest	$	—		$	38,594		$	—		$	38,594

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Table of Contents

Condensed consolidating statement of cash flows for the year ended December 31, 2011.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)			Eliminations for Consolidation			Consolidation
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss	$	(14,257	)	$	(23,061	)	$	—		$	(37,318	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	—			27,249			—			27,249
Amortization of debt financing fees	535			3,079			—			3,614
Gain on sale and impairment of assets	—			1,906			—			1,906
Share-based compensation costs	—			1,800			—			1,800
Deferred taxes	—			14,859			—			14,859
Interest paid in kind	6,906			—			—			6,906
Other	—			68			—			68
Changes in operating assets and liabilities:
Accounts receivable	—			(5,238		)	—			(5,238		)
Prepaid and other current assets	—			209			—			209
Materials and supplies	—			(293		)	—			(293		)
Other assets and deferred charges	4			(346		)	650			308
Accounts payable and accrued expenses	6			18,553			—			18,559
Taxes payable	—			212			—			212
Deferred revenue	—			152			—			152
Other current liabilities	(6		)	23			—			17
Other long-term liabilities	7,069			(3,934		)	(650		)	2,485

Net cash provided by operating activities	257			35,238			—			35,495

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of properties and equipment	—			(25,668		)	—			(25,668		)
Release of interest reserve account	—			4,008			—			4,008
Proceeds from disposition of assets	—			9,864			—			9,864

Net cash used in investing activities	—			(11,796		)	—			(11,796		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution to subsidiary from parent	(140,000		)	140,000			—			—
Contribution from FECR Rail LLC	16,000			—			—			16,000
Payment on long-term debt	—			(601,185		)	—			(601,185		)
Proceeds from issuance of long-term debt	127,725			475,000			—			602,725
Purchase of common stock outstanding	(558		)				—			(558		)
Proceeds from issuance of preferred shares	125,000			—			—			125,000
Redemption of preferred share units (including interest paid)	(126,111		)	—			—			(126,111		)
Financing costs	(2,269		)	(15,702		)	—			(17,971		)

Net cash used in financing activities	(213		)	(1,887		)	—			(2,100		)

Net increase in cash and cash equivalents	44			21,555			—			21,599
Cash and cash equivalents at beginning of period	—			9,306			—			9,306

Cash and cash equivalents at end of period	$	44		$	30,861		$	—		$	30,905
Supplemental cash flow information:
Cash paid for interest	$	1,111		$	23,955		$	—		$	25,066

F-27

10.24**		First Amendment to Employment Agreement dated February 19, 2014, by and among Florida East Coast Railway, L.L.C. and James R. Hertwig.

10.25**		First Amendment to Employment Agreement dated February 19, 2014, by and among Florida East Coast Railway, L.L.C. and John A. Brenholt.

21.1*		Subsidiaries of the Registrant, incorporated by reference to Exhibit 21.1 to the Company’s Registration Statement on Form S-4 (Registration No. 333-174112) filed on May 10, 2011.

31.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1*		Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

32.2*		Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

Florida East Coast Holdings Corp. – ‘10-K’ for 12/31/13

On: Wednesday, 3/12/14, at 12:02pm ET · For: 12/31/13 · Accession #: 1104659-14-18713 · File #: 333-174112

Previous ‘10-K’: ‘10-K’ on 3/13/13 for 12/31/12 · Latest ‘10-K’: This Filing

Annual Report — Form 10-K — Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

‘10-K’ — Annual Report
Document Table of Contents

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Dates Referenced Herein and Documents Incorporated by Reference

	Page
PART I	4

Item 1. Business	4

Item 1A. Risk Factors	12

Item 1B. Unresolved Staff Comments	18

Item 2. Properties	19

Item 3. Legal Proceedings	20

Item 4. Mine Safety Disclosures	20

PART II	21

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21

Item 6. Selected Financial Data	21

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 7A. Quantitative and Qualitative Disclosures About Market Risk	33

Item 8. Financial Statements and Supplementary Data	34

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	34

Item 9A. Controls and Procedures	34

Item 9B. Other Information	34

PART III	35

Item 10. Directors, Executive Officers and Corporate Governance	35

Item 11. Executive Compensation	38

Item 12. Security Ownership of Certain Beneficial Owners and Management	46

Item 13. Certain Relationships and Related Transactions, and Director Independence	47

Item 14. Principal Accountant Fees and Services	48

PART IV	49

Item 15. Exhibits and Financial Statement Schedules	49

	Year Ended December 31, 2009		Year Ended December 31, 2010		Year Ended December 31, 2011		Year Ended December 31, 2012		Year Ended December 31, 2013
	(in thousands, except freight units)
OTHER DATA:
Freight units	372,487		421,801		428,120		475,667		501,962
Dividends paid	$	20,000	$	—	$	—	$	—	$	—
Capital Expenditures	$	14,005	$	16,009	$	25,668	$	22,403	$	48,006

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Florida East Coast Holdings Corp. – ‘10-K’ for 12/31/13

On: Wednesday, 3/12/14, at 12:02pm ET · For: 12/31/13 · Accession #: 1104659-14-18713 · File #: 333-174112

Previous ‘10-K’: ‘10-K’ on 3/13/13 for 12/31/12 · Latest ‘10-K’: This Filing

Annual Report — Form 10-K — Sect. 13 / 15(d) – SEA’34Filing Table of Contents

‘10-K’ — Annual ReportDocument Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

Annual Report — Form 10-K — Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

‘10-K’ — Annual Report
Document Table of Contents