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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, 1999
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 2-89530
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FLORIDA EAST COAST INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
FLORIDA 59-2349968
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MALAGA STREET, ST. AUGUSTINE, FLORIDA 32084
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 829-3421
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock-No par value New York Stock Exchange
Collateral Trust 5% Bonds New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES (X) NO ( )
Indicate by check mark if the disclosure of delinquent filers, pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained or, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Based on the closing sales price of March 15, 2000, the aggregate market value
of the common stock held by non-affiliates of the Registrant was approximately
$655 million.
The number of shares of the Registrant's common stock, no par value, is
37,218,022 shares issued and 36,418,938 shares outstanding at March 15, 2000,
with 799,084 shares of treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on May 16, 2000 (the "Proxy Statement") are
incorporated in Part III of this Report by reference.
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Forward-Looking Statements
This Form 10-K, including the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations," contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that are not historical facts. Such forward-looking information may
include, without limitation, statements that the Company does not expect that
lawsuits, environmental costs, commitments, contingent liabilities, labor
negotiations or other matters will have a material adverse effect on its
consolidated financial condition, results of operations or liquidity, and other
similar expressions concerning matters that are not historical facts and
projections as to the Company's financial results. Such statements are subject
to certain risks and uncertainties, which could cause actual results to differ
materially from those anticipated in the forward-looking statements. Important
factors that could cause such differences include, but are not limited to
contractual relationships, industry competition, regulatory developments,
changes in technology, natural events such as weather conditions, floods and
earthquakes, forest fires, the effects of adverse general economic conditions,
changes in the real estate markets and interest rates, fuel prices, and the
ultimate outcome of environmental investigations or proceedings and other types
of claims and litigation.
As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition, operating results and stock price.
Readers should not place undue reliance on forward-looking statements
which reflect management's view only as of the date hereof. The Company
undertakes no obligation to publicly release revisions to these forward-looking
statements that reflect events or circumstances after the date hereof or reflect
the occurrence of unanticipated events.
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PART I
As used throughout this Form 10-K Annual Report, the terms "FECI," the "Company"
and "Registrant" mean Florida East Coast Industries, Inc. and its consolidated
subsidiaries.
ITEM 1. BUSINESS
GENERAL
FECI is a holding company incorporated under the laws of the state of Florida in
1983, engaged, through four wholly-owned subsidiaries, in rail and trucking
operations, real estate (ownership, development and management) and
telecommunications (dark fiber and broadband capacity sales). The Company's rail
operations connect many of the major population centers and port facilities of
Florida, and provide efficient service for its customers through multiple
competitive connections to the rest of North America. Florida East Coast Railway
("FECR"), FECI's subsidiary, carries construction aggregate (crushed stone and
sand), automobiles and other rail carload commodities, as well as intermodal
freight. The Company, through its real estate subsidiary, has extensive and
valuable real estate holdings in Florida, totaling approximately 17,800 acres,
including 5.2 million square feet of commercial and industrial space in 50
buildings owned by the Company, 509,000 square feet under construction, and
686,000 square feet in pre-development stages. The Company owns unimproved land,
including certain land (1,255 acres) with relevant development permits
authorizing the construction of 16 million square feet of additional industrial
and commercial space and raw land, which has yet to be entitled for development.
EPIK Communications Incorporated ("EPIK"), the Company's telecommunications
subsidiary previously known as FEC Telecom, Inc., is based in Orlando, Florida,
and is a provider of wholesale telecommunications private line services
("bandwidth") and dark fiber. As of December 31, 1999, EPIK's "Florida
Footprint" included 12,600 fiber miles of "dark fiber" fiber optic cable, 350
miles of active ("lit") fiber network, as well as telecommunications conduit
comprising a 790-mile "telecommunications loop" that will reach 12 of Florida's
15 largest population centers and 70% of its total population. EPIK also entered
into a swap of dark fiber with another carrier to gain fiber in Louisiana and
Texas. Subsequent to December 31, 1999, EPIK has installed additional dark
fiber, is activating additional portions of the "Florida Footprint" and has
entered into other fiber swaps to expand its dark fiber network. EPIK is
pursuing further expansions to its lit and dark fiber networks.
RECAPITALIZATION AND DISTRIBUTION TRANSACTION
On October 27, 1999, The St. Joe Company ("St. Joe") and FECI announced they
have agreed to undertake a recapitalization of the Company to facilitate a pro
rata tax-free spin-off to St. Joe's shareholders of St. Joe's 54% equity
interest in the Company.
As part of the recapitalization, St. Joe will exchange all of its shares of the
Company's common stock for an equal number of shares of a new class of the
Company's common stock. The holders of the new class of the Company's common
stock will be entitled to elect 80% of the members of the Board of Directors of
the Company, but the new common stock will otherwise have substantially
identical rights to the existing common stock. The new class of the Company's
common stock will be distributed pro rata to St. Joe shareholders in a tax-free
distribution. St. Joe will not retain any equity interest in the Company after
the spin-off is completed.
The recapitalization, exchange and spin-off are expected to be completed during
the second or third quarter of 2000.The transaction is subject to a number of
conditions, including the receipt of an Internal Revenue Service ruling
concerning the tax-free status of the proposed spin-off. On March 8, 2000, FECI
shareholders, including a majority of the shares not held by St. Joe or its
affiliates, approved the recapitalization pursuant to a Plan of Merger and
amendments to FECI's Articles of Incorporation. Costs (legal, advisory, etc.)
associated with the spin-off are expected to be approximately $2.5 million.
At the closing of the transaction, various real estate service agreements
between St. Joe and Gran Central Corporation ("GCC"), a wholly-owned subsidiary
of the Company, will become effective. Under the terms of these agreements,
which extend for up to three years after the closing of the transaction, GCC
will retain St. Joe, acting through its affiliates, to continue to develop and
manage certain commercial and industrial real estate holdings of GCC.
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INDUSTRY OVERVIEW
RAILWAY
Railroads are divided into three classes based on operating revenues: Class I,
$250 million or more; Class II, $20 million to $250 million; and Class III, less
than $20 million. As a result of mergers and consolidations, there are currently
seven Class I railroads in the country. Proposals for further consolidation of
Class I railroads are pending before the United States Surface Transportation
Board. The Class I systems handle approximately 90% of the nation's rail freight
business. Although consolidation is beginning to occur, the number of Class II
and Class III railroads has risen in the last two decades as the rail freight
industry experienced a revitalization after the 1980 passage of the Staggers
Rail Act, which substantially deregulated the pricing and types of services
provided by railroads. As a result, railroads were able to achieve significant
productivity gains and operating cost decreases while gaining pricing
flexibility. Rail freight service has become more competitive with other
transportation modes in both quality and price. The most recent examples of
consolidation in the industry are the acquisition and division of Conrail
between CSX Corporation and Norfolk Southern Corporation ("NS"); the proposed
combination of Burlington Northern Santa Fe and Canadian National Illinois
Central and, on the short-line segment, the acquisition of RailTex by
RailAmerica. The industry has experienced significant service disruptions as a
result of the consolidation of Union Pacific with Southern Pacific and the
acquisition and division of Conrail.
Freight railroads generally handle two types of traffic: conventional carloads
and intermodal containers and trailers used in the shipment of goods via more
than one mode of transportation, e.g., by ship, rail and truck. By using a
hub-and-spoke approach to shipping, multiple containers can be moved by rail to
and from an intermodal terminal, and then either delivered to their final
destinations by trucks or transferred to ships for export. Over the past decade,
commodity shippers have increasingly turned to intermodal transportation
principally as an alternative to long-haul trucking. The development of
intermodal double-stack technology, which allows containers to be moved one on
top of the other in specially designed rail cars, together with increasing
highway traffic congestion and the shortage of long-haul truck drivers, has
contributed to this trend.
FECR operates a Class II railroad along 350 miles of mainline track between
Jacksonville and Miami, Florida, serving some of the most densely populated
areas of the state. FECR also owns and operates approximately 184 miles of
switching track and 159 miles of yard track, all wholly within Florida. FECR has
the only coastal right-of-way between Jacksonville and Miami and is the
exclusive rail-service provider to the Port of Palm Beach, Port Everglades (Fort
Lauderdale) and the Port of Miami.
FECR principally transports trailers and containers on flatcars, rail carloads
of crushed stone and other construction materials, motor vehicles, foodstuffs
and other consumer products, chemicals and paper.
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The following table summarizes the Company's freight shipments by commodity
group and as a percentage of rail freight revenues:
TRAFFIC
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YEAR ENDED DECEMBER 31, 1999
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(dollars and units in thousands)
COMMODITY UNITS PERCENTAGE (%) AMT. OF REVENUE PERCENTAGE (%)
- --------- ----- -------------- --------------- --------------
Intermodal
TOFC/COFC 287.3 62.3 $65,251 41.2
Rail Carloads
Crushed stone 110.3 23.9 46,354 29.25
Construction materials 5.4 1.2 3,195 2.02
Vehicles 24.3 5.3 18,973 11.97
Foodstuffs 8.4 1.8 6,376 4.0
Chemicals 4.2 0.9 4,752 3.0
Paper 8.7 1.9 7,837 4.9
Other 12.7 2.7 5,744 3.6
----- ----- -------- -----
Total 461.3 100.0 $158,482 100.0
===== ===== ======== =====
FECR connects with NS and with CSX Transportation, Inc. ("CSXT") at Jacksonville
and is able to offer its customers competitive rail connections to the rest of
North America. During 1999, approximately 45% of FECR's freight revenues were
attributable to traffic that originated on other railroads; approximately 5% was
attributable to traffic that originated on FECR but bound for other
destinations, and 50% was attributable to traffic that both originated and
terminated on FECR's system ("local traffic"). With the exception of haulage
services provided for South Central Florida Express, described below, FECR does
not receive traffic from one railroad to be passed over its track to another
railroad. Because all of FECR's traffic either originates in or is bound for
Florida, FECR's revenues can fluctuate seasonally and with economic conditions
in Florida rising as the economy expands and declining as it contracts.
Customers are generally given a "through freight" rate, a single figure
encompassing the rail transportation of a commodity from point of origin to
point of destination, regardless of the number of carriers that handles the car.
Rates are developed by the carriers based on the commodity, volume, distance and
competitive market considerations. The entire freight bill is paid either to the
originating carrier ("prepaid"), or to the destination carrier ("collect"), and
divided among all carriers which handle the move. The basis for the division
varies and can be based on factors (or revenue requirements) independently
established by each carrier which comprise the through rate, or on a percentage
basis established by division agreements among the carriers. A carrier such as
FECR, which actually places the car at the customer's location and attends to
the customer's daily switching requirements, receives revenue greater than an
amount based simply on mileage hauled.
FECR serves over 750 direct rail-served customers, as well as hundreds of other
customers through the Company's intermodal operations. The Company's five
largest customers accounted for approximately 40% of freight revenues in 1999.
One customer accounted for approximately 17% of the Company's rail freight
revenues in 1999.
FECR handles rail cars for South Central Florida Express, Inc. ("South Central")
between Fort Pierce and Jacksonville for interchange with CSXT or NS. South
Central is a short-line railroad operating under a twenty-year Trackage Rights
Agreement over a branch line owned by FECR extending from Fort Pierce to Lake
Harbor. A concurrent Car Haulage Agreement is in effect between Fort Pierce and
Jacksonville.
As owner in fee simple of its railroad right-of-way extending along the East
Coast from Jacksonville to Miami, FECR actively manages this and ancillary real
estate assets owned by it to generate miscellaneous rents and right-of-way lease
profits. FECR leases its right-of-way to various tenants for uses including
utility company installations and telecommunications companies' fiber optics
systems pursuant to long-term leases. FECR
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continues its pursuit of further opportunities in the telecommunications
industry to provide right-of-way leases for fiber optic systems. These revenues
are included in the telecommunications segment. In addition, FECR generates
revenues from the grant of licenses and leases to use railroad property for
outdoor advertising, parking lots and lateral crossings of wires and pipes by
utility companies. These miscellaneous rents are included in the rail segment's
operating revenues.
TRUCKING
FECI also owns 100% of the stock of International Transit, Inc. ("ITI"). FECI
acquired an 80% interest in ITI on April 1, 1995 and the remaining 20% on June
25, 1997. ITI is a common and contract motor carrier operating throughout the
U.S., with a concentration in the Southeast and Midwest. ITI offers truckload
over-the-road service, as well as intermodal drayage. ITI also offers
transportation logistic services and maintains a brokerage operation. ITI
generates revenues from trucking, brokerage and contract logistic services.
Ownership of ITI enables the Company to provide coordinated motor/rail
intermodal services with FECR to and from southeastern points.
During 1999 and 1998, ITI interlined 13,902 and 13,456 intermodal units
(trailers and containers), respectively, with FECR's intermodal facility at
Jacksonville.
REAL ESTATE
FECI owns 100% of the stock of GCC. GCC is engaged in the development, leasing,
management and sales of real estate.
GCC owns, operates and leases commercial and industrial properties throughout
Florida. GCC owned and operated 50 buildings as of December 31, 1999, with
approximately 5.2 million square feet of rentable commercial/industrial space on
365 acres of land. A schedule of these buildings is included in Part 1, Item 2
of this Report. At December 31, 1999, GCC's buildings in service for more than
one year were 89% leased, while 85% of its portfolio as a whole, including newly
constructed buildings, were leased. GCC's buildings are primarily Class "A"
office space and high-quality commercial/industrial facilities constructed after
1987.
At December 31, 1999, GCC had 509,000 square feet under construction, and
686,000 square feet in pre-development, for a total of 1,195,000 square feet,
primarily located in the Jacksonville, Orlando and Miami areas. At the
pre-development phase, GCC has obtained the necessary permits and invested in
engineering, architectural planning and design.
GCC also owns approximately 14,400 acres of undeveloped land in inventory for
potential future commercial and industrial development, primarily situated
adjacent to FECR's rights-of-way along the eastern coast of Florida. Significant
other holdings are in urban or suburban locations offering opportunities for
development of business parks, office buildings, warehouse and industrial
facilities. The Company believes these holdings will provide significant growth
opportunities.
PROJECTS UNDER DEVELOPMENT
The primary focus of GCC's development activities has been the Miami,
Jacksonville and Orlando areas, all of which are highly active with local,
regional and national development companies competing for land and tenants.
The projects under development include:
- GRAN PARK AT SOUTHPARK - ORLANDO, FL: Located at the
intersection of John Young Parkway and Beeline Expressway.
Three buildings, totaling 429,000 square feet, have been
completed. At December 31, 1999, three buildings, totaling
408,000 square feet, were under development, with completions
scheduled for mid-2000. The park has entitlements for an
additional 114,000 square feet of office and call center
space.
In 1999, based on the success of SouthPark, GCC acquired an
additional 90 acres adjacent to the existing park. The land
has entitlements for 1.8 million square feet of office space
and 9 acres of retail uses.
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- BEACON STATION AT GRAN PARK - MIAMI, FL: Located northwest of
Miami International Airport. Twenty-four buildings, totaling
2.4 million square feet, have been completed. At December 31,
1999, a 101,000-square foot operations center for Union
Planters Bank was under construction, with completion
scheduled for mid-2000. The park has entitlements for an
additional 6.2 million square feet of office, industrial and
commercial space. Site preparation is currently underway for
four industrial projects totaling 586,000 square feet. GCC has
also developed 540,000 square feet of industrial space at
Beacon Station in a 50/50 joint venture with Duke-Weeks Realty
Corporation.
GCC owns 540 acres adjacent to this park for future
development.
- BEACON POINTE AT WESTON - WESTON, FL: Located in west Broward
County at I-75 in Weston. In 1998, GCC purchased 30 acres with
entitlements for 375,000 square feet of office space. GCC
intends to develop the project in a 50/50 joint venture with
Duke-Weeks Realty Corporation. The first 100,000-square foot
office building was completed in 1999. Site preparation is
currently underway for the second 100,000-square foot office
building.
The following is a summary of the Company's development activity as of December
31, 1999:
NET RENTABLE
STATUS OWNER PROPERTY DESCRIPTION SQUARE FEET START DATE
------ ----- -------------------- ----------- ----------
Under construction GCC Gran Park at SouthPark 177,800 May 1999
Under construction GCC Gran Park at SouthPark 132,000 Aug. 1999
Under construction GCC Gran Park at SouthPark 97,800 Oct. 1999
Under construction GCC Beacon Station at Gran Park 101,400 Oct. 1999
Pre-development GCC Beacon Station at Gran Park 160,600 TBD
Pre-development GCC Beacon Station at Gran Park 182,000 TBD
Pre-development GCC Beacon Station at Gran Park 200,700 TBD
Pre-development GCC Beacon Station at Gran Park 42,800 TBD
Pre-development GCC/Weeks Beacon Pointe at Weston 100,000 TBD
---------
Total 1,195,100
=========
Management is currently evaluating a number of initiatives which capitalize on
the convergence of the Company's real estate and telecom interests.
In addition, the rapidly growing area of E-Commerce has created a demand for
"high throughput" distribution buildings located near airports and seaports.
This major evolution in distribution patterns is expected to have a positive
impact on the Company's industrial land holdings, particularly those around the
Miami International Airport. Management is currently formulating a strategy to
maximize the value of its holdings in view of these significant trends.
Effective as of January 1, 1998, GCC entered into an Asset Management Agreement
with St. Joe, pursuant to which St. Joe assumed the management, including
permitting, development planning, construction oversight, operation and leasing
of GCC's real estate. St. Joe's compensation for these services is in accordance
with the agreement (see Part II, Item 8, "Financial Statements and Supplemental
Data," and notes thereto). St. Joe owns directly 54% of the common stock of FECI
and is a diversified company engaged primarily in the commercial, residential
and resort real estate business.
As previously mentioned, on October 27, 1999, FECI and St. Joe announced that
they had entered into a Distribution and Recapitalization Agreement
("Distribution Agreement") pursuant to which, subject to shareholder approval,
the shares of FECI common stock held by St. Joe will be recapitalized to create
a new class of FECI common stock called Class B common stock. Class B shares
will be distributed to St. Joe's shareholders as promptly as practicable
following the recapitalization (Distribution).
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Effective upon the Distribution, St. Joe and GCC will revise the Real Estate
Agreements to restructure the relationship. The parties will transition the
performance of asset management services from St. Joe to GCC between the date of
the Distribution and December 31, 2000. St. Joe will provide property
management, leasing, and development services for certain GCC properties for a
period of three years from the date of the Distribution. In addition, GCC and
St. Joe will jointly own and develop certain properties presently owned by GCC
and certain properties presently owned or to be acquired in the future by St.
Joe.
St. Joe will pay $6 million in three annual installments commencing on the date
of the Distribution as additional consideration for GCC's willingness to enter
into the restructured Real Estate Agreements. GCC will pay St. Joe a stipulated
amount for asset management services through December 31, 2000. For such
services, GCC will pay St. Joe an amount equivalent to an annualized payment of
$1,750,000, adjusted pro rata because the term of the Management Agreement is
less than one year and also reduced pro rata by one-half percent by the value of
any property sold during the year. GCC will pay St. Joe two and one-half percent
of collected receipts, subject to customary exclusions, for property management
services, lease commissions ranging from one percent to seven percent of fixed
rent for leasing services and development fees equal to actual project costs as
defined in the restructured Real Estate Agreements multiplied by four percent.
Development fees will be paid in installments through design and construction,
with the final 30% conditioned on St. Joe's satisfaction of lease-up
requirements.
In addition to the Company's real estate activities conducted by GCC, FECR
generates realty revenues from leases and sales on FECR-owned but non-operating
property, such as leases of land for parking lots and rail- and non-rail-served
warehouses.
TELECOMMUNICATIONS
EPIK, a wholly-owned subsidiary of FECI, is a new, rapidly growing provider of
wholesale telecommunications private line services ("bandwidth") and dark fiber
in the Southeast. Established in May 1999, EPIK has created a high-capacity
fiber optic network along a densely populated corridor reaching metropolitan
areas with over 70% of Florida's population. EPIK's fiber runs along FECR's
railroad right-of-way and in conduits on other routes acquired through asset
swaps. EPIK is also expanding its network into other states and is rapidly
deploying next generation technologies that will meet the escalating demand for
telecommunications bandwidth.
As of December 31, 1999, the EPIK network consisted of 12,600 fiber miles of
"dark fiber" fiber optic cable, 350 miles of active ("lit") fiber network, and a
telecommunications conduit comprising a 790-mile "telecommunications loop" in
Florida. The active network consisted of seven Points of Presence ("POPs") in
major metropolitan areas on the East Coast of Florida, from which customers can
be served, and three optical amplification sites. The POPs are equipped with
Nortel Networks(TM) Optera(TM) OC-192 DWDM optical equipment, and use SONET
architecture to provide the highest levels of service protection. Subsequent to
December 31, 1999, EPIK has installed an additional 70,000 fiber miles of dark
fiber in Florida, is activating additional portions of the "Florida Footprint,"
and has entered into other fiber swaps to expand its dark fiber network route
miles to over 2,500 miles. EPIK is actively negotiating further expansions to
its dark fiber and lit capacity networks on both inter-city and metropolitan
routes through both fiber swaps and new construction.
EPIK's network is targeted at the "carriers' carrier" market in which it will
provide wholesale bandwidth services to carry the voice and data traffic of
Inter-Exchange Carriers ("IXCs"), Competitive Local Exchange Carriers ("CLECs")
Internet Service Providers ("ISPs"), and wireless communications companies such
as cellular and Personal Communication Services ("PCS") providers. Service
features include:
- - Transport speeds ranging from DS-3 to OC-192 (the highest commercially
available service speed)
- - Accessible, centrally-located points of presence in major metropolitan
areas
- - Geographically diverse SONET ring architecture
In addition to providing bandwidth services, EPIK will lease or sell dark fiber
on its network. The Company will also make "wave services and dim fiber"
available to customers who wish to provide their own optronics at end points in
the network. Included in these service offerings are:
- - Splicing and pre-sale testing of fiber
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- - Maintenance of network
- - Collocation facilities for installation of customer equipment
- - Access to carrier hotels in major metropolitan areas
The telecommunications segment of FECI also includes revenue from long-term
right-of-way leases to other telecommunications carriers.
FINANCIAL INFORMATION ABOUT FECI'S SEGMENTS
The Company had total segment operating revenues in 1999 of $329.3 million and
an operating profit of $70.8 million. The Company's total railroad operating
revenues were approximately $166.1 million; trucking revenues were approximately
$29 million; real estate revenues were approximately $128.8 million, and
telecommunications revenues were $5.4 million. Segment operating profit (loss)
for the railroad was $35.7 million; ($1.2 million) for trucking; $34.4 million
for the real estate business, and $1.9 million for the telecommunications
segment, (see Footnote 9, "Segment Information," of the Consolidated Financial
Statements and supplementary data set forth in Part II, Item 8, of this Report
on Form 10-K).
SOURCES AND AVAILABILITY OF RAW MATERIALS
Certain telecommunications materials (fiber optic cable and opto-electronics)
are currently provided by a limited number of suppliers. Due to extremely high
demand for fiber optic cable and the limited availability of suppliers, EPIK has
experienced some delays in delivery of ordered materials. EPIK works closely
with suppliers to minimize any affect this condition may have on the build-out
of the network plan.
All other raw materials the Railway, GCC and ITI use, including fuel, track
materials and building construction materials, are available in adequate supply
from multiple sources.
SEASONALITY
FECR's rail traffic is relatively stable throughout the year with heavier
traffic ordinarily occurring during the first and last quarters of the year. Its
real estate, trucking and telecommunications businesses are not generally
seasonal.
WORKING CAPITAL
The Company has a strong working capital position. Current assets exceeded
current liabilities by $57.9 million at December 31, 1999.
CUSTOMERS
RAILWAY
One customer generated about 17% of the Company's rail revenues in 1999. The
Company's business could be adversely affected if its large customers suffered
significant reductions in their businesses, or reduced shipments of commodities
transported by the Railway.
TRUCKING
The trucking operation is not dependent on any significant customer. No customer
generates revenue which exceeds 10% of the trucking operation's revenues. The
top fifty shippers of the trucking operation's customer base accounts for
approximately 80% of its revenues.
REAL ESTATE
The Company is not dependent on any significant customer in the real estate
segment. GCC's largest commercial tenant occupied approximately 3% of leased
space in 1999.
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TELECOMMUNICATIONS
As a wholesale provider of communication services, EPIK targets other
telecommunications carriers as its customers. In particular, EPIK's sales and
marketing efforts are directed towards Inter-Exchange Carriers ("IXCs"),
Competitive Local Exchange Carriers ("CLECs"), Internet Service Providers
("ISPs"), and wireless communications companies such as cellular and Personal
Communication Services ("PCS") providers.
In October 1999, EPIK reported its first long-term lease of dark fiber in a
transaction that will result in recognition of over $19 million in revenue over
a 20-year contract. Subsequent to December 31, 1999, EPIK has signed other lease
contracts for dark fiber, and is installing private line circuits for other
carriers.
COMPETITION
RAILWAY
Although the Company's railroad is typically the only rail carrier directly
serving its customers, the Company's railroad competes directly with other
railroads that could potentially deliver freight to their markets and customers
via different routes and use of multiple modes of transportation. The railroad's
primary rail competition is CSXT. FECR also competes directly with other modes
of transportation, including motor carriers and, to a lesser extent, ships and
barges. Competition is based primarily upon the rate charged and the transit
time required, as well as the quality and reliability of the service provided.
Any improvement in the cost or quality of these alternate modes of
transportation could increase competition from these other modes of
transportation and adversely affect the Company's business.
There is continuing strong competition among rail, water and highway carriers.
Price is usually only one factor of importance as shippers and receivers choose
a transport mode and a specific transportation company with which to do
business. Inventory carrying costs, service reliability, ease of handling, and
the desire to avoid loss and damage during transit are increasingly important
considerations, especially for higher valued finished goods, machinery and
consumer products. Users are increasingly sensitive to transport arrangements,
which minimize problems at successive production stages, even for raw materials,
semi-finished goods and work-in-process.
Service disruptions and changes in services offered by NS and CSXT as a result
of their acquisition and division of Conrail have adversely affected FECR's
intermodal business.
TRUCKING
The same competitive factors, as noted in Railway above, substantially affect
the Company's trucking operations as well.
REAL ESTATE
The real estate industry is generally characterized by significant competition.
The Company plans to continue to expand through office and industrial
developments in Florida where the acquisition and/or development of property
would, in the opinion of management, result in a favorable risk-adjusted return
on investment. There are a number of office and industrial developers and real
estate companies that compete with the Company in seeking properties for
acquisition, resources for development and prospective tenants. Competition from
other real estate developments may adversely affect the Company's ability to
attract and retain tenants, rental rates the Company can achieve, and the
expenses of operation. The Company may compete with entities that have greater
financial and other resources than the Company. There can be no assurance that
the existence of such competition could not have a material adverse effect on
the Company's business, operations and cash flow.
TELECOMMUNICATIONS
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The wholesale carriers' carrier business is highly competitive and subject to
rapid change. Competition is primarily on the basis of availability, price and
customer service. EPIK competes primarily on the bases of location of our
network, rapid customer provisioning, transmission quality and reliability,
highly responsive customer service and price. EPIK faces substantial competition
from Inter-Exchange Carriers ("IXCs"), other private wholesale carriers such as
affiliates of energy utilities and railroads, Incumbent Local Exchange Carriers
("ILECs"), and Competitive Local Exchange Carriers ("CLECs"). In addition to
these entities, potential competitors capable of offering services similar to
those offered by EPIK include microwave carriers, satellite carriers, wireless
telephone system operators, and end-users with private communications networks.
Many of EPIK's existing competitors are large, established companies with
substantially greater financial resources. Major competitors include, but are
not limited to, Level 3, Qwest, Williams, BellSouth, MCI, Worldcom and AT&T.
Additionally, EPIK expects that competition will increase in the future as
additional providers of fiber optic networks enter or expand in the market.
REGULATION
RAILWAY
FECR is subject to regulation by the Surface Transportation Board ("STB") of the
U.S. Department of Transportation, which succeeded the ICC on January 1, 1996.
The STB has jurisdiction over some rates, routes, conditions of service and the
extension or abandonment of rail lines. The STB also has jurisdiction over the
consolidation, merger or acquisition of control of and by rail common carriers.
The U.S. Department of Transportation, through the Federal Railroad
Administration, regulates the safety of railroad operations, including certain
track and mechanical equipment standards and certain human factor issues.
The relaxation of economic regulation of railroads, begun over a decade ago by
the ICC under the Staggers Rail Act of 1980 ("Staggers Act"), has continued
under the STB, and additional rail business could be exempted from regulation in
the future. Significant exemptions are TOFC/COFC (i.e., "piggyback") business,
rail boxcar traffic, lumber, manufactured steel, automobiles and certain bulk
commodities such as sand, gravel, pulpwood and wood chips for paper
manufacturing. Transportation contracts on regulated shipments, which no longer
require regulatory approval, effectively remove those shipments from regulation
as well. Over 95% of FECR's freight revenues come from either exempt traffic or
traffic moving under transportation contracts.
Due, in part, to industry consolidation and certain service issues, efforts were
made in 1999 to re-subject the rail industry to federal economic regulation.
This pressure could continue during 2000. The Staggers Act encouraged and
enabled rail carriers to innovate and to compete for business, thereby
contributing to the economic health of the nation and to the revitalization of
the industry. Accordingly, the nation's rail carriers can be expected to
vigorously oppose these ongoing efforts to re-impose such economic regulation.
TRUCKING
The Company's trucking operation is regulated by the United States Department of
Transportation, including the Federal Highway Administration. This regulatory
authority exercises broad powers, generally governing activities such as
authorizations to engage in motor carrier operations, safety, and certain
mergers, consolidations and acquisitions.
RAILWAY AND TRUCKING
The Company's transportation operations, both rail and trucking, are also
subject to extensive environmental laws and regulations, including the federal
Clean Air Act ("CERCLA"), and various other environmental laws and regulations.
Violations of various statutory and regulatory programs can result in civil
penalties, remediation expenses, natural resource damage claims, potential
injunctions, cease and desist orders and criminal penalties. Some environmental
statutes impose strict liability, rendering a person liable for environmental
damage without regard to negligence or fault on the part of such person. In
addition, the Company's present and historic ownership and operation of real
property, including rail yards, in connection with its transportation operations
involve the storage, use or disposal of hazardous substances that may have
contaminated and may in the future contaminate the environment. The Company may
also be liable for the costs of cleaning up a site at which it has disposed
(intentionally or unintentionally of hazardous substances by virtue of, for
example, an
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accident, derailment or leak) or to which it has transported hazardous
substances it generated, such as waste oil.
The Company is currently involved in various remediations of properties relating
to its transportation operations. In addition, FECR, along with many other
companies, has been named a potentially responsible party in proceedings under
Federal statutes for the clean up of designated Superfund sites (see Item 3,
"Legal Proceedings"). Based on presently available information, the Company does
not believe that the costs of addressing any known environmental issues relating
to its transportation operations will be material. However, the future cost of
complying with environmental laws and containing or remediating contamination
cannot be predicted with any certainty, and there can be no assurances that such
liabilities or costs would not have a material adverse effect on the Company in
the future.
REAL ESTATE
Development of real property in Florida entails an extensive approval process
involving overlapping regulatory jurisdictions. Real estate projects must
generally comply with the provisions of the Local Government Comprehensive
Planning and Land Development Regulation Act (the "Growth Management Act"). In
addition, development projects that exceed certain specified regulatory
thresholds require approval of a comprehensive Development of Regional Impact
("DRI") application. Compliance with the Growth Management Act and the DRI
process is usually lengthy and costly and can be expected to materially affect
the Company's real estate development activities.
The Growth Management Act requires counties and cities to adopt comprehensive
plans guiding and controlling future real property development in their
respective jurisdictions. After a local government adopts its comprehensive
plan, all development orders and development permits that it issues must be
consistent with the plan. Each such plan must address such topics as future land
use, capital improvements, traffic circulation, sanitation, sewerage, potable
water, drainage and solid wastes. The local government's comprehensive plans
must also establish "levels of service" with respect to certain specified public
facilities and services to residents. Local governments are prohibited from
issuing development orders or permits if facilities and services are not
operating at established levels of service, or if the projects for which permits
are requested will reduce the level of service for public facilities below the
level of service established in the local government's comprehensive plan. If
the proposed development would reduce the established level of services below
the level set by the plan, the development order will require that at the outset
of the project, the developer either sufficiently improve the services to meet
the required level, or provide financial assurances that the additional services
will be provided as the project progresses.
The Growth Management Act is, in some instances, significantly affecting the
ability of developers to obtain local government approval in Florida. In many
areas, infrastructure funding has not kept pace with growth. As a result,
substandard facilities and services are delaying or preventing the issuance of
permits. The Growth Management Act could adversely affect the ability of Florida
developers, including GCC, to develop real estate projects.
Continued growth and development of properties in Florida have prompted efforts
to pass legislation to curtail or more intensely regulate such development.
The DRI review process includes an evaluation of the project's impact on the
environment, infrastructure and government services, and requires the
involvement of numerous federal, state and local governmental, zoning and
community development agencies and authorities. Local government approval of any
DRI is subject to appeal to the Governor and Cabinet by the Florida Department
of Community Affairs, and adverse decisions by the Governor or Cabinet are
subject to judicial appeal.
In addition, a substantial portion of the developable property in Florida,
including certain of the Company's property, is raw land located in areas where
its development may affect the natural habitats of various endangered or
protected wildlife species or in sensitive environmental areas such as wetlands
and coastal
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areas, which are subject to extensive and evolving federal, state and local
regulation. Accordingly, federal, state and local wildlife protection, zoning
and land use restrictions, as well as community development requirements, may
become increasingly restrictive and, as a result, significant limitations may be
imposed on the Company's ability to develop its real estate holdings in
accordance with their most profitable uses.
The Company's ownership and development of real estate are subject to extensive
and changing federal, state and local environmental laws, the provisions and
enforcement of which may become more stringent in the future. Pursuant to those
laws, the owner or operator of real estate may be required to perform
remediation regardless of whether it caused the contamination. The sale or
development of properties may also be restricted due to environmental concerns,
the protection of endangered species, or the protection of wetlands. In
addition, violations of various statutory and regulatory programs can result in
civil penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. The Company is not
presently aware of any material contamination, or any material adverse
environmental development issues relating to its real estate operations.
However, there can be no assurance that environmental issues will not arise in
the future relating to the real estate operations.
TELECOMMUNICATIONS
EPIK does not believe that its telecommunications offerings currently are
subject to federal or state regulation. Nonetheless, the telecommunications
industry is highly regulated by federal, state, and local authorities, judicial
and legislative actions may increase regulatory requirements, and the scope of
services subject to regulation is not clearly defined and is subject to change.
EPIK, therefore, cannot forecast whether it will be subject to regulation in the
future and can make no assurance that future regulatory, judicial, or
legislative action will not have a material adverse effect on EPIK.
Federal regulation. The Federal Communications Commission ("FCC") regulates
interstate telecommunications services. The Communications Act of 1934, as
amended, defines "telecommunications service" to mean the "offering of
telecommunications for a fee directly to the public, or to such classes of users
as to be effectively available directly to the public, regardless of the
facilities used." The FCC has found that telecommunications services include
only those services that are offered on a "common carrier" basis - that is,
services that are provided pursuant to standard rates, terms, and conditions to
a broad customer base. In contrast, services that are offered on a "private
carrier" basis are not subject to regulation as telecommunications services.
EPIK believes that it acts as a private carrier because it provides service to a
limited class of customers (e.g., other carriers) on the basis of individually
negotiated terms and conditions and long-term service agreements.
Although private carriers are generally unregulated, private carriers that serve
end-user customers are required to contribute to the federal universal service
fund. Accordingly, if EPIK offers services only to carriers, it would not have
to contribute to the federal universal service fund. However, to the extent that
EPIK serves non-carriers (e.g., ISPs), even as a private carrier, it will have
to contribute a percentage of its end-user, interstate revenues to that fund.
If EPIK is found to be providing interstate telecommunications services, then
several additional regulatory requirements could apply:
- - If EPIK offers those services to non-carriers (including Internet
Service Providers), it would have to file tariffs at the FCC. If EPIK
continues to serve only carriers, it would not have to file tariffs at
the FCC.
- - EPIK would not require any prior FCC authorization to provide domestic,
interstate service. It would, however, require prior FCC authorization
to offer international services.
- - EPIK would have to comply with various reporting requirements.
- - EPIK would be required to contribute to other federal funds, including
funds to support the provision of telecommunications relay services to
individuals with hearing disabilities and the administration of
telephone numbering resources.
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- - EPIK would be under general obligations to: (1) provide service upon
reasonable request, (2) provide service at just, reasonable, and
non-discriminatory rates, terms, and conditions, (3) interconnect
directly or indirectly with the networks of other carriers, (4) assure
that its services are accessible to and usable by persons with
disabilities, (5) assure that its network complies with the
requirements of the Communications Assistance for Law Enforcement Act,
(6) limit its use of customer proprietary network information to
provisioning of the services in connection with that information was
obtained, and (7) be subject to the FCC's complaint process.
Imposition of some or all of these requirements could materially increase EPIK's
costs of doing business and limit its pricing flexibility and its ability to
respond promptly to customer demands. In addition, if some of EPIK's competitors
remain unregulated, EPIK could be at a material competitive disadvantage.
State regulation. State public utility commissions ("PUCs") regulate intrastate
telecommunications services. EPIK does not believe it is subject to significant
state PUC regulation because it acts as a private carrier. For example, Florida
recognizes the private carrier concept. Some other states, however, may not
recognize the private carrier concept or may nonetheless seek to subject EPIK to
regulation. State regulation of intrastate telecommunications services is
similar to FCC regulation of interstate telecommunications services, although
the states vary considerably in the nature and extent of regulation imposed on
regulated entities. For example, while most states require service providers to
obtain formal prior authorization before initiating service, some do not.
Similarly, while most states require service providers to file tariffs, some do
not. States also may impose universal service contribution requirements and
other rules intended to protect public safety and welfare, ensure the continued
quality of communications services, and safeguard the rights of consumers. The
Company cannot predict whether application of state regulation of EPIK's
services would have a material adverse effect.
Local regulation. Local governments exercise legal authority that may impact
EPIK's business. For example, local governments typically have the ability to
license public rights-of-way, subject to the limitation that they may not
prohibit the provision of telecommunications services. Regulation of the use of
public rights-of-way may affect the timing in which EPIK is able to provide
service and the costs of doing so.
RISKS RELATING TO REAL ESTATE OPERATIONS
Market Risks. There can be no assurance that the U.S. economy, in general, or
the economy of the Southeast in particular, will continue to experience positive
growth rates or that the United States, in general, or the Southeast in
particular, will not be affected by a recession in the future. Certain
significant expenditures associated with the development, management and
servicing of real estate (such as real estate taxes, maintenance costs and debt
payments, if any) would generally not be reduced if an economic downturn caused
a reduction in revenues from the Company's properties.
Development Risks. The Company's real estate development activities require
significant capital expenditures. The Company will be required to obtain funds
for its capital expenditures and operating activities through cash flow from
operations, property sales or financings. There can be no assurances that funds
available from cash flow, property sales and financings will be sufficient to
fund the Company's required or desired capital expenditures for development. If
the Company were unable to obtain sufficient funds, it might have to defer or
otherwise limit certain development activities. Further, any new development or
any rehabilitation of older projects can require compliance with new building
codes and other regulations. The Company cannot estimate the cost of complying
with such codes and regulations, and such costs can make a new project or some
otherwise desirable uses of an existing project uneconomic.
Joint Venture Risks. The Company has entered into certain joint venture
relationships and may initiate future joint venture projects as part of its
overall development strategy. A joint venture may involve special risks
associated with the possibility that (i) the venture partner at any time may
have economic or business interests or goals that are inconsistent with those of
the Company, (ii) the venture partner may take actions contrary to the
instructions or requests of the Company, or contrary to the Company's policies
or objectives with respect to its real estate investments, or (iii) the venture
partner could experience financial difficulties. Actions by the Company's
venture partners may have the result of subjecting property owned by the joint
venture to liabilities in excess of those contemplated by the terms of the joint
venture agreement or have other adverse consequences.
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In addition, the Company's joint venture partners may dedicate time and
resources to existing commitments and responsibilities.
RISKS RELATING TO TELECOMMUNICATIONS OPERATIONS
Technological risks. The telecommunications industry is subject to rapid and
significant changes in technology. For example, recent technological advances
permit substantial increases in transmission capacity of both new and existing
fiber. The introduction of new products and services or the emergence of new
technologies may reduce the cost or increase the supply of certain services
similar to those provided by EPIK, impairing the competitiveness of EPIK's
offerings. EPIK cannot predict which of many possible future product and service
offerings will be crucial to maintain its competitive position or what
expenditures will be required to develop profitably and to provide such products
and services.
Competition-related risks. The telecommunications industry is highly
competitive. EPIK faces substantial competition from IXCs, other private
wholesale carriers such as affiliates of energy utilities and railroads, and
CLECs. In addition to these entities, potential competitors capable of offering
services similar to those offered by EPIK include microwave carriers, satellite
carriers, wireless telephone system operators, and end-users with private
communications networks. In the future, EPIK may be subject to more intense
competition due to the development of new technologies, an increased supply of
domestic and international transmission capacity, and consolidation among and
between local and long distance carriers. In addition, as the regional Bell
operating companies gain authority to enter into long distance service markets,
they may be able rapidly to offer competitive services over region-wide fiber
optic networks that already are in place.
Regulatory risks. Regulation of the telecommunications industry is changing
rapidly. Existing and future federal, state, and local governmental regulations
will greatly influence the viability of EPIK. Undesirable regulatory changes
could adversely affect EPIK's business, financial condition, competitiveness,
and results of operations. For example, while EPIK does not believe that it is
subject to federal or state regulation as a common carrier, EPIK cannot predict
the future regulatory status of its business. The FCC has recognized a class of
private, non-common carriers whose practice it is to make individualized
decisions on what terms and with whom to deal, and EPIK believes it falls into
this class. These carriers may be subject to the FCC's jurisdiction, but are not
currently extensively regulated. In addition, some states may not recognize the
private carrier concept and, for this or other reasons, may seek to regulate
EPIK's intrastate services. If EPIK becomes subject to the FCC's or state PUC
jurisdiction, it will be required to comply with a number of regulatory
requirements, including, but not limited to, rate regulation, prior
authorization requirements, reporting requirements, and special payments.
Additionally, if EPIK offers services to non-carriers, it will have to
contribute to the federal universal service fund. Compliance with these
regulatory requirements may impose substantial administrative burdens on EPIK.
Furthermore, CLECs, ILECs, and IXCs (which may be both customers and competitors
of EPIK) are subject to various federal and state telecommunications laws and
regulations. Changes in those laws and policies may affect EPIK's business by
virtue of the interrelationships between EPIK and these regulated
telecommunications companies. It is difficult for EPIK to forecast how these
changes will affect EPIK.
EMPLOYEES
FECI employed 12 people, while FECR employed 841. ITI employed 192 employees,
and EPIK employed 13 as of December 31, 1999. Approximately 660 of FECR's
employees are represented by the following labor unions: United Transportation
Union ("UTU") (train and engine service employees), Brotherhood of Maintenance
of Way Employees ("BMWE") (track maintenance and structures) and International
Brotherhood of Electrical Workers ("IBEW") (seven crafts, including agents and
clerical, carmen, maintenance of equipment foremen, roadway shop, signals and
communications, train dispatchers, boilermakers, electricians, machinists,
sheetmetal workers and shop laborers). The Company has recently completed
negotiations regarding changes to labor agreements with all organizations. The
Company considers its working relationship with its unions to be satisfactory.
As of December 31, 1999, GCC had four employees, including a Chief Operating
Officer and other key management members. During 2000, certain additional
positions within GCC will be filled to facilitate the transition of the real
estate operation.
ITEM 2. PROPERTIES
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The Company's material physical properties at December 31, 1999 are listed below
and are grouped by industry segment. All properties shown are owned in fee
simple, except where otherwise indicated.
RAILWAY
FECR owns three connected four-story buildings in St. Augustine, Florida which
are used by FECI and FECR as corporate headquarters. FECR also owns, in fee
simple, a railroad right-of-way, generally 100 feet wide, along the East Coast
of Florida extending for 350 miles used for its railroad operations and
telecommunications facilities. FECR also owns 91 miles of branch mainline,
various rail car marshalling yards, trailer/container and automobile loading and
unloading facilities, signaling system facilities and a number of operating
offices, shops and service house buildings.
On March 2, 1998, FECR entered into a Trackage Agreement with South Central
providing for, among other things, the exclusive operation and maintenance of 56
miles of the 91 miles of branch mainline.
Tracks in all classes, their bridges and the fixed property and signal
improvements supporting the transportation effort, are maintained to a level
equaling the needs of service. The mainline and its passing tracks are, in
general, constructed of 132-pound per yard continuous welded rail supported on
concrete crossties. These facilities provide a reliable infrastructure for the
conduct of a transportation service suited to the business demands of our
customers, to include unrestricted movement of double-stacked containers,
tri-level automobiles and heavier axle rail cars.
The branch mainlines, way switching and yard tracks are, for the most part, of
115-pound per yard materials supported by wood ties. These tracks and certain
mainline yard tracks are of a lesser weight of rail supported on wood ties and,
although in suitable condition, are to be improved by the installation of
heavier materials. Programs designed to address this matter may be expected to
extend over several future years.
FECR owns 81 diesel electric locomotives; 2,483 freight cars; 883 trailers for
highway revenue service; numerous pieces of rail-mounted and non-rail-mounted
work equipment, and numerous automobiles used in maintenance and transportation
operations. All equipment owned is in good physical condition.
TRUCKING
ITI leases approximately 3,500-sq. ft. of office space in Cincinnati, OH where
its corporate headquarters and terminal dispatching operations are located.
ITI leases 717-sq. ft. of office space in Jacksonville, Florida from FECR, and
7,168-sq. ft. of office space in Jacksonville from the prior owner of ITI. ITI
leases 1,000-sq. ft. of office space in Byron, Georgia; approximately 1,000-sq.
ft. of office space in Albany, Georgia, and 2,500-sq. ft. in Atlanta, Georgia
for terminal dispatching operations.
ITI has approximately 200 tractors available, consisting of 87 owner-operated
tractors and 6 terminal hostlers. ITI has a total of 289 trailers in its fleet,
consisting of 8-45', 26-48' and 255-53' dry vans.
TELECOMMUNICATIONS
Buildings and land: EPIK leases approximately 11,500-sq. ft. of office space in
Orlando, Florida where its corporate headquarters are located. EPIK also leases
200 sq. ft. of space for its telecommunications equipment in Teleplace, and
3,279 sq. ft. of space in New World Tower, both in Miami, Florida. EPIK has also
purchased a 27,500 sq. ft. office building in Jacksonville, Florida that will be
converted to house telecommunications equipment for EPIK and for its customers.
EPIK owns 15 specialized telecommunications huts, totaling 6,480 sq. ft. to
house telecommunications equipment. Nine of these facilities are located on the
Florida East Coast Railroad right-of-way. The other huts are located on various
parcels of land adjacent to the fiber network.
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Telecommunications equipment: EPIK's "Florida Footprint(TM)" network has 12,600
strand miles of single mode fiber, and has 70,000 strand miles of non-zero mode
dispersion shifted fiber, and is installing an additional 100,000 strand miles
in Florida. This fiber is, or will be, installed in 790 miles of
telecommunications conduit, buried along FECR's railroad right-of-way and on
other railroad and highway rights-of-way. The active portion of the network (350
miles as of December 31, 1999) uses Nortel NetworksTM OpteraTM OC-192 DWDM
optical equipment, which will also be used to activate the remainder of the
"Florida Footprint.TM" EPIK has also entered into dark fiber swapping agreements
with other carriers that provide 20 year indefeasible rights-to-use (IRUs) on
3,011 additional route miles in Florida, Georgia, Louisiana, Texas and Colorado.
EPIK is pursuing additional fiber swaps and conduit acquisitions that will
further extend its geographic footprint and route miles. These swapping
agreements also provide reciprocal access to collocation facilities.
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REAL ESTATE
At year-end 1999, GCC's commercial and industrial portfolio included 50
buildings aggregating 5.2 million rentable square feet. GCC's income-producing
properties are detailed below:
GCC'S INCOME-PRODUCING PROJECTS
(at December 31, 1999)
RENTABLE OCCUPIED
NO. OF SQUARE SQUARE % YEAR
LOCATION BLDGS. TYPE FEET FEET OCCUPIED BUILT
- -------- ------ ---- ---- ---- -------- -----
DuPont Center
Jacksonville, FL 2 Office Buildings 160,000 160,000 100 1987-88
Gran Park at
Deerwood South
Jacksonville, FL 4 Office Buildings 519,000 482,000 93 1996-98
Gran Park at
Deerwood North
Jacksonville, FL 1 Office Building 134,000 48,000 36 1999
Gran Park at 1 Office Building 125,000 125,000 100 1999
Jacksonville 4 Office/Showroom/Warehouses 441,500 333,000 75 1997-99
Jacksonville, FL 1 Front Load Warehouse 99,000 46,000 46 1997
1 Rail Warehouse 108,000 57,000 53 1997
Gran Park at the 3 Office Buildings 242,000 204,000 84 1992-95
Avenues 3 Office/Showroom/Warehouses 172,000 125,000 73 1992-97
Jacksonville, FL 2 Office Warehouses 302,000 283,000 94 1994-96
Gran Park at SouthPark 2 Office Buildings 297,000 222,000 75 1998-99
Orlando, FL 1 Office/Showroom/Warehouse 132,000 111,000 84 1998
Beacon Station at 5 Office/Showroom/Warehouses 369,000 367,000 99 1988-94
Gran Park 6 Office Warehouses 588,000 509,000 87 1990-97
Miami, FL 4 Rail Warehouses 397,000 347,000 87 1989-94
7 Front Load Warehouses 790,000 692,000 88 1991-95
1 Double Front Load Warehouse 239,000 239,000 100 1993
1 Office Service Center 39,000 39,000 100 1994
Pompano Rail Building
Pompano Beach, FL 1 Rail Warehouse 54,000 54,000 100 1987
-- --------- ---------- ---
TOTAL-100% OWNED BUILDINGS 50 5,207,500 4,443,000 85
== ========= ========= ===
Note: An additional 640,000 rentable square feet of office and industrial
product are owned in 50/50 partnerships with Duke-Weeks. These properties are
located in Weston, Florida and Miami, Florida.
The Company periodically reviews its inventory of income-producing commercial
and industrial properties and undeveloped properties to determine how best to
maximize their value. In certain circumstances, the review has, in the past,
resulted in the sale of certain properties and may, in the future, result in the
sale of certain of the properties listed on Page 17, as well as other properties
which may be developed in the future. The Company continues to invest in the
development of additional leasable commercial and industrial space, and
currently has 509,000 square feet under construction and 686,000 square feet in
the pre-development stage, (see Part I, Item 1, "Business," in this Report on
Form 10-K).
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GCC's land portfolio includes the following major land holdings:
BALL TRACT
A 2,150-acre tract located in northern St. Johns County along the growing US 1
corridor between Jacksonville and St. Augustine. The property fronts on US 1 to
the west, the Intracoastal Waterway to the east, and lies between two large
announced mixed-use residential and commercial communities not yet under
development. GCC expects the property to be similarly as a master planned
community incorporating both residential and commercial uses, but must first
seek and obtain various land use approvals from state, regional and local
governmental entities.
LEMBERG NORTH
A 580-acre tract located in northern St. Johns County along the growing US 1
corridor between Jacksonville and St. Augustine. The property fronts along the
western boundary of FECR's mainline which is immediately adjacent to US 1. GCC
expects to develop the property as a rail-oriented industrial park, but must
first seek and obtain various approvals from state, regional and local
governmental entities.
LEMBERG SOUTH
A 520-acre tract located in northern St. Johns County just west of the growing
US 1 corridor between Jacksonville and St. Augustine. GCC expects to seek and
obtain land use and development rights for the development of a planned
residential community on the property.
MILLER SHOP
A 327-acre tract, partially owned by GCC and FECR (GCC, 70 acres; FECR, 257
acres), located in St. Johns County along US 1 at the northern end of the city
of St. Augustine. The property fronts along US 1 on the east, and the San
Sebastian River on the west. GCC expects to master plan this property for a
variety of mixed uses of commercial, industrial and residential. Additionally,
GCC has received entitlements for 150,000 square feet of commercial development
on 28 acres of the property.
NATIONAL GARDENS
A 5,900-acre tract located in Volusia and Flagler Counties divided by the
intersection of I-95 and US 1. As demand develops, GCC expects to master plan
portions of the property for a mixed use of commercial, industrial and
residential uses, but will need to first seek and obtain various land use
approvals from state, regional and local governmental entities.
TICO TRACT
A 1,700-acre tract located in northern unincorporated Brevard County just to the
southwest of the city limits of Titusville. The property fronts along I-95, SR
405 and US 1 and surrounds the Space Coast Executive Airport on two sides. At
such time that demand for industrial development dictates, GCC expects to
develop the property as a planned industrial park, but will need to first seek
and obtain various approvals from state, regional and local governmental
entities.
FORT PIERCE K-4
A 565-acre tract located in St. Lucie County at the southeast quadrant of the
intersection of I-95 and the Florida Turnpike. The land use designation for the
property is for mixed-use development, with 160 acres of the property presently
zoned for heavy industrial. The remainder is presently zoned for agriculture
residential. When market analysis reflects the proper demand for industrial use,
GCC expects to develop the industrial zoned property for sale. Various approvals
from state, regional and local governmental entities will be required.
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DOWNTOWN MIAMI LOTS
A 9-acre tract located in downtown Miami fronting on NW 1st Avenue adjacent to
the Miami Arena and less than one block from an announced Federal Courthouse.
The future land use designation and zoning of the property are for
office/mixed-use. GCC is evaluating the development of the property for the
allowable use.
The Company owned and managed 17,774 acres of land at year-end 1999, which
included 365 acres on which the buildings set forth immediately above are
located; 1,869 acres developed with infrastructure ready to receive buildings,
including the projects under development described in Item 1, Part 1 of this
Report; 14,358 acres of undeveloped properties described in Item 1, Part I of
this Report, and 1,182 acres owned by FECR. These properties are held for lease,
development and/or sale and are in fifteen counties of the state of Florida as
follows:
COUNTIES ACRES
-------- -----
Duval 1,486
St. Johns 3,385
Putnam 87
Flagler 3,462
Volusia 3,584
Brevard 2,546
Orange 176
Indian River 5
St. Lucie 610
Martin 648
Palm Beach 31
Broward 61
Dade 1,586
Manatee 87
Okeechobee 20
------
Total 17,774
======
ITEM 3. LEGAL PROCEEDINGS
FECR has been named as a potentially responsible party ("PRP") by the United
States Environmental Protection Agency ("USEPA") for the remediation of six
sites. On the first site, the USEPA has alleged that FECR caused certain
materials, including waste oil, to be disposed of at the site over a period of
years. The USEPA has offered all named PRPs an opportunity to participate in its
new pilot allocation program. This program is similar to binding arbitration.
Since FECR is participating in this program, its share of the liability for the
remediation will be fixed. Based on the allocator's assessment of
responsibility, FECR believes that its liability for the remediation of the site
will not be material.
FECR was contacted by the USEPA during 1996 seeking reimbursement of costs
associated with the remediation of a site in Hialeah, Florida. An individual
operated a business on this site for a number of years. The building slightly
encroached upon FECR's right-of-way. Upon discovering this, FECR entered into a
lease agreement with the business owner rather than require the building be
removed. The individual has ceased doing business. The USEPA is seeking
reimbursement from FECR on the grounds that FECR was an "owner" of the site.
FECR had no involvement in the contamination, but has been named as a PRP solely
as a result of its ownership of the underlying land on which the building
encroached. The ultimate cost, if any, is not expected to be material.
In 1999, FECR resolved EPA's claims at two of the six sites, with contributions
to the remediation costs totaling less than $75,000 in the aggregate. FECR
expects to resolve EPA's claim on another site shortly in an amount less than
$25,000. FECR resolved EPA's claim regarding a site in Virginia in 1996 and does
not expect any additional liability.
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21
FECR has recently become aware that contaminants from historic railroad
operations in a yard adjacent to its railroad right-of-way may have migrated
through the movement of groundwater off-site. FECR is working closely with the
Florida Department of Environmental Protection to investigate this matter and to
develop an appropriate plan of remediation, if required as a result of the
investigation. Possible alternatives include natural attenuation or groundwater
pumping and treatment. Based on information available to FECR as of the date of
this report, the costs of investigating and addressing this possible migration
are not expected to be material or cause material changes in the business.
Compliance with federal, state and local laws and regulations is a principal
goal of the Company. The Company, through its subsidiaries, has entered into a
number of consent orders with state regulatory agencies to remediate certain
identified sites. The Company continues to cooperate with federal, state and
local agencies to ensure its facilities are operated in compliance with
applicable environmental laws and regulations. The Company is not aware of any
monetary sanctions to be imposed which, in the aggregate, are likely to exceed
$100,000, nor does it believe that corrections, if any, will necessitate
significant capital outlays or cause material changes in the business.
The Company is a defendant in a number of lawsuits and is involved in government
proceedings arising in the ordinary course of business, including bodily injury
claims and contract claims. While management of the Company cannot predict the
outcome of such litigation and other proceedings, management does not expect
these matters to have a materially adverse effect on the consolidated financial
condition, cash flows or results of operations of the Company. The Company does
carry comprehensive liability insurance for certain of such claims, but
maintains a significant self-insured retention amount, consistent with the
transportation industry's standards.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The common stock of FECI, owned by 628 stockholders of record as of December 31,
1999, is traded on the New York Stock Exchange with the symbol FLA.
The following table shows the high and low sales prices and dividends per share
by quarter for 1999 and 1998 after restatement to reflect the four-for-one split
of the Company's common stock which became effective June 1, 1998:
COMMON STOCK PRICE CASH
- ------------------ DIVIDENDS
1999 HIGH LOW PAID
---- ---- --- ----
First Quarter $35 1/8 $25 7/8 $.025
Second Quarter $44 1/4 $26 3/4 $.025
Third Quarter $43 7/8 $29 5/8 $.025
Fourth Quarter $45 3/8 $31 $.025
1998
----
First Quarter $28 5/8 $23 1/2 $.025
Second Quarter $31 3/4 $27 1/2 $.025
Third Quarter $30 1/2 $23 $.025
Fourth Quarter $36 $26 $.025
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The Company pays quarterly cash dividends on its outstanding shares of common
stock. The determination of the amount of future cash dividends, if any, to be
declared and paid by the Company will depend upon, among other things, the
Company's financial condition, funds from operations, level of capital
expenditures, future business prospects and other factors deemed relevant by the
Board of Directors. The closing price of the Company's common stock was $43.875
as of March 15, 2000.
20
23
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to the
Company's consolidated statements of income for each of the five years in the
period ended December 31, 1999, and with respect to the consolidated balance
sheets for the same periods are derived from the consolidated financial
statements.
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars in thousands, except per share amounts)
INCOME STATEMENT DATA:
Operating Revenues 324,273 247,776 250,520 208,031 201,107
Operating Expenses (excl. special charges) 255,376 189,939 198,198 170,425 166,479
---------------------------------------------------------
Operating Profit (excl. special charges) 68,897 57,837 52,322 37,606 34,628
Special Charges (7,487) 0 0 0 0
---------------------------------------------------------
Operating Profit (after special charges) 61,410 57,837 52,322 37,606 34,628
Other Income (excl. special charges) 5,362 12,362 10,635 10,511 7,294
Special Charges to Other Income (762) 0 0 0 0
---------------------------------------------------------
Other Income (with special charges) 4,600 12,362 10,635 10,511 7,294
---------------------------------------------------------
Income before Income Taxes 66,010 70,199 62,957 48,117 42,552
Provision for Income Taxes 25,231 26,578 22,822 17,703 15,915
---------------------------------------------------------
Net Income 40,779 43,621 40,135 30,414 26,637
=========================================================
Net Income (excl. special charges) 45,892 43,621 40,135 30,414 26,637
=========================================================
Earnings Per Share-Basic & Diluted $ 1.12 $ 1.20 $ 1.11 $ 0.84 $ 0.74
=========================================================
Earnings Per Share-Basic & Diluted
(excl. special charges) $ 1.26 $ 1.20 $ 1.11 $ 0.84 $ 0.74
=========================================================
Weighted-Average Shares-Basic 36,302 36,286 36,286 36,208 36,208
=========================================================
Weighted-Average Shares-Diluted 36,509 36,299 36,286 36,208 36,208
=========================================================
Cash Dividends Declared on Common Stock 3,636 3,627 3,624 3,627 3,616
=========================================================
Cash Dividends Declared Per Share on
Common Stock $ .10 $ .10 $ .10 $ .10 $ .10
=========================================================
AT DECEMBER 31,
---------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
BALANCE SHEET DATA: (dollars in thousands)
Total Assets (a) 910,878 871,541 825,490 789,681 756,210
Cash and Investments 102,552 85,423 103,144 94,229 93,275
Properties Less Accumulated Depreciation 742,176 720,891 663,672 636,019 608,640
Shareholders' Equity 724,441 686,831 648,875 608,796 581,860
(a)-Certain amounts have been reclassified to conform with the current year's
presentation.
21
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis should be read in conjunction with Item 8,
"Consolidated Financial Statements," Item 1, "Business," and Item 2,
"Properties," included elsewhere herein. The following discussion contains
forward-looking statements. The Company's actual results may differ
significantly from those projected in the forward-looking statements.
GENERAL OVERVIEW
FECI is a holding company engaged, through four wholly-owned subsidiaries, in
the rail, trucking, real estate and telecommunications businesses.
Except for certain of the Company's trucking and telecommunications assets and
operations, the Company's assets and operations are located in the state of
Florida. Consequently more broadly, the Company's performance is significantly
affected by the general health of the Florida economy, as well as the national
economy. The Company's real estate operations are cyclical and are affected by
local demographic and general economic trends and the supply and rate of
absorption of new construction. Although the Company's real estate business has
a large portfolio of income-producing properties that provide stable operating
results, the Company's real estate earnings may be significantly affected from
period to period by the nature and timing of sales of development property and
other assets.
The Company generates rail operating revenues primarily from the movement of
freight in both conventional freight cars and intermodal shipments of containers
and trailers on flatcars over its rail lines. Freight revenues are recorded
proportionately as freight moves from origin to destination. Modest non-freight
operating revenues are derived from demurrage and detention (equipment per diem
paid by customers), switching, weighing, special train and other transportation
services, as well as from services rendered to freight customers and other
outside parties by the Company's Maintenance of Way, Communications and Signals
and Maintenance of Equipment Departments. The Company has one railroad customer,
which accounted for approximately 12.5%, 15.3% and 17% of its operating revenues
in 1997, 1998 and 1999, respectively. The Company does not believe that this
customer will cease to be a rail shipper or will significantly decrease its
freight volume in the foreseeable future. In the event that this customer or
another large customer should cease or significantly reduce its rail freight
operations, management believes that the Company could restructure its
operations to reduce operating costs by an amount sufficient to offset the
decrease in operating revenues.
Trucking revenues are generated by various services, including full
over-the-road service, intermodal pick up and delivery and transportation
brokerage.
The Company's rail and trucking operating expenses consist of salaries and wages
and related payroll taxes and employee benefits, depreciation, insurance and
casualty claim expense, diesel fuel, car hire, property taxes, materials and
supplies, purchased services and other expenses. Many of the railway's operating
expenses are of a relatively fixed nature, and do not increase or decrease
proportionately with increases or decreases in operating revenues unless the
Company's management takes specific actions to restructure the Company's
operations. The Company experiences increases/decreases in fuel costs as the
price of diesel fuel fluctuates in the market.
Real estate operating revenues are generated from (i) rental of lease contracts
on its commercial and industrial portfolio of buildings and (ii) sales of land
and/or buildings.
Real estate operating expenses include the costs of real estate sales and of
managing commercial and industrial properties. The Company sells certain real
estate holdings when it determines its rate of return on such property is
advantageous. Real estate expenses can fluctuate significantly year to year due
to the costs of such sales. The Company incurs property management expenses,
such as building maintenance, leasing, advertising costs and property taxes, as
new buildings are completed and placed in the Company's inventory of leasable
22
25
properties.
Telecommunications revenues are generated from leases of railroad right-of-way
to other telecommunications companies for the installation of fiber optic and
other facilities. In the Company's newly formed telecommunications business,
revenues will be derived from long-term leases and sales of dark fiber, for
which revenues are recognized over the lease contract, sale of broadband private
line circuits, and leases of collocation facilities.
Telecommunications expenses are primarily salaries and wages, related payroll
taxes, employee benefits, professional services, depreciation, purchased
services and other expenses.
RESULTS OF OPERATIONS
Discussion is based on segment information - see Note 9 included in Item 8 of
this Report.
Operating revenues in 1999 increased by $76.6 million to $329.3 million from
$252.7 million in 1998. This $76.6 million increase consisted of increases of
approximately $75.7 million in the realty segment, and $2.7 million in the
railway segments offset by decreases of approximately $.8 million in the
trucking segment, and $1 million in the telecommunications segment. Real estate
revenues included the sale of three industrial parks with proceeds of $63.2
million. The remainder of realty revenue increases results from rental income
and sales of undeveloped property.
The 1999 results of operations include the unique costs consisting of spin-off
related expenses ($2.5 million); start-up cost for EPIK ($3.5 million);
settlement of previous year litigation ($2.7 million), and placement costs for
new management team ($1.9 million). These costs are considered non-recurring or
should be reduced in future periods.
RESULTS FOR 1999 COMPARED TO 1998
REVENUES
RAILWAY
FECR handled 174,000 rail carloads in 1999 compared to 161,000 in 1998, an
increase of 13,000 carloads or 8.1%. The railroad handled 287,000 intermodal
units in 1999 compared to 326,000 in 1998, a decrease of 39,000 or 12.0%.
Railway revenues increased to $166 million in 1999 from $163 million in 1998, an
increase of approximately $3 million or 2%. This increase was primarily
attributable to increases in shipments of aggregate and automotive/automotive
parts traffic. Aggregate shipments increased in 1999 by 7,100 carloads or 6.8%
over 1998. This increase is reflective of a sustaining strong Florida economy as
evidenced with continued growth in residential and commercial markets, as well
as highway construction projects. Automotive and automobile-related traffic
increased in 1999 by approximately 1,800 rail cars or 8.0% over 1998. The
increase in the number of automotive shipments is primarily attributable to
continued strength in the shipment of new vehicles to Miami, as well as the
opening of an automotive handling facility on the Company's property in
Titusville in 1998 by NS.
The decrease in intermodal shipments includes a decrease of approximately 25,700
or 11.0% in trailers handled, and a decrease in containers handled of 13,600 or
12.9%. The overall 12.0% decrease in intermodal shipments primarily results from
Norfolk Southern's service redesign that commenced in 1998 whereby certain
terminals along the East Coast of Florida were no longer marketed. Port
consolidations and the repositioning of certain traffic from 20' to 40'
equipment also contributed to the decrease.
Other carload traffic increased 4,200 carloads or 11.9%. This increase was
primarily due to new traffic received at the new Norfolk Southern bulk terminal
facility located on FECR's right-of-way. Traffic volumes associated with the
South Central Florida Express also increased in 1999.
TRUCKING
The Company's trucking subsidiary's operating revenues were down slightly at
$29.0 million in 1999 from $29.8
23
26
million in 1998. This decrease was primarily attributable to the loss of three
customer accounts during the third quarter, which was not fully offset by new
business.
REAL ESTATE
The Company generated operating revenues ($128.8 million in 1999 and $53 million
in 1998) in its realty segment from both real estate owned by GCC and real
estate owned by FECR. GCC generated revenues ($125.8 million in 1999 and $50.5
million in 1998) from rent of its improved and certain unimproved properties and
sales of certain real estate assets. FECR's realty revenues ($3 million in 1999
and $2.5 million in 1998) are generated by leases and sales of non-operating
properties.
GCC's revenues increased by $75.3 million (149%) to $125.8 million in 1999
compared to $50.5 million in 1998. The increase is primarily associated with
1999 real estate sales which contributed $70.1 million to the increase over
1998. Two industrial parks in Miami, with ten operating buildings (1.2 million
square feet), were sold in the first quarter of 1999, generating revenues of $49
million. Additionally, one industrial park in Jacksonville, with six buildings,
was sold during December 1999, generating revenues of $13.6 million. Increased
rental revenues contributed the remaining $5.2 million of the increase in total
GCC revenues over 1998 rental revenues of $43 million. Increased rental revenues
were primarily generated from increased occupancy and rental rates of buildings
completed during 1998 and "leased-up" during 1998 and 1999. Increases in rental
revenues from "same store" ($2.5 million) and new buildings completed in 1999
($1.9 million) were offset by decreased revenues ($3.9 million) from buildings
sold during 1999.
The Company uses a supplemental performance measure along with operating profit
to report its operating results for its real estate operations. This measure is
earnings before interest expense, income taxes, depreciation and amortization
(EBITDA). EBITDA is not a measure of operating results or cash flows from
operating activities as defined by generally accepted accounting principles.
Additionally, EBITDA is not necessarily indicative of cash available to fund
cash needs and should not be considered as an alternative to cash flows as a
measure of liquidity. However, the Company believes that EBITDA provides
relevant information about its real estate operations and, along with operating
profit, is useful in understanding its real estate operating results. GCC
generated EBITDA of approximately $47.1 million in 1999 compared to $27.1
million in 1998, a $20 million increase or 74% over 1998. $15 million of the
increased EBITDA resulted from sales of the previously mentioned industrial
parks and certain undeveloped land parcels. The remaining increases in EBITDA
related to rental activities.
TELECOMMUNICATIONS
Telecommunications revenues for 1999 were $5.4 million, $1 million less than
1998. Included in 1998 revenues was a $2.5 million recognition of a non-monetary
exchange involving fiber optic cables. Results for 1999 reflect increased
revenues provided under lease renewals and new leases.
EXPENSES
Operating expenses overall increased $73 million in 1999 to approximately $268
million. Operating expense increases in 1999 consisted of approximately $57.1
million in the realty segment, $5.4 million for the railway segment, $3.4
million in the telecommunications segment, $6.6 million for corporate general
and administrative and $.5 million for the trucking segment.
RAILWAY
Operating expenses increased $5.4 million to $130.4 million at December 31,
1999. Included in 1999 operating expenses were $5.5 million of special charge
items shown in Note 4 of the financial statements. These special charge items
were included in the captions "Materials" ($1.2 million), "General and
Administrative" ($4.4 million) and "Other" ($.8 million).
24
27
Increased fuel costs of $.4 million; a $2.7 million settlement of a lawsuit
involving a 1994 incident, and costs, $1.2 million, associated with a second
quarter derailment were offset by savings generated from severance programs
started in late 1998 ($2.0 million); cost control initiatives implemented in
1999 ($2.7 million), and reduced intermodal expenses as volumes decreased ($.9
million).
TRUCKING
Trucking expenses increased $.5 million to $30.2 million at December 31, 1999.
Increased expenses primarily resulted from increased casualty expenses of $1
million that related to prior year incidents, while operating costs decreased
with revenue volumes.
REAL ESTATE
Real estate expenses increased in 1999 by $57.1 million to $94.4 million. The
sale of three industrial parks previously mentioned caused real estate expenses
to increase $53.6 million over 1998. Rental operating expenses accounted for the
remaining increased expenses, and reflected overall increased costs of "same
store" and new buildings, along with increased management fees.
TELECOMMUNICATIONS
Telecommunications expenses, which increased $3.3 million to $3.5 million in
1999, reflected the start-up of EPIK. EPIK established offices in Orlando, began
its initial operations, and built a team of 13 professionals during 1999.
CORPORATE GENERAL & ADMINISTRATIVE
The increase in corporate general and administrative expenses of $6.6 million in
1999 related to $2.0 million of special charges for the curtailment of certain
compensation plans; $2.5 million of spin-off (legal and consulting) costs
incurred, and $1.9 million of increased staffing and moving costs as the new
management team was assembled.
OTHER INCOME
Other income generated from investments and other transactions decreased to $4.6
million in 1999, a decrease of $7.8 million or 62.9% over 1998. The decrease
primarily resulted from decreases in investment income as the Company liquidated
certain investments to fund capital expenditures for transportation projects and
new building construction, along with the recognition of unrealized losses on
certain investments and the write-off of certain information technology assets
that were included in the second quarter special charges.
Income tax expenses decreased in 1999 by approximately $1.4 million to $25.2
million, representing an effective rate of 38.2% compared to an effective rate
of 37.9% in 1998.
Net income for 1999 was $40.8 million or $1.12 per diluted share, compared to
net income in 1998 of $43.6 million or $1.20 per diluted share.
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SUMMARY OF OPERATING RESULTS
1999 VS. 1998
(dollars in thousands)
RAILWAY 1999 1998 $ Change
- ------- ------- ------- ----------
Operating Revenues 161,389 158,613 2,776
Operating Expenses(1) 130,370 124,936 5,434
---------------------------------------------
Operating Profit 31,019 33,677 (2,658)
Intersegment Revenues & Expenses 4,699 4,740 (41)
---------------------------------------------
Segment Operating Profit 35,718 38,417 (2,699)
=============================================
TRUCKING
Operating Revenues 29,011 29,774 (763)
Operating Expenses 25,524 24,986 538
---------------------------------------------
Operating Profit 3,487 4,788 (1,301)
Less: Intersegment Expenses (4,699) (4,740) (41)
---------------------------------------------
Segment Operating Profit (1,212) 48 (1,260)
=============================================
REAL ESTATE OPERATIONS
Rental Revenues 50,835 45,121 5,714
Operating Expenses 38,179 34,694 3,485
---------------------------------------------
Operating Profit from Realty Rental 12,656 10,427 2,229
---------------------------------------------
Land Sales 77,608 7,972 69,636
Cost of Sales 56,191 2,563 53,628
---------------------------------------------
Operating Profit from Land Sales 21,417 5,409 16,008
---------------------------------------------
Realty Operating Profit 34,073 15,836 18,237
Intersegment Revenues & Expenses (net) 323 56 267
---------------------------------------------
Segment Operating Profit 34,396 15,892 18,504
=============================================
TELECOMMUNICATIONS
Operating Revenues 5,431 6,392 (961)
Operating Expenses 3,544 177 3,367
---------------------------------------------
Operating Profit 1,887 6,215 (4,328)
---------------------------------------------
Segment Operating Profit 1,887 6,215 (4,328)
=============================================
Total Segments' Operating Profit 70,789 60,572 10,217
Less: Corporate General & Administrative(2) (9,379) (2,735) 6,644
---------------------------------------------
Operating Profit 61,410 57,837 3,573
---------------------------------------------
Other Income (Expense)(3) 4,600 12,362 (7,762)
---------------------------------------------
Income before Income Taxes 66,010 70,199 (4,189)
---------------------------------------------
Provision for Income Taxes 25,231 26,578 (1,347)
---------------------------------------------
Net Income 40,779 43,621 (2,842)
EBITDA from Rental Properties 32,391 27,090 5,301
EBITDA from Land Sales & Undeveloped Land (net of overhead) 17,318 2,365 14,953
---------------------------------------------
Total EBITDA 49,709 29,455 20,254
=============================================
(1)-1999 amount includes $5.5 million of special charges; (2)-1999 amount
includes $1.9 million of special charges; (3)-1999 amount includes $.8 million
of special charges.
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SUMMARY OF OPERATING EXPENSES
1999 VS. 1998
(dollars in thousands)
RAIL OPERATING EXPENSES 1999 1998 $ Change
------- ------- ----------
Compensation & Benefits 42,319 44,767 (2,448)
Fuel 9,023 8,610 413
Equipment Rents (net) 2,359 1,736 623
Depreciation 14,619 14,632 (13)
Purchased Services 16,372 17,026 (654)
Repairs Billed to/by Others (net) (1,073) (208) (865)
Casualty & Insurance 4,350 4,338 12
Property Taxes 4,279 4,008 271
Materials 12,240 12,409 (169)
General & Administrative 23,385 16,010 7,375
Other 2,716 1,713 1,003
Intersegment Expenses (219) (105) (114)
---------------------------------------------
Total Operating Expenses-Rail Segment 130,370 124,936 5,434
=============================================
TRUCKING OPERATING EXPENSES
Compensation & Benefits 3,282 3,439 (157)
Fuel 1,092 1,180 (88)
Equipment Rents (net) 1,519 1,624 (105)
Depreciation 35 55 (20)
Purchased Services 10,910 11,511 (601)
Repairs Billed to/by Others (net) 972 1,236 (264)
Casualty & Insurance 1,947 779 1,168
Property Taxes 257 221 36
General & Administrative 4,833 4,627 206
Other 677 314 363
Intersegment Expenses 4,699 4,740 (41)
---------------------------------------------
Total Operating Expenses-Trucking Segment 30,223 29,726 497
=============================================
REALTY OPERATING EXPENSES
Realty Sales Expenses 56,191 2,563 53,628
Management Fees 2,916 1,043 1,873
Depreciation 14,027 12,478 1,549
Purchased Services 2,177 2,106 71
Repairs Billed to/by Others (net) 779 1,235 (456)
Casualty & Insurance 368 145 223
Property Taxes 7,613 8,291 (678)
General & Administrative 4,579 4,655 (76)
Other 5,365 4,581 784
Intersegment Expenses 355 160 195
---------------------------------------------
Total Operating Expenses-Realty Segment 94,370 37,257 57,113
=============================================
Total Operating Expenses-Telecom Segment 3,544 177 3,367
---------------------------------------------
Corporate General & Administrative 9,191 2,638 6,553
Intersegment Expenses 188 97 91
---------------------------------------------
Total Corporate General & Administrative 9,379 2,735 6,644
---------------------------------------------
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Total Segment Operating Expenses 267,886 194,831 73,055
=============================================
RESULTS FOR 1998 COMPARED TO 1997
Operating revenues in 1998 decreased by $0.8 million to $252.7 million from
$253.5 million in 1997. This $0.8 million decrease consisted of increases of
approximately $4.9 million in the railway segment, increases of $2.9 million in
the trucking segment, and increases of $3.9 million in the telecommunications
segment offset by a decrease of approximately $12.5 million in the real estate
segment. The decrease of approximately $12.5 million in the real estate segment
was comprised of an increase of approximately $6.4 million in realty rental
income, resulting from the placement of new buildings in service and higher
lease rates on buildings already in service, and a decrease of approximately
$18.9 million of revenues from sales of realty property.
REVENUES