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.
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.
The following table summarizes the Company's freight shipments by commodity group and as a percentage of rail freight revenues:
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 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
ITEM 2. PROPERTIES
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.
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.
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)
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).
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.
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:
ITEM 3.
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.
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.
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.
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:
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.
ITEM 6.
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.
(a)-Certain amounts have been reclassified to conform with the current year's presentation.
ITEM 7.
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
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
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).
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.
SUMMARY OF OPERATING RESULTS 1999 VS. 1998 (dollars in thousands)
(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.
SUMMARY OF OPERATING EXPENSES 1999 VS. 1998 (dollars in thousands)
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
RAILWAY
FECR handled 161,000 rail carloads in 1998 compared to 147,000 in 1997, an increase of 14,000 carloads or 9.5%. FECR handled 326,000 intermodal units in 1998 compared to 342,000 in 1997, a decrease of 16,000 or 4.7%.
Rail revenues increased to $163 million in 1998 from $159 million in 1997, an increase of approximately $4 million or 2.5%. This increase was primarily attributed to increases in shipments of aggregate and automotive carload traffic. Aggregate shipments increased in 1998 by 10,400 carloads or 11.1% over 1997. Automobile and automotive-related traffic increased in 1998 by approximately 4,100 rail cars or 24.6% over 1997.
The decrease in intermodal shipments includes a decrease of approximately 23,700 or 9.5% in trailers handled, and an increase in containers handled of 7,300 or 7.9%.
Other carload traffic decreased in 1998 by approximately 1,300 carloads or 3.5% from 1997. A contributing factor to this decrease in carload shipments was a customer's determination in early 1998 to use an alternative means of shipping coal. In April 1998, the customer and FECR subsequently executed a transportation contract, which resulted in the customer using the Company's rail services again.
TRUCKING
Trucking revenues increased in 1998 by approximately $2.9 million or 10.6% from 1997. The number of shipments interchanged with FECR rose in 1998 by approximately 1,600 units or 23.2%.
REAL ESTATE
Real estate revenues decreased in 1998 by approximately $12.5 million over 1997. This decrease was attributable to an approximate $18.9 million decrease in revenues from real estate sales, and an approximate $6.4 million increase in rental revenues.
TELECOMMUNICATIONS
Telecommunications revenues increased $3.9 million to $6.4 million during 1998. Results for 1998 included
Language indicated as being shown by strikeout in the typeset document is enclosed in brackets "[" and "]" in the electronic format.
recognition of a non-monetary gain of approximately $2.5 million on an exchange involving fiber optic cables.
EXPENSES
Operating expenses overall decreased by approximately $6.4 million in 1998 to approximately $194.8 million from $201.2 million or 3.2% in 1997. Operating expenses increased in 1998 by $4.6 million for the railway segment; increased $2.7 million for the trucking segment; decreased $12.2 million in the real estate business, and decreased $1.5 million for corporate general and administrative expenses.
RAILWAY
Railway expenses increased by $4.6 million or 3.8% in 1998 over 1997 for rail. The increase in expenses for rail operations was primarily attributable to increases in repair and maintenance expenses for locomotives, rail cars and intermodal equipment, additional payroll for transportation operations, increases in depreciation, casualty and insurance, equipment charges, and general and administrative expenses. Fuel expenses decreased $2.2 million.
TRUCKING
Trucking expenses increased $2.7 million to $29.7 million at December 31, 1998 from $27.0 million at December 31, 1997. Increased expenses were attributable to an increase in shipments between the trucking operation and the Company's railroad, and an increase with contract drivers.
REAL ESTATE
Real estate expenses decreased in 1998 by approximately $12.2 million or 24.6% from 1997. This decrease in expenses is attributable to fewer property sales in 1998 than 1997, resulting in a decrease in such sales expenses in 1998 by $20 million over 1997. Expenses related to rental properties increased in 1998 by approximately $7.9 million or 29.3% over 1997. This increase in rental operating expenses in 1998 was the result of an increase of approximately $3.1 million in operating expenses of buildings having leasable space available on January 1, 1998; an increase of approximately $900,000 for buildings providing leasable space during 1998, and an increase in depreciation expenses of $3.7 million in 1998.
CORPORATE GENERAL & ADMINISTRATIVE
The decline in corporate general and administrative expenses of $1.5 million relates to a special charge recorded in 1997 of $3.5 million involving the possible disposition of the Company offset by increases in corporate salaries and related benefits, severance accruals, professional fees and other miscellaneous expenses.
OTHER INCOME
Other income increased $1.7 million in 1998 to approximately $12.4 million from $10.6 million in 1997, respectively.
Income taxes in 1998 increased by approximately $3.7 million due to the Company's increase in net income.
Net income for 1998 was $43.6 million or $1.20 per diluted share, compared to net income in 1997 of $40.1 million or $1.11 per diluted share.
SUMMARY OF OPERATING RESULTS 1998 VS. 1997 (dollars in thousands)
*-Prior year presentations included telecommunications revenues and expenses in railway operating results.
SUMMARY OF OPERATING EXPENSES 1998 VS. 1997 (dollars in thousands)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition is strong as indicated by its net working capital position (current assets-current liabilities) of approximately $58 million and its liquid investment portfolio. The working capital amount is also stated as a ratio of current assets divided by current liabilities ("current ratio"). The Company's current ratio in 1999 was 2.4:1 and in 1998, 2.5:1. The Company's total investment portfolio, including cash and investments, at December 31, 1999 was $102.6 million compared to $85.4 million in 1998. The increase in the investment portfolio was attributable to sales of real estate assets, net of capital expenditures not covered by cash generated from operations. Capital expenditures in 1999 were $110 million, of which approximately $31.5 million was for transportation related expenditures, and approximately $72.5 million was for real estate development and $6.0 million for telecommunications related expenditures.
Capital expenditures for 1998 were $89 million, including $27 million for transportation and $62 million for real estate.
Cash generated from operations at December 31, 1999 was $56 million compared to $31 million in 1998, an increase of $25 million or 81%. During 1998, net operating cash of $35 million was invested in a trading portfolio as a result of the Company's determination to manage a portion of its investment portfolio in an effort to enhance future returns.
The Company's investment portfolio was invested in tax exempt municipal bonds and other highly liquid investments and marketable securities.
The Company has historically maintained large, highly liquid reserves to meet the Company's cash requirements for rail operations and associated capital expenditures and for real estate acquisition, construction and development. Due to these reserves, the Company has historically not incurred debt in the development of its real estate projects or for capital expenditures in its transportation business. The Company, therefore, had no long- or short-term debt as of December 31, 1999.
The Company expects its budgeted capital expenditures for 2000 to exceed cash flow from operations and will substantially consume cash and investment balances. It is possible that debt may be incurred in situations where management determines debt financing is appropriate.
The Company expects to have available by March 31, 2000, a $200 million revolving credit agreement with a syndicate of financial institutions. The revolving credit agreement will provide back-up liquidity, bridge funding for capital expenditures until long-term funding arrangements can be made, acquisitions, or to potentially repurchase shares of the Company's common stock.
With respect to the transportation business, the Company is not obligated under any significant capital or operating leases, except for short-term leasing of locomotives, freight cars, trailers, automobiles and trucks and data processing equipment.
Cash flows from financing activities for the past three years represented dividend payments. Cash dividends of $.10 per share were paid in each of the three years.
ENVIRONMENTAL LIABILITIES
The Company is subject to proceedings arising out of environmental laws and regulations, which primarily relate to the disposal and use of fuel and oil used in the transportation business. It is the Company's policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals are reviewed and adjusted.
Compliance with the federal, state, and local laws and regulations relating to the protection of the environment has not affected the Company's capital additions, earnings or competitive position, nor does management anticipate any future problems will adversely affect the Company's financial situation based upon the information available today.
Environmental expenditures for capital improvements and infrequent expenditures for ongoing operations and maintenance have historically been insignificant to the operations of the Company. Management does not anticipate any changes in these expenditures.
These expenditures are expected to be funded from current operations supplemented, as necessary, by cash and investments currently on hand and through the sale of properties.
YEAR 2000 SYSTEM COMPLIANCE
Management recognized the potential effect Year 2000 could have on the Company's operations and, as a result, implemented a Year 2000 Compliance Project. The Company's computer hardware, operating systems, business systems, general accounting and property management systems and principal desktop software applications are Year 2000 compliant. Additionally, the Company did not incur and does not expect business interruption as a result of any of its customers or financial institutions not being Year 2000 compliant.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk primarily related to the Company's investment portfolio. The portfolio is materially comprised of fixed rate municipal securities with active secondary or resale markets to ensure portfolio liquidity. The Company does not use derivative financial instruments to hedge its investment portfolio. The Company manages its interest rate exposure by monitoring the effects of market changes in interest rates.
The table below presents principal amounts and related weighted-average interest rates by year of maturity for the Company's investment portfolio, segregated into trading and non-trading. The weighted-average interest rates for the various fixed-rate investments are based on the actual rates that existed as of December 31, 1999.
EXPECTED CONTRACTUAL MATURITIES (dollars in thousands)
As the table incorporates only those exposures that exist as of December 31, 1999, it does not consider those exposures or positions that could arise after that date. As a result, the Company's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period and market interest rates.
INFLATION
Inflation has not had a significant impact on the Company's operations in recent years.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Board of Directors and Shareholders Florida East Coast Industries, Inc.:
We have audited the consolidated balance sheets of Florida East Coast Industries, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999. In connection with our audits of the consolidated financial statements, we also audited the financial statement schedule as listed in the accompanying Index on Page 55 of this Report on Form 10-K for the year 1999. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Florida East Coast Industries, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
KPMG LLP
Jacksonville, Florida January 31, 2000
CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1999, 1998 and 1997 (dollars in thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 (dollars in thousands)
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (dollars in thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1999, 1998 and 1997 (dollars in thousands)
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997
1. NATURE OF BUSINESS
The principal operations of FECI and its subsidiaries primarily relate to the transportation of goods by rail and truck, the development, leasing, management and sale of real estate, and the more recently carriers' carrier telecommunications business offering dark fiber and broadband capacity. During 1999, the Company established a wholly-owned telecommunications subsidiary, EPIK Communications Incorporated, based in Orlando, Florida. EPIK 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. The Company's rail segment operates only within the state of Florida with approximately 50% of its revenues derived from local moves along the Company's line. Approximately 40% of the rail segment's revenues were derived from five of its largest customers, with approximately $26,900,000, $25,200,000 and $20,600,000, 17%, 15.3% and 12.5%, in 1999, 1998 and 1997, respectively, generated by one significant customer. The realty segment of the Company presently operates in Florida with certain of its day-to-day operations managed by The St. Joe Company ("St. Joe"). The Company's trucking segment has operating rights within the forty-eight states but primarily operates within the Midwest and Southeast.
2. MAJORITY STOCKHOLDER
The Nemours Foundation, which is funded by the Alfred I. duPont Testamentary Trust, owns approximately 5% of the Company's common stock as of December 31, 1999. The Trust is a majority shareholder of St. Joe which owns directly approximately 54% of the Company's common stock. Significant transactions with The St. Joe Company and its affiliates were the Company's payment of dividends and the sharing of personnel in the areas of environmental, legal and real estate for 1999, 1998 and 1997. The Company engaged St. Joe to provide asset management, property and development management, and construction coordination services to its realty segment, Gran Central Corporation ("GCC"), in 1999 and 1998. Amounts paid to St. Joe for these services in 1999 and 1998 were $2,648,000 and $2,125,000 for asset management fees; $2,916,000 and $2,055,000 for property management fees; $2,538,000 and $1,833,000 for development fees; $2,308,000 and $1,804,000 for construction coordination fees and leasing commissions, and $1,017,000 and $0 for commissions on real estate sales, respectively.
On October 27, 1999, 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 Company's 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 and are 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, and the approval of the recapitalization by a majority of the minority shareholders of the Company. The required shareholder approval was received on March 8, 2000. Costs (legal, advisory, etc.) associated with the spin-off are expected to be approximately $2.5 million.
At the closing of the transaction, various service agreements between St. Joe and 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 real estate holdings of GCC.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
REVENUE RECOGNITION
Railway Revenues: Rail and intermodal revenue is recognized proportionately as freight moves from origin to destination.
Trucking Revenues: Revenues are substantially recognized upon completion of transportation services at destination.
Realty Land Sales: Revenue is recognized upon closing of sales contracts for sale of land or upon settlement of legal proceedings such as condemnations.
Realty Rental Income: Revenue is recognized upon commencement of rental and lease contracts. The Company uses the straight-line basis for recording the revenues over the life of the lease contract.
Dark Fiber Revenues: Revenue is recognized upon commencement of rental and lease contracts. The Company uses the straight-line basis for recording the revenues over the life of the lease contract. Any advance payments called for in the agreement are deferred and included in other liabilities.
Dark Fiber Swaps: No revenue is recognized on swap transactions. Historical "carryover basis" is assigned to received fiber in an exchange.
PROPERTIES
Railway and trucking properties are stated at historical cost and are depreciated and amortized on the straight-line method over the estimated useful lives. Road properties' depreciation is based on lives ranging from 10 to 40 years, and equipment properties on lives varying from 9 to 27.5 years. Gains and losses on normal retirements of these items are credited or charged to accumulated depreciation. Miscellaneous physical property consists principally of non-depreciable real property.
Real estate properties are stated at historical cost. Depreciation is computed using the straight-line method over estimated asset lives of 15 years for land improvements and 18 to 40 years for buildings.
Telecommunications assets are generally stated at historical cost and depreciated on the straight-line method over their estimated asset lives.
The Company reviews its property, plant and equipment for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the net cash flows expected to be generated by the asset.
MATERIALS AND SUPPLIES
New materials and supplies are stated principally at average cost which is not in excess of replacement cost. Used materials are stated at an amount which does not exceed estimated realizable value.
EARNINGS PER SHARE
The following weighted-average number of shares of common stock was used in the calculations for earnings per share. The diluted weighted-average number of shares includes the net shares that would be issued upon the exercise of stock options using the treasury stock method.
CASH AND CASH EQUIVALENTS
For purposes of cash flows, cash and cash equivalents include cash on hand, bank demand accounts, money market accounts and overnight repurchase agreements having original maturities of less than three months.
INCOME TAXES
The Company follows the asset and liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS No. 109"), "Accounting for Income Taxes." Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
INVESTMENTS
The Company classifies its debt and marketable equity securities in one of three categories: trading, available-for-sale or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near-term. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, which represents the adjustment for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect on available-for-sale securities, are excluded from earnings and are reported as a separate component of shareholders' equity until realized.
A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security.
Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25"), and related interpretations in accounting for stock options. As such, compensation expenses would be recorded on the date of the grant only if the current market price of the underlying stock exceeded the exercise price. Compensation expenses for grants of restricted stock are recognized over the applicable vesting period (generally five years).
COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," on January 1, 1998. SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income consists of net income and net unrealized gains (losses) on available-for-sale securities and is presented in the consolidated statements of shareholders' equity and comprehensive income. The statement requires only additional disclosures in the consolidated financial statements. It does not affect the Company's financial position or results of operations. Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130.
NEW ACCOUNTING STANDARDS AND ACCOUNTING CHANGES
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133), which is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. FAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. FAS 133 requires entities to recognize all derivatives as either assets or liabilities in the Balance Sheet and measure those instruments at fair value. The Company does not believe FAS 133 will materially effect its financial statements.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current year's presentation.
4. SPECIAL CHARGES
The Company incurred special charges of approximately $8.2 million in the second quarter of 1999 which related to a work force reduction, including curtailment of a supplemental executive retirement plan first adopted in late 1998, and inventory reductions arising out of a modification to the Company's inventory management practices.
5. PROPERTIES
Properties consist of (dollars in thousands):
Real estate properties having a net book value of $249.3 million at December 31, 1999 are leased under non-cancelable operating leases with expected aggregate rentals of $136.1 million which are due in years 2000-2004 in the amounts of $40.2, $35.7, $27.9, $20.1 and $12.2 million, respectively, and $40.3 million thereafter.
6. INVESTMENTS
Other investments are held as a development fund created to accumulate capital expected to be required for future improvement of the Company's real estate properties or other corporate needs. There were gross realized gains of $1,157,979 and $6,975,000 and gross realized losses of $573,360 and $1,095,156 from available-for-sale securities for 1999 and 1998, respectively. The amount for 1997 was insignificant to the consolidated financial statements.
Investments at December 31, 1999 consist of (dollars in thousands):
Investments at December 31, 1998 consist of (dollars in thousands):
7. COLLATERAL TRUST 5% BONDS
There were outstanding at December 31, 1999 and 1998, $11,724,050 and $11,956,100, respectively, of the Company's Collateral Trust 5% Bonds (the "Bonds") due in 2001. Direct obligations of the U.S. Government, the cash flows from which approximately coincide as to timing and amount with the scheduled interest and principal payments on the Bonds, are held in trust for the purpose of making such payments. Accordingly, the Bonds are considered to be extinguished and, therefore, are not reflected in the Company's financial statements.
8. INCOME TAXES
Total income tax expense for the years ended December 31, 1999, 1998 and 1997 was allocated as follows (dollars in thousands):
Income tax expense attributable to income from continuing operations differed from the amounts computed by applying the statutory federal income tax rate to pretax income as a result of the following (dollars in thousands):
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 1999 and 1998 are as follows (dollars in thousands):
There was no valuation allowance provided for deferred tax assets as of December 31, 1999 and 1998 as the Company believes the results of future operations will generate sufficient taxable income to realize the deferred tax assets.
Deferred tax assets of $2,503 and $3,135 at December 31, 1999 and 1998, respectively, were included in other current assets.
9. SEGMENT INFORMATION
During 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 provides guidance for reporting information about operating segments and other geographic information based on a management approach. The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies.
Under the provisions of SFAS 131, the Company has four reportable operating segments all within the same geographic area. These are the rail segment, trucking segment, realty segment and the telecommunications segment.
The rail segment provides rail freight transportation along the East Coast of Florida between Jacksonville and Miami. The trucking segment provides truckload transportation for a wide range of general commodities throughout the Midwest and Southeast United States. The realty segment is engaged in the development, leasing, management, operation and sales of its commercial and industrial property primarily in Florida.
The telecommunications segment is a new segment for 1999. The addition of this segment reflects increased telecommunications financial activities within the consolidated group. Prior year amounts have been reclassified to conform with this presentation. EPIK primarily manages the telecommunications segment's operations. The Company seeks to construct, develop, operate, lease and sell the Company's "Florida Footprint" telecom assets by providing wholesale high capacity private line services ("bandwidth"), dark fiber and collocation services to other telecom providers. The telecommunications segment also seeks to expand its telecom network both within and beyond the state of Florida through both construction and "swap" transactions.
FECR generates revenues from leases to other telecommunications companies for the installation of fiber optic and other facilities on the railroad right-of-way which revenues are included in the telecommunications segment.
The Company evaluates the railway and trucking segments' performance based on operating profit or loss from operations before other income and income taxes. The Company evaluates the telecommunications segment's performance based on a combination of operating revenues and operating profit or loss from operations before other income and income taxes. Operating profit is operating revenue less directly traceable costs and expenses. The Company evaluates the realty segment based on operating profit and EBITDA. EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. EBITDA excludes other income. EBITDA, as a measure of operating cash flow, is considered a key financial measurement in the realty industry.
Intersegment revenues for transactions between the transportation rail and transportation trucking segments are based on quoted rates, which are believed to approximate the cost that would have been incurred had similar services been obtained from an unrelated third party.
The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies.
Information by industry segment follows (dollars in thousands):
*-Includes amortization of goodwill of $469,000, $469,000 and $405,000 for 1999, 1998 and 1997, respectively.
The following table provides a reconciliation of reportable operating segment revenues, operating profit and assets to the Company's consolidated totals (dollars in thousands):
10. ACCRUED CASUALTY AND OTHER LONG-TERM LIABILITIES
Accrued casualty and other long-term liabilities decreased $2.9 million which represents a $5.0 million payment for the settlement of a lawsuit stemming from a 1994 incident, and a $2.1 million increase in deferred telecommunications IRU fees.
The Company maintains comprehensive liability insurance for bodily injury and property claims for risks with respect to losses for third-party liability, property damage and group health insurance coverage provided employees but maintains a significant self-insured retention for these exposures. The Company is the defendant and plaintiff in various lawsuits resulting from its operations. In the opinion of management, adequate provision has been made in the financial statements for the estimated liability which may result from disposition of such matters.
The Company is subject to proceedings arising out of environmental laws and regulations, which primarily relate to the disposal and use of fuel and oil used in the transportation business. It is the Company's policy to accrue environmental cleanup costs when it is probable that a liability has been incurred and an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals are reviewed and adjusted.
FECR has been named as a potentially responsible party ("PRP") by the United States Environmental Protection Agency ("USEPA") for the remediation of six sites, including three Superfund 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 decisions to date, FECR believes that its liability for the remediation of the site will not be material.
On the second site, FECR was contacted by the USEPA during 1996 seeking reimbursement of costs associated with the remediation of a site in Hialeah, Florida, part of which includes an FECR right-of-way. 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 encroachment property. The ultimate cost, if any, is not expected to be material.
The third Superfund site is located in Portsmouth, Virginia. A settlement (approved by the court and USEPA) between the owner of the site and FECR was achieved in late 1996 for $202,247. Unless additional impacts are found beyond the original clean-up, FECR will have no further liability at the site.
The government's claims relating to two of the sites have been resolved, and a third is expected to be resolved shortly, each for non-material amounts.
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 and 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.
The Company has accrued its estimated share of the total estimated cleanup costs for these sites. Based upon management's evaluation of the other potentially responsible parties, the Company does not expect to incur additional amounts, even though the Company has joint and several liability. Other proceedings involving environmental matters, such as alleged discharge of oil or waste material into water or soil, are pending against the Company.
It is difficult to quantify future environmental costs because many issues relate to actions by third parties or changes in environmental regulation. However, based on information presently available, management believes that the ultimate disposition of currently known matters will not have a material effect on the financial position, liquidity or results of operations of the Company. Reserves for potential environmental liabilities were $1.5 million at year-end 1999, and $2.0 million for year-end 1998. Environmental liabilities will be paid over an extended period, and the timing of such payments cannot be predicted with any confidence.
GCC entered into an agreement with the State of Florida Department of Transportation to furnish all land necessary for the construction of the NW 106th Street Interchange on the Homestead Extension of the Florida Turnpike, and to subsidize any annual operating deficit of the Department for 15 years related to the interchange which is not covered by toll revenues. The maximum assessment amount over the 15 years would be approximately $9.3 million, with no annual assessment to exceed approximately $1.1 million. No assessment or related accruals to this agreement have been made.
11. RETIREMENT PLANS
The Company sponsors three 401(k) plans. Contributions are at the employee's discretion with upper limits of 10% of compensation before taxes, subject to maximum limits imposed by the IRS ($10,000 in 1999), and an additional contribution up to 10% of after-tax compensation, also subject to maximum limits imposed by the IRS. Total contributions in 1999, including the Company's match if any, were limited by IRS regulations to $30,000.
401(K) PLAN FOR SALARIED EMPLOYEES
The amounts of matching contributions by the Company for this plan covering the years 1999, 1998 and 1997
were approximately $371,000, $356,000 and $334,000, respectively. The expenses associated with this plan were approximately $15,000, $14,000 and $13,000 in 1999, 1998 and 1997, respectively. In accordance with the terms of the plan, the Company matched the employee's contributions $1.00 for $1.00 up to the first $1,200 contributed by the employee in 1999. For employee contributions in excess of $1,200, the Company matches $.25 for every $1.00 in pretax employee contributions.
401(K) PLAN FOR HOURLY WAGE EMPLOYEES AND/OR EMPLOYEES COVERED BY COLLECTIVE BARGAINING AGREEMENT
This is a non-contributory plan that was instituted in April 1995. The expenses associated with this plan were approximately $8,300, $5,700 and $6,400 in 1999, 1998 and 1997, respectively.
INTERNATIONAL TRANSIT, INC. 401(k) PLAN
The Company matched employee contributions $.25 for each $1.00 contributed up to contributions totaling 6% of employee's compensation in 1999. The amounts of the Company's matching contributions were approximately $19,000, $23,000 and $22,000 for 1999, 1998 and 1997, respectively. Expenses for this plan were approximately $5,800, $5,000 and $1,000 for 1999, 1998 and 1997, respectively.
PENSION PLAN
The Company adopted a non-funded defined benefit plan covering nine officers of the Company in 1998. The benefits are based on years of service and the employee's compensation during the five years before retirement. As part of the second quarter special charges, the Company curtailed this plan in 1999, causing no additional benefits to accrue to covered officers. At December 31, 1999 and 1998, accrued liabilities were $3.9 million and $3.7 million, respectively.
The following sets forth the plans benefit obligation and unfunded status at December 31, 1999 and 1998, respectively, (dollars in thousands):
12. COMPREHENSIVE INCOME
The related tax effects allocated to each component of other comprehensive income are as follows (dollars in thousands):
13. STOCK-BASED COMPENSATION
The 1998 Stock Incentive Plan (the "Plan"), as amended, allows the Company to grant to employees and directors various stock awards, including stock options, which are granted at prices not less than the fair market value at the date of grant and restricted stock. A maximum of 1.6 million shares was approved to be issued under the Plan. On December 31, 1999, options for 1,222,972 shares have been granted.
The stock options may be granted over a period not to exceed 10 years and generally vest from one to five years from the date of grant. The changes in outstanding options are as follows:
Stock options outstanding and exercisable on December 31, 1999 are as follows:
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations in accounting for the Plan and, therefore, no compensation expense has been recognized for stock options issued under the Plan. For companies electing to continue the use of APB 25, SFAS No. 123, "Accounting for Stock-Based Compensation," requires pro forma disclosures determined through the use of an option-pricing model as if the provisions of SFAS No. 123 had been adopted.
The weighted average fair value at date of grant for options granted during 1999 and 1998 was $22.34 and $10.63 per share, respectively. The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:
If the Company had adopted the provisions of SFAS No. 123, the impact on reported net income and earnings per share would have been as follows:
During 1999 and 1998, the Company also awarded 76,800 shares of restricted stock under the Plan, with a weighted average fair value at the date of grant of $30.271 per share. These restricted shares vest ratably after five years of continued employment. Compensation expense related to this award was $487,000 and $41,000 for 1999 and 1998, respectively.
EPIK's senior management, through awards of non-qualified stock options and stock appreciation rights, has an equity participation in EPIK which provides them 15% of equity gains beyond FECI's initial investment in EPIK.
14. QUARTERLY FINANCIAL DATA (UNAUDITED) (dollars in thousands, except per share amounts)
16. ACQUISITIONS
In July 1997, the Company purchased the remaining 20% of the outstanding stock of ITI, a regional truckload carrier, through the issuance of treasury stock. This non-cash transaction has been excluded from the Statements of Cash Flows.
17. OTHER COMMITMENTS
The Company is obligated under several operating leases covering its facilities and equipment. The lease terms are from 4 to 7 years. Future minimum payments under the leases are as follows:
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Election of Directors-Nominees," "General Information Relating to the Board of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement for its 2000 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Proxy Statement"), is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Election of Directors-Executive Compensation" and "Retirement Plans" in the Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Election of Directors-Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Election of Directors-Compensation Committee Interlocks and Insider Participation", "Independent Certified Public Accountants" and "Other Matters" in the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The financial statements and schedules listed in the accompanying Index to Financial Statements and Financial Statement Schedule are filed as part of this Report.
2. EXHIBITS
The Exhibits listed on the accompanying Index to Exhibits are filed as part of this Report.
(b) REPORTS ON FORM 8-K
Report on Form 8-K was filed on October 27, 1999, reporting on the announcement of The St. Joe Company and the Registrant that, subject to certain conditions, St. Joe and the Registrant had reached an agreement to implement a recapitalization of Registrant and a spin-off of St. Joe's interest in the Registrant to its shareholders.
FLORIDA EAST COAST INDUSTRIES, INC.
AND FINANCIAL STATEMENT SCHEDULE [ITEM 14(A)]
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.
Financial statements and schedules of FECI (not consolidated) are omitted since it is primarily a holding company and all subsidiaries included in the consolidated financial statements being filed, in the aggregate, do not have minority equity interests and/or indebtedness to any person other than the Company or its consolidated subsidiaries in amounts which together exceed five percent of the total assets as shown by the consolidated balance sheet at the end of any year covered by this Report.
FLORIDA EAST COAST INDUSTRIES, INC.
INDEX TO EXHIBITS (ITEM 13[A] 3.)
* Original article incorporated herein by reference to Exhibits filed in connection with Florida East Coast Industries, Inc.'s Registration Statement on Form S-14 as filed with the Securities and Exchange Commission on February 17, 1984 (File No. 2-89530).
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on March 15, 2000.
FLORIDA EAST COAST INDUSTRIES, INC. - ----------------------------------- (Registrant)
By: /s/ R.H. Nazarian ---------------------------------------------- R.H. Nazarian, Executive vice President and Chief Financial Officer
By: /s/ Mark A. Leininger ---------------------------------------------- Mark A. Leininger, Vice President & Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
*Such signature has been affixed pursuant to Power of Attorney.
FLORIDA EAST COAST INDUSTRIES, INC. SCHEDULE III (CONSOLIDATED) - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS)
FLORIDA EAST COAST INDUSTRIES, INC. SCHEDULE III (CONSOLIDATED) - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS)
Notes: (A) The aggregate cost of real estate owned at December 31, 1999 for federal income tax purposes is approximately $270,441,000. (B) Reconciliation of real estate owned (dollars in thousands)
(C) Reconciliation of accumulated depreciation (dollars in thousands):