UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended September 30, 2002 | ||
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from ____________ to ____________ | ||
Commission File Number 001-08728
Florida East Coast Industries, Inc.
| Florida | 59-2349968 | |
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(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
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| 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
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
| Class | Outstanding at September 30, 2002 | |
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| Class A Common Stock-no par value Class B Common Stock-no par value |
17,024,316 shares 19,609,216 shares |
FLORIDA EAST COAST INDUSTRIES, INC.
| Page Numbers | ||||||
| PART I FINANCIAL INFORMATION |
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Item 1. Financial Statements |
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Consolidated Balance Sheets -
September 30, 2002 and December 31, 2001 |
2 | |||||
Consolidated Statements of Income -
Three Months and Nine Months Ended
September 30, 2002 and 2001 |
3 | |||||
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2002 and 2001 |
4 | |||||
Notes to Consolidated Condensed Financial Statements |
5-12 | |||||
Item 2. Management’s Discussion and Analysis of Consolidated
Financial Condition and Results of Operations |
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Comparison of Third Quarter 2002 versus Third Quarter 2001
and Nine Months 2002 versus Nine Months 2001 |
13-19 | |||||
Changes in Financial Condition, Liquidity and Capital Resources |
19 | |||||
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
19 | |||||
Item 4. Evaluation of Disclosure Controls and Procedures |
20 | |||||
| PART II OTHER INFORMATION |
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Item 1. Legal Proceedings |
20 | |||||
Item 5. Other Information |
20-21 | |||||
Item 6. Exhibits and Reports on Form 8-K |
22 | |||||
1
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
| September 30 | December 31 | |||||||||
| 2002 | 2001 | |||||||||
| (unaudited) | ||||||||||
Assets |
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Current Assets: |
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Cash and cash equivalents |
28,512 | 14,089 | ||||||||
Accounts receivable (net) |
22,890 | 31,219 | ||||||||
Income tax receivable |
2,800 | 10,105 | ||||||||
Materials and supplies |
2,942 | 3,703 | ||||||||
Assets held for sale (Notes 2 and 9) |
11,672 | 7,825 | ||||||||
Assets related to discontinued operations (Note 2) |
5,626 | — | ||||||||
Prepaid expenses and other current assets |
13,129 | 14,720 | ||||||||
Deferred income taxes |
10,026 | — | ||||||||
Total current assets |
97,597 | 81,661 | ||||||||
Properties, Less Accumulated Depreciation and Amortization |
790,332 | 1,064,899 | ||||||||
Other Assets and Deferred Charges |
51,672 | 54,110 | ||||||||
Total Assets |
939,601 | 1,200,670 | ||||||||
Liabilities and Shareholders’ Equity |
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Current Liabilities: |
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Accounts payable |
36,677 | 58,202 | ||||||||
Short-term debt |
2,594 | 2,457 | ||||||||
Accrued casualty and other reserves |
2,141 | 1,987 | ||||||||
Liabilities related to discontinued operations (Note 2) |
6,225 | — | ||||||||
Other accrued liabilities |
28,748 | 16,746 | ||||||||
Total current liabilities |
76,385 | 79,392 | ||||||||
Deferred Income Taxes |
22,158 | 103,673 | ||||||||
Long-Term Debt |
269,821 | 282,784 | ||||||||
Accrued Casualty and Other Long-Term Liabilities |
35,200 | 50,652 | ||||||||
Shareholders’ Equity: |
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Common Stock: |
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Class A common stock; no par value;
50,000,000 shares authorized; 17,823,400
shares issued and 17,024,316 shares outstanding at September 30, 2002, and
17,720,687 shares issued and 16,921,603 shares outstanding at December 31, 2001
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69,142 | 66,533 | ||||||||
Class B common stock; no par
value; 100,000,000 shares authorized; 19,609,216 shares
issued and outstanding at September 30, 2002 and December 31, 2001 |
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Retained earnings |
479,772 | 628,346 | ||||||||
Restricted stock deferred compensation |
(3,522 | ) | (1,355 | ) | ||||||
Treasury stock at cost (799,084 shares) |
(9,355 | ) | (9,355 | ) | ||||||
Total shareholders’ equity |
536,037 | 684,169 | ||||||||
Total Liabilities and Shareholders’ Equity |
939,601 | 1,200,670 | ||||||||
(See accompanying notes to consolidated condensed financial statements.)
2
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
(unaudited)
| THREE MONTHS | NINE MONTHS | |||||||||||||||
| ENDED SEPTEMBER 30 | ENDED SEPTEMBER 30 | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Operating revenues |
64,485 | 65,841 | 198,822 | 200,172 | ||||||||||||
Operating expenses (Notes 3 and 9) |
(300,177 | ) | (60,776 | ) | (433,093 | ) | (184,428 | ) | ||||||||
Operating (loss) profit |
(235,692 | ) | 5,065 | (234,271 | ) | 15,744 | ||||||||||
Interest expense |
(5,048 | ) | (1,321 | ) | (14,865 | ) | (960 | ) | ||||||||
Other income (Note 7) |
458 | 449 | 13,577 | 1,476 | ||||||||||||
(Loss) income before income taxes |
(240,282 | ) | 4,193 | (235,559 | ) | 16,260 | ||||||||||
Benefit (provision) for income taxes |
92,520 | (1,596 | ) | 90,690 | (6,387 | ) | ||||||||||
(Loss) income from continuing operations |
(147,762 | ) | 2,597 | (144,869 | ) | 9,873 | ||||||||||
DISCONTINUED OPERATIONS (Note 2) |
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Loss from operation of discontinued operations (net of taxes) |
(609 | ) | (629 | ) | (1,951 | ) | (2,171 | ) | ||||||||
Gain on disposition of discontinued operations (net of taxes) |
988 | — | 988 | — | ||||||||||||
Income (loss) from discontinued operations |
379 | (629 | ) | (963 | ) | (2,171 | ) | |||||||||
Net (loss) income |
(147,383 | ) | 1,968 | (145,832 | ) | 7,702 | ||||||||||
EARNINGS PER SHARE |
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(Loss) income from continuing operations — basic and diluted |
$ | (4.05 | ) | $ | 0.07 | $ | (3.98 | ) | $ | 0.27 | ||||||
Loss from operation of discontinued operations — basic and diluted |
$ | (0.02 | ) | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.06 | ) | ||||
Gain on disposition of discontinued operations — basic and diluted |
$ | 0.03 | — | $ | 0.03 | — | ||||||||||
Net (loss) income — basic and diluted |
$ | (4.04 | ) | $ | 0.05 | $ | (4.00 | ) | $ | 0.21 | ||||||
Average shares outstanding — basic |
36,440,611 | 36,396,026 | 36,442,184 | 36,393,080 | ||||||||||||
Average shares outstanding — diluted |
36,440,611 | 36,558,797 | 36,442,184 | 36,632,698 | ||||||||||||
(See accompanying notes to consolidated condensed financial statements.)
3
FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
| Nine Months Ended Sept. 30 | ||||||||||
| 2002 | 2001 | |||||||||
Cash Flows from Operating Activities: |
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Net (loss) income |
(145,832 | ) | 7,702 | |||||||
Adjustments to reconcile net income to cash generated by operating activities: |
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Depreciation and amortization |
49,012 | 38,340 | ||||||||
EPIK restructuring charges |
5,474 | — | ||||||||
Payment of restructuring charges |
(4,512 | ) | — | |||||||
Asset impairment charge |
238,066 | — | ||||||||
FLX exit costs |
3,839 | — | ||||||||
Gain on sales and other disposition of properties |
(10,870 | ) | (10,256 | ) | ||||||
Non-cash gain on contract termination |
(9,437 | ) | — | |||||||
Other |
(577 | ) | 610 | |||||||
Deferred taxes |
(91,541 | ) | (532 | ) | ||||||
| 33,622 | 35,864 | |||||||||
Changes in operating assets and liabilities: (Note 2) |
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Accounts receivable |
6,695 | (3,243 | ) | |||||||
Other current assets |
(683 | ) | (3,596 | ) | ||||||
Other assets and deferred charges |
1,888 | (3,476 | ) | |||||||
Accounts payable |
(17,650 | ) | (25,485 | ) | ||||||
Income taxes receivable (payable) |
7,305 | (4,834 | ) | |||||||
Other current liabilities |
17,106 | 9,677 | ||||||||
Accrued casualty and other long-term liabilities |
(4,415 | ) | 1,199 | |||||||
| 10,246 | (29,758 | ) | ||||||||
Net cash generated by operating activities |
43,868 | 6,106 | ||||||||
Cash Flows from Investing Activities: |
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Purchase of properties |
(39,831 | ) | (209,025 | ) | ||||||
Proceeds from available-for-sale investments |
— | 13,007 | ||||||||
Proceeds from disposition of assets |
26,023 | 17,967 | ||||||||
Net cash (used in) generated by investing activities |
(13,808 | ) | (178,051 | ) | ||||||
Cash Flows from Financing Activities: |
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Proceeds from exercise of options |
— | 2,265 | ||||||||
Purchase of common stock |
(68 | ) | — | |||||||
Proceeds from mortgages |
— | 247,000 | ||||||||
Payment of mortgage debt |
(1,827 | ) | (243 | ) | ||||||
Payment of line of credit |
(11,000 | ) | (83,000 | ) | ||||||
Debt issuance costs |
— | (5,956 | ) | |||||||
Payment of dividends |
(2,742 | ) | (2,739 | ) | ||||||
Net cash (used in) provided by financing activities |
(15,637 | ) | 157,327 | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents |
14,423 | (14,618 | ) | |||||||
Cash and Cash Equivalents at Beginning of Period |
14,089 | 18,444 | ||||||||
Cash and Cash Equivalents at End of Period |
28,512 | 3,826 | ||||||||
Supplemental Disclosure of Cash Flow Information: |
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Cash (received) paid for income taxes |
(7,984 | ) | 12,950 | |||||||
Cash paid for interest |
14,001 | 6,562 | ||||||||
Property contributed to partnerships |
— | 4,590 | ||||||||
(See accompanying notes to consolidated condensed financial statements.)
4
FLORIDA EAST COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. General
In the opinion of management, the accompanying unaudited consolidated condensed financial statements reflect all accruals and adjustments considered necessary to present fairly the Company’s financial position as of September 30, 2002 and December 31, 2001, and the results of operations and cash flows for the three-month and nine-month periods ended September 30, 2002 and 2001. Results for interim periods are not necessarily indicative of the results to be expected for the year. These interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission.
Certain prior year amounts have been reclassified to conform to the current year’s presentation.
Note 2. Discontinued Operations
Flagler Development
During the third quarter 2002, Flagler Development Company (Flagler) sold an industrial building totaling approximately 300,000 square feet located in its Beacon Station Business Park. By exercising an option, the tenant purchased the building for $18.2 million, and Flagler reported a pre-tax gain of $5.5 million ($3.3 million, net of tax) on the sale. In addition, Flagler entered into a contract to sell a 101,000-square foot building utilized as a call center in its Beacon Station Business Park, with the sale expected to close in the fourth quarter 2002. These sales are accounted for as discontinued operations under the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), and all periods presented have been restated for the discontinued operations of both buildings. The gain on the sale of the industrial building has been excluded from continuing operations and included in discontinued operations for all periods presented. The call center building, which is expected to be sold in the fourth quarter of 2002, with a net book value of $8.3 million, has been included in assets held for sale.
| THREE MONTHS | NINE MONTHS | |||||||||||||||
| ENDED SEPT. 30 | ENDED SEPT. 30 | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Summary of Operating Results of Discontinued Operations |
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Flagler realty rental revenues |
829 | 848 | 2,698 | 1,465 | ||||||||||||
Flagler realty rental expenses |
(402 | ) | (344 | ) | (1,206 | ) | (661 | ) | ||||||||
Income before income taxes |
427 | 504 | 1,492 | 804 | ||||||||||||
Income taxes |
(165 | ) | (195 | ) | (576 | ) | (310 | ) | ||||||||
Income from discontinued operations |
262 | 309 | 916 | 494 | ||||||||||||
Trucking Operations
During the third quarter of 2002, the Company adopted a plan to discontinue its regional long-haul trucking operations. The Company expects shut down and disposition activities to continue into the fourth quarter of 2002. As of September 30, 2002, the estimated disposition loss of approximately $5.2 million includes the following items: employee severance costs, tractor/trailer disposition costs and other costs. At September 30, 2002, $3.8 million ($2.3 million, net of tax) of these costs had been accrued.
The Company reported the results of the trucking operations and the estimated disposition loss as discontinued operations under the provisions of SFAS 144, and all periods presented have been restated accordingly.
5
Net Assets of Discontinued Operations
| 9/30/02 | |||||
Assets |
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Accounts receivable (net) |
2,672 | ||||
Other current assets |
1,104 | ||||
Properties, less accumulated depreciation and amortization |
1,639 | ||||
Other assets and deferred charges |
211 | ||||
Total Assets |
5,626 | ||||
Liabilities |
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Accounts payable |
(1,455 | ) | |||
Other liabilities |
(4,770 | ) | |||
Total Liabilities |
(6,225 | ) | |||
Net Liabilities of Discontinued Operations |
(599 | ) | |||