##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ___________ to _____________
 Commission File Number 001-08728
 FLORIDA EAST COAST INDUSTRIES, INC.
  Florida
    
    59-2349968(State or other jurisdiction of
incorporation or organization)
    
    (IRS Employer
Identification No.)One Malaga Street, St. Augustine, Florida
(Address of principal executive offices)
    
    32084
(Zip Code)
 (904) 829-3421
 þ o
 þ o
  Class
    
    Outstanding at June 30, 2005Common Stock-no par value
    
    32,568,862 shares




---



FLORIDA EAST COAST INDUSTRIES, INC.
 INDEX
  
 PageNumbersPART IFINANCIAL
INFORMATIONItem 1.
    
    Financial
StatementsConsolidated Balance
Sheets  June 30, 2005 and December 31, 2004
    
    
    2Consolidated Statements of Income
 Three Months and Six Months Ended June 30, 2005 and 2004
    
    
    3Consolidated
Statements of Cash Flows  Six Months Ended June 30, 2005 and
2004
    
    
    4Notes to
Consolidated Financial Statements
    
    
    5  12Item 2.
    
    Managements
Discussion and Analysis of the Consolidated Financial Condition and
Results of OperationsComparison of Second Quarter 2005
versus Second Quarter 2004 and Six Months 2005 versus Six
      Months 2004,
    
    
    13  24Changes in Financial
Condition, Liquidity and Capital Resources
    
    
    25  26Other Matters
    
    
    26  28Item 3.
    
    Quantitative and
Qualitative Disclosures about Market Risk
    
    
    28Item 4.
    
    Controls and
Procedures
    
    
    28  29PART IIOTHER
INFORMATIONItem 1.
    
    Legal
Proceedings
    
    
    30Item 2.
    
    Unregistered
Sales of Equity Securities and Use of Proceeds
    
    
    30Item 4.
    
    Submission of
Matters to a Vote of Security Holders
    
    
    31Item 6.
    
    Exhibits
    
    
    31EX-31.1EX-31.2EX-32.1




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##### Table of Contents



Item 1. Financial Statements
 
 FLORIDA EAST COAST INDUSTRIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 June 30
    
    December 312005
    
    2004(unaudited)AssetsCurrent Assets:Cash and cash equivalents (Note 12)
    
    
    49,730
    
    
    
    126,166Accounts receivable (net)
    
    
    33,516
    
    
    
    32,435Income tax receivable
    
    
    
    
    
    
    4,238Materials and supplies
    
    
    3,239
    
    
    
    1,822Assets held for sale (Note 9)
    
    
    14,890
    
    
    
    6,900Deferred income taxes
    
    
    966
    
    
    
    1,268Prepaid expenses
    
    
    4,995
    
    
    
    5,008Other current assets
    
    
    3,956
    
    
    
    3,133Total current assets
    
    
    111,292
    
    
    
    180,970Long Term Assets:Properties, less accumulated depreciation
    
    
    933,733
    
    
    
    853,458Building
intangible assets, net (Note 9)
    
    
    10,523
    
    
    
    Prepaid commissions
    
    
    10,726
    
    
    
    8,658Straight line rent
    
    
    15,820
    
    
    
    12,525Other assets
    
    
    5,899
    
    
    
    7,582Total long term assets
    
    
    976,701
    
    
    
    882,223Total Assets
    
    
    1,087,993
    
    
    
    1,063,193Liabilities
and Shareholders EquityCurrent Liabilities:Accounts payable and accrued expenses
    
    
    39,359
    
    
    
    47,578Taxes payable (Note 11)
    
    
    14,296
    
    
    
    1,281Deferred revenue
    
    
    2,748
    
    
    
    3,642Short-term debt (Note 7)
    
    
    5,045
    
    
    
    4,789Accrued casualty and other reserves
    
    
    789
    
    
    
    1,230Other accrued liabilities
    
    
    9,097
    
    
    
    11,001Total current liabilities
    
    
    71,334
    
    
    
    69,521Deferred Income Taxes
    
    
    177,199
    
    
    
    178,831Long-Term Debt, net of current portion(Note 7)
    
    
    335,397
    
    
    
    338,065Accrued Casualty and Other Liabilities
    
    
    11,322
    
    
    
    11,850Shareholders
EquityCommon Stock:
    
    
    123,886
    
    
    
    105,964Common stock; no par value; 150,000,000
shares authorized; 39,064,787 shares
issued and 32,568,862 shares outstanding
at June 30, 2005 and 38,553,495 shares
issued and 32,006,968 shares outstanding
at December 31, 2004.Retained earnings
    
    
    588,716
    
    
    
    573,808Restricted stock deferred compensation
    
    
    (12,614
    )
    
    
    (6,548
    )Treasury stock at cost (6,495,925 shares at
June 30, 2005 and 6,546,527 shares at
December 31, 2004) (Note 5)
    
    
    (207,247
    )
    
    
    (208,298
    )Total shareholders equity
    
    
    492,741
    
    
    
    464,926Total Liabilities and Shareholders Equity
    
    
    1,087,993
    
    
    
    1,063,193
   2




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##### Table of Contents



FLORIDA EAST COAST INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 Three Months
    
    Six MonthsEnded June 30
    
    Ended June 302005
    
    2004
    
    2005
    
    2004Operating revenues:Railway operations
    
    
    58,891
    
    
    
    50,102
    
    
    
    115,434
    
    
    
    98,659Realty rental and services
    
    
    22,267
    
    
    
    17,798
    
    
    
    43,722
    
    
    
    35,615Realty sales
    
    
    1,894
    
    
    
    2,613
    
    
    
    6,779
    
    
    
    7,661Total revenues
    
    
    83,052
    
    
    
    70,513
    
    
    
    165,935
    
    
    
    141,935Operating expenses:Railway operations
    
    
    42,968
    
    
    
    37,435
    
    
    
    84,499
    
    
    
    74,885Realty rental and services
    
    
    18,742
    
    
    
    15,501
    
    
    
    35,699
    
    
    
    31,671Realty sales
    
    
    357
    
    
    
    1,918
    
    
    
    821
    
    
    
    4,117Corporate general & administrative
    
    
    3,189
    
    
    
    3,753
    
    
    
    15,654
    
    
    
    8,733Total expenses
    
    
    65,256
    
    
    
    58,607
    
    
    
    136,673
    
    
    
    119,406Operating profit
    
    
    17,796
    
    
    
    11,906
    
    
    
    29,262
    
    
    
    22,529Interest income
    
    
    336
    
    
    
    360
    
    
    
    743
    
    
    
    556Interest expense
    
    
    (5,073
    )
    
    
    (3,773
    )
    
    
    (9,747
    )
    
    
    (7,719
    )Other income (Note 6)
    
    
    2,997
    
    
    
    5,090
    
    
    
    9,249
    
    
    
    7,787(1,740
    )
    
    
    1,677
    
    
    
    245
    
    
    
    624Income before income taxes
    
    
    16,056
    
    
    
    13,583
    
    
    
    29,507
    
    
    
    23,153Provision for income taxes
    
    
    (5,635
    )
    
    
    (5,229
    )
    
    
    (11,015
    )
    
    
    (8,914
    )Income from continuing operations
    
    
    10,421
    
    
    
    8,354
    
    
    
    18,492
    
    
    
    14,239Discontinued
Operations(Note 2)(Loss) income from operation of discontinued operations (net of taxes)
    
    
    (17
    )
    
    
    30
    
    
    
    (17
    )
    
    
    164(Loss) gain on disposition of discontinued operations (net of taxes)
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    2,287(Loss) income from discontinued operations
    
    
    (17
    )
    
    
    14
    
    
    
    (17
    )
    
    
    2,451Net income
    
    
    10,404
    
    
    
    8,368
    
    
    
    18,475
    
    
    
    16,690Earnings
Per ShareIncome from
continuing operations  basic
    
    $
    0.32
    
    
    $
    0.23
    
    
    $
    0.58
    
    
    $
    0.39Income from
continuing operations  diluted
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    0.56
    
    
    $
    0.38Income from
operation of discontinued operations  basic & diluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.01Gain on
disposition of discontinued operations  basic & diluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.06Net income
 basic
    
    $
    0.32
    
    
    $
    0.23
    
    
    $
    0.58
    
    
    $
    0.46Net income
 diluted
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    0.56
    
    
    $
    0.45Average
shares outstanding  basic
    
    
    32,139,301
    
    
    
    36,664,203
    
    
    
    32,003,994
    
    
    
    36,621,332Average
shares outstanding  diluted
    
    
    32,828,935
    
    
    
    37,388,454
    
    
    
    32,736,331
    
    
    
    37,316,356
  3




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##### Table of Contents



FLORIDA EAST COAST INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six MonthsEnded June 302005
    
    2004Cash
Flows from Operating ActivitiesNet income
    
    
    18,475
    
    
    
    16,690Adjustments to reconcile net income to cash generated by operating activities:Depreciation and amortization
    
    
    26,324
    
    
    
    24,806Gain on disposition of properties
    
    
    (5,958
    )
    
    
    (7,268
    )Deferred taxes
    
    
    (1,330
    )
    
    
    5,181Stock compensation expense
    
    
    7,192
    
    
    
    4,010Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,081
    )
    
    
    (4,104
    )Prepaid expenses
    
    
    13
    
    
    
    1,800Other current assets
    
    
    (4,297
    )
    
    
    (3,647
    )Other assets and deferred charges
    
    
    (3,531
    )
    
    
    (4,084
    )Accounts payable
    
    
    (8,119
    )
    
    
    (3,157
    )Taxes payable
    
    
    14,453
    
    
    
    12,557Income tax refund
    
    
    2,800
    
    
    
    Other current liabilities
    
    
    (2,498
    )
    
    
    (3,664
    )Accrued casualty and other long-term liabilities
    
    
    (969
    )
    
    
    (1,000
    )Net cash generated by operating activities
    
    
    41,474
    
    
    
    38,120Cash
Flows from Investing ActivitiesPurchases of properties
    
    
    (124,325
    )
    
    
    (47,676
    )Proceeds from disposition of assets
    
    
    6,779
    
    
    
    20,261Net cash used in investing activities
    
    
    (117,546
    )
    
    
    (27,415
    )Cash
Flows from Financing ActivitiesPayment of mortgage debt
    
    
    (2,412
    )
    
    
    (1,394
    )Payment of dividends
    
    
    (3,567
    )
    
    
    (1,476
    )Proceeds from exercise of options
    
    
    9,654
    
    
    
    3,135Stock repurchase program payments
    
    
    (2,289
    )
    
    
    Purchase of common stock
    
    
    (1,750
    )
    
    
    (1,352
    )Net cash used in financing activities
    
    
    (364
    )
    
    
    (1,087
    )Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (76,436
    )
    
    
    9,618Cash and Cash Equivalents at Beginning of Period
    
    
    126,166
    
    
    
    125,057Cash and Cash Equivalents at End of Period
    
    
    49,730
    
    
    
    134,675Supplemental
Disclosure of Cash Flow InformationCash paid
for income taxes (2005 net of refund)
    
    
    5,200
    
    
    
    4,700Cash paid for interest
    
    
    10,983
    
    
    
    8,905
   4




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##### Table of Contents



FLORIDA EAST COAST INDUSTRIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1. General
   Note 2. Discontinued Operations
 Real Estate
   Three Months
    
    Six MonthsEnded June 30
    
    Ended June 30(dollars in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Summary of Operating Results of
Discontinued OperationsFlagler realty rental revenues
    
    
    
    
    
    
    179
    
    
    
    

    
    
    
    731Flagler realty rental expenses
    
    
    25
    
    
    
    133
    
    
    
    25
    
    
    
    465(Loss) income before income taxes
    
    
    (25
    )
    
    
    46
    
    
    
    (25
    )
    
    
    266Income tax
    
    
    8
    
    
    
    (16
    )
    
    
    8
    
    
    
    (102
    )(Loss) income from discontinued operations
    
    
    (17
    )
    
    
    30
    
    
    
    (17
    )
    
    
    164(Loss) gain on disposition of
discontinued operations (net of taxes of
$9 thousand for the three months ended
June 30, 2004, and $1.4 million for the
six months ended June 30, 2004.)
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    2,287
 5




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##### Table of Contents



Note 3. Commitments and Contingencies
      Note 4. Earnings Per Share
  Note 5. Dividends and Stock Repurchase
   6




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##### Table of Contents



Note 6. Other Income
 Three Months
    
    Six MonthsEnded June 30
    
    Ended June 30(dollars in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Pipe & wire crossings/signboards
    
    
    1,248
    
    
    
    3,435
    
    
    
    2,943
    
    
    
    4,464Fiber lease income
    
    
    1,827
    
    
    
    1,807
    
    
    
    3,577
    
    
    
    3,499Air rights income
    
    
    
    
    
    
    
    
    
    
    3,049
    
    
    
    Other (net)
    
    
    (78
    )
    
    
    (152
    )
    
    
    (320
    )
    
    
    (176
    )2,997
    
    
    
    5,090
    
    
    
    9,249
    
    
    
    7,787
  Note 7. Debt
    7




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##### Table of Contents



Note 8. Stock-Based Compensation
    Three Months
    
    Six MonthsEnded June 30
    
    Ended June 30(dollars in thousands, except per share amounts)
    
    2005
    
    2004
    
    2005
    
    2004Net income
 as reported
    
    
    10,404
    
    
    
    8,368
    
    
    
    18,475
    
    
    
    16,690Deduct: Total stock-based employee compensation
expense determined under the fair value based
method for all stock option awards (net of
related tax effects)
    
    
    (92
    )
    
    
    (190
    )
    
    
    (206
    )
    
    
    (380
    )Pro forma net income
    
    
    10,312
    
    
    
    8,178
    
    
    
    18,269
    
    
    
    16,310Earnings per share:Basic  as reported
    
    $
    0.32
    
    
    $
    0.23
    
    
    $
    0.58
    
    
    $
    0.46Basic  pro forma
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    0.57
    
    
    $
    0.45Diluted  as reported
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    0.56
    
    
    $
    0.45Diluted  pro forma
    
    $
    0.31
    
    
    $
    0.22
    
    
    $
    0.56
    
    
    $
    0.44
  8




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##### Table of Contents



Note 9. Realty Acquisitions, Land Sales, and Associated Costs
      Note 10. Segment Information
      9




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##### Table of Contents



Information by industry segment:
 Three Months
    
    Six MonthsEnded June 30
    
    Ended June 30(dollars in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Operating
RevenuesRailway operations
    
    
    58,891
    
    
    
    50,102
    
    
    
    115,434
    
    
    
    98,659Realty:Flagler realty rental and services
    
    
    21,440
    
    
    
    17,106
    
    
    
    42,013
    
    
    
    34,121Flagler realty sales
    
    
    1,273
    
    
    
    2,526
    
    
    
    1,473
    
    
    
    6,557Other rental
    
    
    827
    
    
    
    692
    
    
    
    1,709
    
    
    
    1,494Other sales
    
    
    621
    
    
    
    87
    
    
    
    5,306
    
    
    
    1,104Total realty
    
    
    24,161
    
    
    
    20,411
    
    
    
    50,501
    
    
    
    43,276Total revenues *
    
    
    83,052
    
    
    
    70,513
    
    
    
    165,935
    
    
    
    141,935Operating
ExpensesRailway operations
    
    
    42,968
    
    
    
    37,435

    
    
    
    84,499
    
    
    
    74,885Realty:Flagler realty rental and services
    
    
    18,173
    
    
    
    14,442
    
    
    
    34,747
    
    
    
    29,785Flagler realty sales
    
    
    357
    
    
    
    1,918
    
    
    
    412
    
    
    
    4,117Other rental
    
    
    569
    
    
    
    1,059
    
    
    
    952
    
    
    
    1,886Other sales
    
    
    
    
    
    
    
    
    
    
    409
    
    
    
    Total realty
    
    
    19,099
    
    
    
    17,419
    
    
    
    36,520
    
    
    
    35,788Corporate general & administrative
    
    
    3,189
    
    
    
    3,753
    
    
    
    15,654
    
    
    
    8,733Total expenses *
    
    
    65,256
    
    
    
    58,607
    
    
    
    136,673
    
    
    
    119,406Operating
Profit (Loss)Railway operations
    
    
    15,923
    
    
    
    12,667
    
    
    
    30,935
    
    
    
    23,774Realty
    
    
    5,062
    
    
    
    2,992
    
    
    
    13,981
    
    
    
    7,488Corporate general & administrative
    
    
    (3,189
    )
    
    
    (3,753
    )
    
    
    (15,654
    )
    
    
    (8,733
    )Operating profit
    
    
    17,796
    
    
    
    11,906
    
    
    
    29,262
    
    
    
    22,529Interest income
    
    
    336
    
    
    
    360
    
    
    
    743
    
    
    
    556Interest expense
    
    
    (5,073
    )
    
    
    (3,773
    )
    
    
    (9,747
    )
    
    
    (7,719
    )Other income
    
    
    2,997
    
    
    
    5,090
    
    
    
    9,249
    
    
    
    7,787(1,740
    )
    
    
    1,677
    
    
    
    245
    
    
    
    624Income before income taxes
    
    
    16,056
    
    
    
    13,583
    
    
    
    29,507
    
    
    
    23,153Provision for income taxes
    
    
    (5,635
    )
    
    
    (5,229
    )
    
    
    (11,015
    )
    
    
    (8,914
    )Income from continuing operations
    
    
    10,421
    
    
    
    8,354
    
    
    
    18,492
    
    
    
    14,239Discontinued
Operations(Loss) income from operation of discontinued operations (net of taxes)
    
    
    (17
    )
    
    
    30
    
    
    
    (17
    )
    
    
    164(Loss) gain on disposition of discontinued operations (net of taxes)
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    2,287Net Income
    
    
    10,404
    
    
    
    8,368
    
    
    
    18,475
    
    
    
    16,690
   *
 10




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##### Table of Contents



Note 11. Taxes Payable
 (dollars in thousands)
    
    June 30, 2005
    
    Dec. 31, 2004Federal income tax
    
    
    2,898
    
    
    
    State income tax
    
    
    
    
    
    
    Property taxes
    
    
    10,992
    
    
    
    855Other
    
    
    406
    
    
    
    426Taxes payable
    
    
    14,296
    
    
    
    1,281
  Note 12. Cash Deposits and §1031 Escrow Funds
   Note 13 Engineering Study
    11




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##### Table of Contents



Note 14 Supplemental Employee Retirement Plan
   12




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##### Table of Contents



Item 2.
 Managements Discussion and Analysis of the Consolidated
Financial Condition and Results of Operations
 Forward-Looking Statements
    13




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##### Table of Contents



Results of Operations
 Consolidated Results
 Second Quarter and Six Months
   Railway
 Second Quarter
  TRAFFIC
 Three Months Ended June 30
 2005
    
    2004
    
    Percent
    
    2005
    
    2004
    
    PercentCommodity
    
    Units
    
    Units
    
    Variance
    
    Revenues
    
    Revenues
    
    VarianceRail CarloadsCrushed stone (aggregate)
    
    
    36.6
    
    
    
    33.5
    
    
    
    9.3
    
    
    
    18,192
    
    
    
    15,664
    
    
    
    16.1Construction materials
    
    
    1.8
    
    
    
    1.3
    
    
    
    38.5
    
    
    
    1,318
    
    
    
    895
    
    
    
    47.3Vehicles
    
    
    5.8
    
    
    
    5.7
    
    
    
    1.8
    
    
    
    4,732
    
    
    
    4,498
    
    
    
    5.2Foodstuffs & kindred
    
    
    3.5
    
    
    
    3.0
    
    
    
    16.7
    
    
    
    3,061
    
    
    
    2,347
    
    
    
    30.4Chemicals & distillants
    
    
    1.0
    
    
    
    1.0
    
    
    
    
    
    
    
    1,222
    
    
    
    1,166
    
    
    
    4.8Paper & lumber
    
    
    1.9
    
    
    
    1.3
    
    
    
    46.2
    
    
    
    2,060
    
    
    
    1,517
    
    
    
    35.8Other
    
    
    3.8
    
    
    
    3.1
    
    
    
    22.6
    
    
    
    2,578
    
    
    
    2,101
    
    
    
    22.7Total carload
    
    
    54.4
    
    
    
    48.9
    
    
    
    11.2
    
    
    
    33,163
    
    
    
    28,188
    
    
    
    17.6Intermodal
    
    
    76.1
    
    
    
    69.1
    
    
    
    10.1
    
    
    
    24,729
    
    
    
    21,195
    
    
    
    16.7Total freight units/revenues
    
    
    130.5
    
    
    
    118.0
    
    
    
    10.6
    
    
    
    57,892
    
    
    
    49,383
    
    
    
    17.2Ancillary revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    999
    
    
    
    719
    
    
    
    38.9Railway segment revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,891
    
    
    
    50,102
    
    
    
    17.5
 14




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##### Table of Contents



RAILWAY OPERATING EXPENSES
 Three MonthsEnded June 30(dollars in thousands)
    
    2005
    
    2004Compensation & benefits
    
    
    14,396
    
    
    
    13,899Fuel
    
    
    5,966
    
    
    
    3,736Equipment rents (net)
    
    
    1,134
    
    
    
    778Car hire (net)
    
    
    (419
    )
    
    
    (552
    )Depreciation
    
    
    5,399
    
    
    
    4,962Purchased services
    
    
    2,373
    
    
    
    2,162Repairs to/by others (net)
    
    
    (749
    )
    
    
    (663
    )Load/unload
    
    
    2,241
    
    
    
    2,001Casualty & insurance
    
    
    1,558
    
    
    
    1,460Property taxes
    
    
    1,535
    
    
    
    1,431Materials
    
    
    3,248
    
    
    
    2,688General & administrative expenses
    
    
    2,185
    
    
    
    2,167Outside contractor delivery costs
    
    
    3,488
    
    
    
    2,793Other
    
    
    613
    
    
    
    573Total operating expenses
    
    
    42,968
    
    
    
    37,435
    15




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16




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##### Table of Contents



Six Months
  TRAFFIC
 Six Months Ended June 30
 2005
    
    2004
    
    Percent
    
    2005
    
    2004
    
    PercentCommodity
    
    Units
    
    Units
    
    Variance
    
    Revenues
    
    Revenues
    
    VarianceRail CarloadsCrushed stone (aggregate)
    
    
    72.5
    
    
    
    65.8
    
    
    
    10.2
    
    
    
    35,220
    
    
    
    30,773
    
    
    
    14.5Construction materials
    
    
    3.6
    
    
    
    2.6
    
    
    
    38.5
    
    
    
    2,640
    
    
    
    1,695
    
    
    
    55.8Vehicles
    
    
    12.1
    
    
    
    11.8
    
    
    
    2.5
    
    
    
    9,641
    
    
    
    9,206
    
    
    
    4.7Foodstuffs & kindred
    
    
    7.0
    
    
    
    6.0
    
    
    
    16.7
    
    
    
    6,029
    
    
    
    4,653
    
    
    
    29.6Chemicals & distillants
    
    
    1.9
    
    
    
    2.0
    
    
    
    (5.0
    )
    
    
    2,322
    
    
    
    2,290
    
    
    
    1.4Paper & lumber
    
    
    3.7
    
    
    
    2.6
    
    
    
    42.3
    
    
    
    3,985
    
    
    
    2,893
    
    
    
    37.7Other
    
    
    8.2
    
    
    
    7.3
    
    
    
    12.3
    
    
    
    5,430
    
    
    
    4,632
    
    
    
    17.2Total carload
    
    
    109.0
    
    
    
    98.1
    
    
    
    11.1
    
    
    
    65,267
    
    
    
    56,142
    
    
    
    16.3Intermodal
    
    
    150.8
    
    
    
    134.0
    
    
    
    12.5
    
    
    
    48,012
    
    
    
    40,838
    
    
    
    17.6Total freight units/revenues
    
    
    259.8
    
    
    
    232.1
    
    
    
    11.9
    
    
    
    113,279
    
    
    
    96,980
    
    
    
    16.8Ancillary revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,155
    
    
    
    1,679
    
    
    
    28.4Railway segment revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115,434
    
    
    
    98,659
    
    
    
    17.0
 RAILWAY OPERATING EXPENSES
 Six MonthsEnded June 30(dollars in thousands)
    
    2005
    
    
    2004Compensation & benefits
    
    
    29,612
    
    
    
    27,262Fuel
    
    
    11,323
    
    
    
    7,449Equipment rents (net)
    
    
    2,254
    
    
    
    1,608Car hire (net)
    
    
    (1,312
    )
    
    
    (860
    )Depreciation
    
    
    10,770
    
    
    
    9,984Purchased services
    
    
    4,833
    
    
    
    4,659Repairs to/by others (net)
    
    
    (1,559
    )
    
    
    (1,217
    )Load/unload
    
    
    4,467
    
    
    
    3,931Casualty & insurance
    
    
    2,613
    
    
    
    2,957Property taxes
    
    
    3,070
    
    
    
    2,862Materials
    
    
    6,324
    
    
    
    5,472General & administrative expenses
    
    
    4,212
    
    
    
    4,434Outside contractor delivery costs
    
    
    6,597
    
    
    
    5,219Other
    
    
    1,295
    
    
    
    1,125Total operating expenses
    
    
    84,499
    
    
    
    74,885
  17




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18




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##### Table of Contents



Realty  Second Quarter
 REALTY SEGMENT REVENUES
 Three MonthsEnded June 30(dollars in thousands)
    
    2005
    
    2004Rental revenues  Flagler
    
    
    16,941
    
    
    
    14,791Services fee revenues
    
    
    201
    
    
    
    50Rental income  straight-line rent adjustments
    
    
    2,073
    
    
    
    766Operating expense recoveries
    
    
    1,999
    
    
    
    929Rental revenues  undeveloped land
    
    
    208
    
    
    
    210Other
    
    
    18
    
    
    
    360Total rental revenue  Flagler properties
    
    
    21,440
    
    
    
    17,106Rental revenues  other realty operations
    
    
    827
    
    
    
    692Total rental revenues
    
    
    22,267
    
    
    
    17,798Building and land sales  Flagler
    
    
    1,273
    
    
    
    2,526Building and land sales  other realty operations
    
    
    621
    
    
    
    87Total building and land sales revenues
    
    
    1,894
    
    
    
    2,613Total realty segment revenues
    
    
    24,161
    
    
    
    20,411
  REALTY SEGMENT EXPENSES
 Three MonthsEnded June 30(dollars in thousands)
    
    2005
    
    2004Real estate taxes  developed
    
    
    2,562
    
    
    
    2,070Repairs & maintenance  recoverable
    
    
    721
    
    
    
    711Services, utilities, management costs
    
    
    4,100
    
    
    
    3,102Total expenses subject to recovery  Flagler properties
    
    
    7,383
    
    
    
    5,883Real estate taxes  Flagler undeveloped land
    
    
    1,080
    
    
    
    900Repairs & maintenance  non-recoverable
    
    
    336
    
    
    
    253Depreciation & amortization  (operating prop  Flagler)
    
    
    7,179
    
    
    
    5,448Depreciation & amortization  (non-operating prop  Flagler)
    
    
    412
    
    
    
    578SG&A  non-recoverable  Flagler
    
    
    1,783
    
    
    
    1,380Total  non-recoverable expenses  Flagler properties
    
    
    10,790
    
    
    
    8,559Total rental expenses  Flagler properties
    
    
    18,173
    
    
    
    14,442Real estate taxes  other undeveloped land
    
    
    67
    
    
    
    64Depreciation & amortization  other
    
    
    14
    
    
    
    10SG&A  non-recoverable  other
    
    
    488
    
    
    
    985Total rental expenses  other realty operations
    
    
    569
    
    
    
    1,059Total rental expenses
    
    
    18,742
    
    
    
    15,501Realty sales expenses  Flagler
    
    
    357
    
    
    
    1,918Realty sales expenses  other realty operations
    
    
    
    
    
    
    Total realty sales
    
    
    357
    
    
    
    1,918Total operating expenses
    
    
    19,099
    
    
    
    17,419
  19




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##### Table of Contents



Results from Continuing Operations
          20




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##### Table of Contents



Six Months
  REALTY SEGMENT REVENUES
 Six MonthsEnded June 30(dollars in thousands)
    
    2005
    
    2004Rental revenues  Flagler
    
    
    33,105
    
    
    
    29,114Services fee revenues
    
    
    230
    
    
    
    81Rental income  straight-line rent adjustments
    
    
    4,131
    
    
    
    1,882Operating expense recoveries
    
    
    4,014
    
    
    
    2,237Rental revenues  undeveloped land
    
    
    468
    
    
    
    428Other
    
    
    65
    
    
    
    379Total rental revenue  Flagler properties
    
    
    42,013
    
    
    
    34,121Rental revenues  other realty operations
    
    
    1,709
    
    
    
    1,494Total rental revenues
    
    
    43,722
    
    
    
    35,615Building and land sales  Flagler
    
    
    1,473
    
    
    
    6,557Building and land sales  other realty operations
    
    
    5,306
    
    
    
    1,104Total building and land sales revenues
    
    
    6,779
    
    
    
    7,661Total realty segment revenues
    
    
    50,501
    
    
    
    43,276
  REALTY SEGMENT EXPENSES
 Six MonthsEnded June 30(dollars in thousands)
    
    2005
    
    2004Real estate taxes  developed
    
    
    4,930
    
    
    
    4,168Repairs & maintenance  recoverable
    
    
    1,392
    
    
    
    1,259Services, utilities, management costs
    
    
    8,021
    
    
    
    6,089Total expenses subject to recovery  Flagler properties
    
    
    14,343
    
    
    
    11,516Real estate taxes  Flagler undeveloped land
    
    
    1,997
    
    
    
    1,905Repairs & maintenance  non-recoverable
    
    
    531
    
    
    
    551Depreciation & amortization  (operating prop  Flagler)
    
    
    13,238
    
    
    
    12,190Depreciation & amortization  (non-operating prop  Flagler)
    
    
    1,393
    
    
    
    1,095SG&A  non-recoverable  Flagler
    
    
    3,245
    
    
    
    2,528Total  non-recoverable expenses  Flagler properties
    
    
    20,404
    
    
    
    18,269Total rental expenses  Flagler properties
    
    
    34,747
    
    
    
    29,785Real estate taxes  other undeveloped land
    
    
    134
    
    
    
    128Depreciation & amortization  other
    
    
    24
    
    
    
    48SG&A  non-recoverable  other
    
    
    794
    
    
    
    1,710Total rental expenses  other realty operations
    
    
    952
    
    
    
    1,886Total rental expenses
    
    
    35,699
    
    
    
    31,671Realty sales expenses  Flagler
    
    
    412
    
    
    
    4,117Realty sales
expenses  other realty operations
    
    
    409
    
    
    
    Total realty sales
    
    
    821
    
    
    
    4,117Total operating expenses
    
    
    36,520
    
    
    
    35,788
  21




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Results from Continuing Operations
         Results from Discontinued Operations
  22




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##### Table of Contents



Three Months
    
    Six MonthsEnded June 30
    
    Ended June 30(dollars in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Summary of
Operating Results of Discontinued OperationsFlagler realty rental revenues
    
    
    
    
    
    
    179
    
    
    
    
    
    
    
    731Flagler realty rental expenses
    
    
    25
    
    
    
    133
    
    
    
    25
    
    
    
    465(Loss) income before income taxes
    
    
    (25
    )
    
    
    46
    
    
    
    (25
    )
    
    
    266Income tax
    
    
    8
    
    
    
    (16
    )
    
    
    8
    
    
    
    (102
    )(Loss) income from discontinued operations
    
    
    (17
    )
    
    
    30
    
    
    
    (17
    )
    
    
    164(Loss) gain on disposition of discontinued operations
(net of taxes of $9 thousand for the three months
ended June 30, 2004, and $1.4 million for the six
months ended June 30, 2004.)
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    2,287
 Corporate Expenses  Second Quarter and Six Months
    Interest Expense  Second Quarter and Six Months
  Other Income  Second Quarter and Six Months
  23




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Income Tax
  24




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##### Table of Contents



Financial Condition, Liquidity and Capital Resources
  FLORIDA EAST COAST INDUSTRIES, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six MonthsEnded June 302005
    
    2004Cash
Flows from Operating ActivitiesNet income
    
    
    18,475
    
    
    
    16,690Adjustments to reconcile net income to cash generated by operating activities:Depreciation and amortization
    
    
    26,324
    
    
    
    24,806Gain on disposition of properties
    
    
    (5,958
    )
    
    
    (7,268
    )Deferred taxes
    
    
    (1,330
    )
    
    
    5,181Stock compensation expense
    
    
    7,192
    
    
    
    4,010Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,081
    )
    
    
    (4,104
    )Prepaid expenses
    
    
    13
    
    
    
    1,800Other current assets
    
    
    (4,297
    )
    
    
    (3,647
    )Other assets and deferred charges
    
    
    (3,531
    )
    
    
    (4,084
    )Accounts payable
    
    
    (8,119
    )
    
    
    (3,157
    )Taxes payable
    
    
    14,453
    
    
    
    12,557Income tax refund
    
    
    2,800
    
    
    
    Other current liabilities
    
    
    (2,498
    )
    
    
    (3,664
    )Accrued casualty and other long-term liabilities
    
    
    (969
    )
    
    
    (1,000
    )Net cash generated by operating activities
    
    
    41,474
    
    
    
    38,120Cash
Flows from Investing ActivitiesPurchases of properties
    
    
    (124,325
    )
    
    
    (47,676
    )Proceeds from disposition of assets
    
    
    6,779
    
    
    
    20,261Net cash used in investing activities
    
    
    (117,546
    )
    
    
    (27,415
    )Cash
Flows from Financing ActivitiesPayment of mortgage debt
    
    
    (2,412
    )
    
    
    (1,394
    )Payment of dividends
    
    
    (3,567
    )
    
    
    (1,476
    )Proceeds from exercise of options
    
    
    9,654
    
    
    
    3,135Stock repurchase program payments
    
    
    (2,289
    )
    
    
    Purchase of common stock
    
    
    (1,750
    )
    
    
    (1,352
    )Net cash used in financing activities
    
    
    (364
    )
    
    
    (1,087
    )Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (76,436
    )
    
    
    9,618Cash and Cash Equivalents at Beginning of Period
    
    
    126,166
    
    
    
    125,057Cash and Cash Equivalents at End of Period
    
    
    49,730
    
    
    
    134,675Supplemental
Disclosure of Cash Flow InformationCash paid
for income taxes (2005 net of refund)
    
    
    5,200
    
    
    
    4,700Cash paid for interest
    
    
    10,983
    
    
    
    8,905
   25




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##### Table of Contents



OTHER MATTERS
 Critical Accounting Policies
  Real Estate Allocation of Acquisition Costs
 26




---



##### Table of Contents



Impairment of Long-lived Assets
 Income Tax Provisions
 Revenue Recognition  Realty Rental Revenues
 Real Estate Infrastructure Costs
 27




---



##### Table of Contents



Contingencies
 
 Item 3.
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 Item 4.
 CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  28




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##### Table of Contents



Changes in Internal Control over Financial Reporting
   29




---



##### Table of Contents



PART II
 
 Item 1.
 LEGAL PROCEEDINGS
  
 Item 2.
 UNREGISTERED SALES OF EQUITY SECURITIES  AND USE OF PROCEEDS
   Maximum AmountAverage Price
    
    Total Number of Shares
    
    of Value that mayTotal Number of
    
    Paid Per Share
    
    Purchased as Part of
    
    yet be PurchasedShares
    
    (including
    
    Publicly Announced
    
    under the Plans orPurchased
    
    commissions)
    
    Plans or Programs
    
    ProgramsApril
    
    
    6,000
    
    
    $
    42.06
    
    
    
    6,000
    
    
    $
    39,664,134May
    
    
    28,400
    
    
    $
    42.05
    
    
    
    28,400
    
    
    $
    38,469,984June
    
    
    18,350
    *
    
    $
    41.93
    
    
    
    18,100
    
    
    $
    37,711,048
 
 *
    
    Shares purchased include shares surrendered to the Company for federal withholding obligations
related to employees vesting on previously restricted stock. 30




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##### Table of Contents



Item 4.
 SUBMISSION OF MATTERS TO A  VOTE OF SECURITY HOLDERS
  Proposal 1:
 Number of Votes CastCommon Class
    
    Votes For
    
    Votes WithheldRobert D. Fagan
    
    
    30,457,027
    
    
    
    628,801David M. Foster
    
    
    30,445,815
    
    
    
    640,013Allen C. Harper
    
    
    29,645,576
    
    
    
    1,440,252Adolfo Henriques
    
    
    30,454,173
    
    
    
    631,655James E. Jordan
    
    
    30,410,696
    
    
    
    675,132Gilbert H. Lamphere
    
    
    30,459,030
    
    
    
    626,798Joseph Nemec
    
    
    29,910,202
    
    
    
    1,175,626Jorge Perez
    
    
    30,536,857
    
    
    
    548,971James J. Pieczynski
    
    
    29,644,818
    
    
    
    1,441,010Wellford L. Sanders, Jr.
    
    
    30,539,976
    
    
    
    545,852
 Proposal 2:
 Votes For
    
    Votes Against
    
    Abstention
    
    Broker Non-Votes24,716,181
    
    2,662,939
    
    160,572
    
    3,546,136
 
 Item 6.
 EXHIBITS
 Exhibits
  31




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##### Table of Contents



SIGNATURES
   FLORIDA EAST COAST INDUSTRIES, INC.(Registrant)Dated: July 28, 2005
    
    /s/ Mark A. LeiningerMark A. LeiningerVice President and ControllerDated: July 28, 2005
    
    /s/ Daniel H. PopkyDaniel H. Popky, Executive Vice President
   and Chief Financial Officer
 32




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##### Table of Contents



INDEX TO EXHIBITS
 PAGES-K ITEM 601
    
    DOCUMENTS
    
    NUMBERS3 (i)
    
    Second Amended and Restated Articles of Incorporation
    
    *3 (ii)
    
    Amended and Restated By-Laws of FECI through February 26, 2004
    
    #3 (iii)
    
    Amended and Restated Articles of Amendment Relating to
Designation of Series A Participating Cumulative Preferred
Stock
    
    **4
    
    Amended and Restated Rights Agreement dated as of September
22, 2003
    
    **10 (a)
    
    Representative Amendment, made as of February 26, 2004, to
the Employment Agreements dated February 2, 1999 between FECI
and certain Executive Officers (Vice Chairman, Executive Vice
President-Rail Operations and Executive Vice President,
General Counsel and Secretary)
    
    ##10 (b)
    
    Termination Agreement, made as of February 10, 2005 between
FECI and Robert W. Anestis.
    
    ###10
(c).1 
 10 (c).4
    
    Employment and Change in Control Agreements dated February
10, 2005, effective March 28, 2005, and Restricted Stock and
Supplemental Employee Retirement Plan (SERP) Participant
Agreements, dated March 28, 2005 between FECI and Adolfo
Henriques
    
    ###10 (d)
    
    $150 million Unsecured Revolving Credit Agreement with a
5-year term between FECI and a syndication of financial
institutions with Bank of America, N.A. as Lead Arranger
    
    ***10 (e)
    
    Supplemental Employee Retirement Plan (SERP) dated as of
March 28, 2005.
    
    ###10 (f)
    
    Amended 2002 Stock Incentive Plan.
    
    ****31.1  31.2
    
    Section 302 Certifications32.1
    
    Section 906 Certification
 
 *
    
    Amended and Restated Articles of Incorporation and Amendment and Restated By-Laws of
the Registrant, incorporated by reference to Appendices D and E, respectively, to the
definitive Proxy Statement on Schedule 14A, filed with the Securities and Exchange
Commission on February 4, 2000 (Registration No. 001-08728).#
    
    This document, as amended through February 26, 2004, is filed as an exhibit to Form
10-Q with the Securities and Exchange Commission on April 29, 2004.**
    
    These documents, dated effective as of September 22, 2003, were filed as exhibits to
Form 8-A/A with the Securities and Exchange Commission on September 22, 2003.##
    
    This document, dated February 26, 2004, is filed as an exhibit to Form 10-Q with the
Securities and Exchange Commission on April 29, 2004.***
    
    This document, dated February 22, 2005, is filed as an exhibit to form 8-K with the
Securities and Exchange Commission on February 24, 2005.###
    
    These documents, dated February 10, 2005 and March 28, 2005, are filed as an exhibit to
Form 10-Q with the Securities and Exchange Commission on April 22, 2005.****
    
    This document, dated June 2, 2005, is filed as an exhibit to Form 8K with the
Securities and Exchange Commission on June 3, 2005. 33