##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 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 No. 001-32866
 FLORIDA EAST COAST INDUSTRIES, INC.
  Florida
    
    20-4427296(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)10151 Deerwood Park Blvd., Bldg. 100, Suite 360Jacksonville, Florida
    
    32256(Address of principal executive offices)
    
    (Zip Code)
 (904) 996-2810
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock-no par value
    
    New York Stock Exchange
 o þ
 o þ
 þ o
 o þ
  þ o o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 Item
    
    PageNos.
    
    Nos.Part I1.Business
    
    
    1  91A.Risk Factors
    
    
    9  121B.Unresolved Staff Comments
    
    
    122.Properties
    
    
    12  193.Legal Proceedings
    
    
    19  204.Submission of Matters to a Vote of Security Holders
    
    
    20Part II5.Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    21  236.Selected Financial Data
    
    
    24  257.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25  517A.Quantitative and Qualitative Disclosures About Market Risk
    
    
    51  528.Financial Statements and Supplementary Data
    
    
    53  849.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    849A.Controls and Procedures
    
    
    84  869B.Other Information
    
    
    86Part III10.Directors, Executive Officers and Corporate Governance
    
    
    8711.Executive Compensation
    
    
    8712.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    8713.Certain Relationships and Related Transactions and Director Independence
    
    
    8714.Principal Accountant Fees and Services
    
    
    87Part IV15.Exhibits and Financial Statement Schedules
    
    
    88Index to Financial Statements and Financial Statement Schedule
    
    
    89Index to Exhibits
    
    
    90  91Signatures
    
    
    92Power of AttorneyExhibit 10(q)Exhibit 10(r)Exhibit 10(s)Exhibit 21Exhibit 23Exhibit 24Exhibit 31.1Exhibit 31.2Exhibit 32.1




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##### Table of Contents



Forward-Looking Statements
   2




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##### Table of Contents



PART I
  
 ITEM 1. BUSINESS
 General
     Railway
 General
 FECR
  3




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##### Table of Contents



TRAFFIC  Years Ended December 31  (dollars and units in thousands)
 2006
    
    2005
    
    Percent
    
    2006
    
    2005
    
    PercentCommodity
    
    Units
    
    Units
    
    Variance
    
    Revenues
    
    Revenues
    
    VarianceRail carloadsCrushed stone (aggregate)
    
    
    145.1
    
    
    
    140.3
    
    
    
    3.4
    
    
    
    76,468
    
    
    
    69,897
    
    
    
    9.4Construction materials
    
    
    7.2
    
    
    
    7.2
    
    
    
    
    
    
    
    5,766
    
    
    
    5,333
    
    
    
    8.1Vehicles
    
    
    22.2
    
    
    
    23.5
    
    
    
    (5.5
    )
    
    
    20,059
    
    
    
    19,025
    
    
    
    5.4Foodstuffs & kindred
    
    
    13.4
    
    
    
    13.7
    
    
    
    (2.2
    )
    
    
    12,611
    
    
    
    11,972
    
    
    
    5.3Chemicals & distillants
    
    
    3.4
    
    
    
    3.5
    
    
    
    (2.9
    )
    
    
    4,988
    
    
    
    4,489
    
    
    
    11.1Paper & lumber
    
    
    7.0
    
    
    
    7.4
    
    
    
    (5.4
    )
    
    
    8,050
    
    
    
    8,092
    
    
    
    (0.5
    )Other
    
    
    14.0
    
    
    
    15.0
    
    
    
    (6.7
    )
    
    
    11,422
    
    
    
    10,486
    
    
    
    8.9Total carload
    
    
    212.3
    
    
    
    210.6
    
    
    
    0.8
    
    
    
    139,364
    
    
    
    129,294
    
    
    
    7.8Intermodal
    
    
    322.2
    
    
    
    309.3
    
    
    
    4.2
    
    
    
    118,584
    
    
    
    103,008
    
    
    
    15.1Total freight units/revenues
    
    
    534.5
    
    
    
    519.9
    
    
    
    2.8
    
    
    
    257,948
    
    
    
    232,302
    
    
    
    11.0Ancillary revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,145
    
    
    
    5,568
    
    
    
    10.4Railway segment revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264,093
    
    
    
    237,870
    
    
    
    11.0
      4




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##### Table of Contents



Customers
 Rinker Materials Corporation
 Competition
   Regulation
  Staggers Act of 1980
   5




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##### Table of Contents



Real Estate
 General
      Customers
  Competition
  6




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##### Table of Contents



Regulation
       Financial Information about FECIs Segments
  Sources and Availability of Raw Materials
 Clean Air Non-road Diesel Rule Clean Air Non-road
Diesel Rule
 7




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##### Table of Contents



Seasonality
  Working Capital
    Employees
   Company Web Address: www.feci.com
  8




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##### Table of Contents



ITEM 1A. RISK FACTORS
 Railway (and Drayage)
 Cyclical Risks :
 Market Risks :
 Claims and Lawsuits :
 Fuel Price Risks :
  Clean Air Non-road Diesel Rule Clean Air Non-road Diesel Rule
 9




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##### Table of Contents



Interchange Carrier Risks :
 Rail Car Utilization Risks :
 Natural Disaster Risks :
 Windstorm Insurance :
 Concentration Risks of Business with Aggregate Customers :
 Mining Permits
   Realty
 Market Risks :
 10




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##### Table of Contents



Development Risks :
 Cyclical Risks :
 Natural Disaster Risks :
 Windstorm Insurance :
 Joint Venture Risks :
 Construction Risks :
 Customer Concentration Risk :
 Residential Development Risk:
 11




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##### Table of Contents



ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  Railway
        12




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##### Table of Contents



Previous
    
    CurrentDepreciable Life
    
    Depreciable LifeLocomotives:Hulk/chassis
    
    10 years
    
    7 yearsOverhauls
    
    10 years
    
    7 yearsRolling Stock:Hoppers & gondolas
    
    7  32.5 years
    
    7  50 yearsFlats
    
    7  18.5 years
    
    7  50 yearsVans & flatbeds
    
    10 years
    
    20 yearsChassis
    
    10 years
    
    20 yearsAuto racks
    
    19 years
    
    15 yearsTrack:Rail/other track material
    
    50 years
    
    45 yearsTurnouts
    
    50 years
    
    45 years
  13




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##### Table of Contents



Real Estate
  FLAGLERS INCOME-PRODUCING BUILDINGS  (100% Owned Properties)
(at December 31, 2006)
 No. of
    
    
    
    Rentable
    
    Occupied
    
    %
    
    YearLocation
    
    Bldgs.
    
    Type
    
    Sq. Ft.
    
    Sq. Ft.
    
    Occupied
    
    Built100% Owned PropertiesduPont Center

Jacksonville, FL
    
    2
    
    Office Buildings
    
    
    160,000
    
    
    
    143,488
    
    
    90
    
    
    1987-88Deerwood North

Jacksonville, FL
    
    4
    
    Office Buildings
    
    
    496,841
    
    
    
    449,651
    
    
    91
    
    
    1999-05Deerwood South

Jacksonville, FL
    
    4
    
    Office Buildings
    
    
    520,022
    
    
    
    455,908
    
    
    88
    
    
    1996-04Flagler Center
    
    4
    
    Office Buildings
    
    
    466,872
    
    
    
    463,920
    
    
    99
    
    
    1998-05Jacksonville, FL
    
    2
    
    Office/Showroom/Warehouses
    
    
    209,613
    
    
    
    209,613
    
    
    100
    
    
    1997-991
    
    Front Load Warehouse
    
    
    98,800
    
    
    
    98,800
    
    
    100
    
    
    19972
    
    Rail Warehouses
    
    
    259,000
    
    
    
    259,000
    
    
    100
    
    
    1997Gran Park at The Avenues
    
    3
    
    Office Buildings
    
    
    241,568
    
    
    
    227,696
    
    
    94
    
    
    1992-95Jacksonville, FL
    
    3
    
    Office/Showroom/Warehouses
    
    
    169,179
    
    
    
    123,961
    
    
    73
    
    
    1992-971
    
    Office Warehouse
    
    
    154,326
    
    
    
    154,326
    
    
    100
    
    
    1996Office Center at Southpoint

Jacksonville, FL
    
    1
    
    Office Building
    
    
    59,600
    
    
    
    51,848
    
    
    87
    
    
    1999SouthPark Center I & II
    
    6
    
    Office Buildings
    
    
    843,608
    
    
    
    820,294
    
    
    97
    
    
    1998-05Orlando, FL
    
    1
    
    Office/Showroom/Warehouse
    
    
    131,607
    
    
    
    131,607
    
    
    100
    
    
    1998Flagler Station
    
    2
    
    Office Buildings
    
    
    339,864
    
    
    
    339,864
    
    
    100
    
    
    2000Miami, FL
    
    5
    
    Office/Showroom/Warehouses
    
    
    367,301
    
    
    
    363,301
    
    
    99
    
    
    1988-9411
    
    Office Warehouses
    
    
    1,529,241
    
    
    
    1,528,286
    
    
    100
    
    
    1990-014
    
    Rail Warehouses
    
    
    397,680
    
    
    
    375,480
    
    
    94
    
    
    1989-948
    
    Front Load Warehouses
    
    
    1,027,984
    
    
    
    1,027,984
    
    
    100
    
    
    1991-951
    
    Office Service Center
    
    
    38,956
    
    
    
    32,796
    
    
    84
    
    
    1994-021
    
    Retail Building
    
    
    42,800
    
    
    
    24,449
    
    
    57
    
    
    2002Doral Concourse

Miami, FL
    
    1
    
    Office Building
    
    
    240,144
    
    
    
    223,740
    
    
    93
    
    
    2001Sunrise Corporate Plaza

Sunrise, FL
    
    1
    
    Office Building
    
    
    106,648
    
    
    
    106,648
    
    
    100
    
    
    1999Total 100% owned buildings
    
    68
    
    
    
    
    7,901,654
    
    
    
    7,612,660
    
    
    96FLAGLERS INCOME-PRODUCING BUILDINGS(Joint Venture Properties)
(at December 31, 2006)No. of
    
    
    
    Rentable
    
    Occupied
    
    %
    
    YearLocation
    
    Bldgs.
    
    Type
    
    Sq. Ft.
    
    Sq. Ft.
    
    Occupied
    
    BuiltJoint Venture PropertiesBeacon Lakes

(21.2% ownership)

Miami, FL
    
    1
    
    Warehouse
    
    
    206,650
    
    
    
    206,650
    
    
    100
    
    
    2004Total Joint Venture
Properties
    
    1
    
    
    
    
    206,650
    
    
    
    206,650
    
    
    100
 14




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##### Table of Contents



Projects under Development
   FLAGLERS DEVELOPMENT ACTIVITY  (at December 31, 2006)
 Actual orOwner
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ExpectedShip
    
    
    
    
    Net Rentable
    
    
    Estimated Costs
    
    
    %
    
    
    Certificate of
    
    
    % Leased / Pre-
    
    
    Property%
    
    
    
    
    Sq. Ft.
    
    
    to Complete
    
    
    Complete
    
    
    Occupancy
    
    
    
    Leased
    

    TypeProjects in Lease Up100
    %
    
    Flagler Station  OW 25
    
    
    160,211
    
    
    
    878,771
    
    
    
    90
    %
    
    Apr-06
    
    
    29
    %
    
    Industrial21
    %
    
    Beacon Lakes, LLC  Building 6
    
    
    206,494
    
    
    
    1,228,744
    
    
    
    90
    %
    
    Apr-06
    
    
    81
    %
    
    Industrial100
    %
    
    Flagler Station  Building 1100
    
    
    118,723
    
    
    
    462,824
    
    
    
    97
    %
    
    Sep-06
    
    
    80
    %
    
    OfficeTotal Projects in Lease-Up
    
    
    485,428
    
    
    
    2,570,339Projects Under Construction100
    %
    
    Flagler Center  Lakeside I
    
    
    112,306
    
    
    
    4,813,491
    
    
    
    67
    %
    
    Jan-07
    
    
    63
    %
    
    Office100
    %
    
    Flagler Center  Lakeside III
    
    
    112,306
    
    
    
    13,071,953
    
    
    
    13
    %
    
    Sep-07
    
    
    0
    %
    
    Office100
    %
    
    Flagler Station  OW28
    
    
    172,048
    
    
    
    2,148,638
    
    
    
    77
    %
    
    Feb-07
    
    
    37
    %
    
    Industrial100
    %
    
    Flagler Station  OW 29
    
    
    172,048
    
    
    
    1,864,672
    
    
    
    80
    %
    
    Feb-07
    
    
    0
    %
    
    Industrial100
    %
    
    Southpark Center I  Building 700
    
    
    83,262
    
    
    
    4,649,004
    
    
    
    63
    %
    
    Jan-07
    
    
    87
    %
    
    Office50
    %
    
    Beacon Village, LLC Phase 1 Bldg E-1
    
    
    52,918
    
    
    
    1,842,708
    
    
    
    72
    %
    
    Jan-07
    
    Held for Sale
    
    Industrial100
    %
    
    Southpark Center II  Building 1400
    
    
    111,998
    
    
    
    13,330,949
    
    
    
    24
    %
    
    Jun-07
    
    
    0
    %
    
    Office100
    %
    
    Flagler Station Bldg. 1200
    
    
    118,296
    
    
    
    14,109,874
    
    
    
    18
    %
    
    Jul-07
    
    
    0
    %
    
    Office21
    %
    
    Beacon Lakes, LLC  Building 7
    
    
    192,476
    
    
    
    4,833,867
    
    
    
    66
    %
    
    Feb-07
    
    
    0
    %
    
    Industrial20
    %
    
    Flagler Corp Center (Boca 54)  Office Depot
    
    
    624,230
    
    
    
    148,598,718
    
    
    
    8
    %
    
    Oct-08
    
    
    100
    %
    
    Office21
    %
    
    Beacon Lakes  Commerce Bank
    
    
    100,000
    
    
    
    13,636,103
    
    
    
    8
    %
    
    Dec-07
    
    Held for Sale
    
    OfficeTotal Projects Under Construction
    
    
    1,851,888
    
    
    
    222,899,977Projects in Pre-development100
    %
    
    Southpark Center II  Building 1300
    
    
    136,709
    
    
    
    
    
    
    
    
    
    
    TBD
    
    
    0
    %
    
    Office100
    %
    
    Southpark Center I  Building 900
    
    
    18,000
    
    
    
    
    
    
    
    
    
    
    TBD
    
    
    0
    %
    
    Office100
    %
    
    Flagler Center  Lakeside V
    
    
    142,000
    
    
    
    
    
    
    
    
    
    
    TBD
    
    
    0
    %
    
    Office100
    %
    
    Flagler Center  Gran Bay Suites office condos
    
    
    67,445
    
    
    
    
    
    
    
    
    
    
    TBD
    
    
    0
    %
    
    Office100
    %
    
    Flagler Plaza
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    TBD
    
    
    0
    %
    
    Office50
    %
    
    Downtown Doral (Denver Building)
    
    
    65,000
    
    
    
    
    
    
    
    
    
    
    TBD
    
    Held for Sale
    
    Office50
    %
    
    Downtown Doral (Residential Building G-1)
    
    
    299,435
    
    
    
    
    
    
    
    
    
    
    TBD
    
    Held for Sale
    
    Residential100
    %
    
    C/CM Lejeune (Burger King Building)
    
    
    248,000
    
    
    
    
    
    
    
    
    
    
    TBD
    
    Held for Sale
    
    Office/Retail50
    %
    
    Beacon Village, LLC Phase 1 Building E-2
    
    
    52,918
    
    
    
    
    
    
    
    
    
    
    TBD
    
    Held for Sale
    
    Industrial50
    %
    
    Beacon Village, LLC Phase 1 Building F-1
    
    
    35,495
    
    
    
    
    
    
    
    
    
    
    TBD
    
    Held for Sale
    
    Industrial50
    %
    
    Downtown Doral (Residential Building K-1)
    
    
    223,729
    
    
    
    
    
    
    
    
    
    
    TBD
    
    Held for Sale
    
    Residential21
    %
    
    Beacon Lakes, LLC  Building 12
    
    
    189,740
    
    
    
    
    
    
    
    
    
    
    TBD
    
    
    0
    %
    
    Industrial21
    %
    
    Beacon Lakes, LLC  Building 13
    
    
    189,740
    
    
    
    
    
    
    
    
    
    
    TBD
    
    
    0
    %
    
    IndustrialTotal Projects in Pre-Development
    
    
    1,918,211Total Development & Predevelopment Projects
    
    
    4,255,527
 15




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##### Table of Contents



100% Owned Properties Under Development:
 SouthPark Center I  Orlando, FL
  SouthPark Center II  Orlando, FL
  Flagler Station  Miami, FL
  Flagler Center  Jacksonville, FL
  Flagler Plaza  Sunrise, FL
  Sevilla Building  Coral Gables, FL
  Burger King Headquarters Building (CM Lejeune LLLP)  Coral Gables, FL
  Joint Venture Properties Under Development:
 Consolidated Joint Ventures
 Downtown Doral (CM Doral Development Company LLC )
  16




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##### Table of Contents



Unconsolidated Joint Ventures
 Beacon Lakes  West Dade, FL
  Flagler Corporate Center (Boca 54)  Boca Raton, FL
  Flaglers land portfolio includes the following major land holdings:
 100% Owned Properties
 Cordova Palms (Lemberg North) & Lemberg South
  Lakeland Central Park
  Fort Pierce K-4
  Downtown Miami Lot
  17




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##### Table of Contents



Beacon Commons
 th th th
 Beacon Countyline
  Flagler Crossing (Miller Tract)
  FECR Properties
  Right-of-Way Corridors
      Lakeland Distribution Center (Key Safety)
  18




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##### Table of Contents



Cadillac Gage Property
  Eyster Boulevard
  New Smyrna
  Summary of FECI Land Holdings
  
 ITEM 3. LEGAL PROCEEDINGS
     19




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  20




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##### Table of Contents



PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES 
              OF EQUITY SECURITIES
 Price Range of Common Stock and Dividend Policy
   CashDividendsCommon Stock Price
    
    High
    
    Low
    
    Paid2006Fourth QuarterCommon stock
    
    $
    63.64
    
    
    $
    56.18
    
    
    $
    0.07Third QuarterCommon stock
    
    $
    58.67
    
    
    $
    44.98
    
    
    $
    0.07Second QuarterCommon stock
    
    $
    57.66
    
    
    $
    48.55
    
    
    $
    0.07First QuarterCommon stock
    
    $
    54.28
    
    
    $
    41.86
    
    
    $
    0.062005Fourth QuarterCommon stock
    
    $
    45.70
    
    
    $
    40.55
    
    
    $
    0.06Third QuarterCommon stock
    
    $
    48.49
    
    
    $
    39.91
    
    
    $
    0.06Second QuarterCommon stock
    
    $
    44.10
    
    
    $
    38.90
    
    
    $
    0.06First QuarterCommon stock
    
    $
    45.50
    
    
    $
    40.50
    
    
    $
    0.05
  21




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##### Table of Contents



Securities Authorized for Issuance under Equity Compensation Plan
 Number of Securities RemainingNumber of Securities to be
    
    Weighted Average
    
    Available for Future Issuance UnderIssued Upon Exercise of
    
    Exercise Price of
    
    Equity Compensation PlansOutstanding Options,
    
    Outstanding Options,
    
    (excluding securities reflected inPlan
Category
    
    Warrants and Rights
    
    Warrants and Rights
    
    column (a))(a)
    
    (b)
    
    (c)Equity compensation plans
approved by security holders
    
    
    271,993
    
    
    $
    32.84
    
    
    
    2,617,095
    (1)Equity compensation plans not
approved by security holders
    
    
    288,518
    (2)
    
    
    
    
    
    
    Total
    
    
    560,511
    
    
    $
    32.84
    
    
    
    2,617,095
 
 (1)
    
    As of December 31, 2006, includes 1,903,680 shares available for future issuance under the Florida East Coast Industries,
Inc. 2002 Stock Incentive Plan, as amended and restated effective June 2, 2005, and 715,834 shares reserved for issuance under the Florida
East Coast Industries, Inc. Employee Stock Purchase Plan.(2)
    
    These shares are restricted stock issued to Codina Group employees upon their employment with the Company.  COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURNS *
 
 * $100 invested on 12/31/01 in stock or index-including reinvestment of dividends
FISCAL YEAR ENDING DECEMBER 31, *
 2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006Florida East Coast Industries, Inc.
    
    
    100.00
    
    
    
    100.64
    
    
    
    151.41
    
    
    
    207.31
    
    
    
    195.80
    
    
    
    276.83Russell 2000
    
    
    100.00
    
    
    
    79.52
    
    
    
    117.09
    
    
    
    138.55
    
    
    
    144.86
    
    
    
    171.47Russell 3000
    
    
    100.00
    
    
    
    78.46
    
    
    
    102.83
    
    
    
    115.11
    
    
    
    122.16
    
    
    
    141.35NAREIT Equity
    
    
    100.00
    
    
    
    103.82
    
    
    
    142.37
    
    
    
    187.33
    
    
    
    210.12
    
    
    
    283.78S & P 1500 Railroads
    
    
    100.00
    
    
    
    98.44
    
    
    
    120.33
    
    
    
    150.52
    
    
    
    199.99
    
    
    
    229.87
 22




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##### Table of Contents



Average Price
    
    Total Number of Shares
    
    Maximum Amount ofPaid Per Share
    
    Purchased as Part of Publicly
    
    Value that may yet beTotal Number of
    
    (including
    
    Announced Plans or
    
    Purchased under theShares Purchased
    
    commissions)
    
    Programs
    
    Plans or ProgramsOctober
    
    
    348
    (1)
    
    $
    57.08
    
    
    
    
    
    
    $
    37,711,048November
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    37,711,048December
    
    
    132
    (1)
    
    $
    61.64
    
    
    
    
    
    
    $
    37,711,048
 
 (1)
    
    Shares purchased represent shares surrendered to the Company for federal withholding obligations
related to employees vesting on previously restricted stock. 23




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  Years Ended December 31(dollars in thousands, except per share amounts)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Income Statement DataOperating revenues (1)
    
    
    458,202
    
    
    
    362,346
    
    
    
    378,187
    
    
    
    338,264
    
    
    
    300,515Operating expenses (1)
    
    
    (367,761
    )
    
    
    (280,083
    )
    
    
    (247,955
    )
    
    
    (264,554
    )
    
    
    (210,773
    )Operating profit
    
    
    90,441
    
    
    
    82,263
    
    
    
    130,232
    
    
    
    73,710
    
    
    
    89,742Loss from investment in unconsolidated joint ventures
    
    
    (970
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest income
    
    
    1,565
    
    
    
    1,659
    
    
    
    1,124
    
    
    
    946
    
    
    
    425Interest expense
    
    
    (20,378
    )
    
    
    (20,105
    )
    
    
    (16,671
    )
    
    
    (17,056
    )
    
    
    (19,602
    )Gain on sale of asset
    
    
    4,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income
    
    
    11,478
    
    
    
    14,555
    
    
    
    13,023
    
    
    
    9,544
    
    
    
    10,803Income before income taxes
    
    
    87,004
    
    
    
    78,372
    
    
    
    127,708
    
    
    
    67,144
    
    
    
    81,368Provision for income taxes
    
    
    (29,598
    )
    
    
    (29,006
    )
    
    
    (49,806
    )
    
    
    (25,851
    )
    
    
    (31,327
    )Income from continuing operations
    
    
    57,406
    
    
    
    49,366
    
    
    
    77,902
    
    
    
    41,293
    
    
    
    50,041Discontinued OperationsIncome (loss) from operation of discontinued operations (net
of taxes) (see details following)
    
    
    
    
    
    
    
    
    
    
    106
    
    
    
    (173
    )
    
    
    (168,615
    )Gain on disposition of discontinued operations (net of taxes)
    
    
    5,713
    
    
    
    
    
    
    
    2,590
    
    
    
    2,104
    
    
    
    10,823Income (loss) from discontinued operations
    
    
    5,713
    
    
    
    
    
    
    
    2,696
    
    
    
    1,931
    
    
    
    (157,792
    )Net income (loss)
    
    
    63,119
    
    
    
    49,366
    
    
    
    80,598
    
    
    
    43,224
    
    
    
    (107,751
    )Earnings Per ShareIncome from continuing operations  basic
    
    $
    1.67
    
    
    $
    1.53
    
    
    $
    2.25
    
    
    $
    1.13
    
    
    $
    1.37Income from continuing operations  diluted
    
    $
    1.66
    
    
    $
    1.52
    
    
    $
    2.21
    
    
    $
    1.12
    
    
    $
    1.36Loss from operation of discontinued operations  basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (0.01
    )
    
    $
    (4.63
    )Loss from operation of discontinued operations  diluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (0.01
    )
    
    $
    (4.60
    )Gain on disposition of discontinued operations  basic &
diluted
    
    $
    0.17
    
    
    
    
    
    
    $
    0.08
    
    
    $
    0.06
    
    
    $
    0.30Net income (loss)  basic
    
    $
    1.84
    
    
    $
    1.53
    
    
    $
    2.33
    
    
    $
    1.18
    
    
    $
    (2.96
    )Net income (loss)  diluted
    
    $
    1.83
    
    
    $
    1.52
    
    
    $
    2.29
    
    
    $
    1.17
    
    
    $
    (2.94
    )Weighted-average shares  basic (in thousands)
    
    
    34,380
    
    
    
    32,281
    
    
    
    34,530
    
    
    
    36,502
    
    
    
    36,446Weighted-average shares  diluted (in thousands)
    
    
    34,533
    
    
    
    32,584
    
    
    
    35,217
    
    
    
    36,865
    
    
    
    36,635Cash dividends declared on common stock
    
    
    9,489
    
    
    
    7,518
    
    
    
    6,498
    
    
    
    60,453
    
    
    
    3,658Cash dividends declared per share on common stock
    
    $
    0.27
    
    
    $
    0.23
    
    
    $
    0.19
    
    
    $
    1.645
    
    
    $
    0.10
 
 (1)
    
    Includes costs and recoveries associated with hurricane related damage. See Items 7 & 8 for breakout and discussion of
these costs and recoveries. 24




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##### Table of Contents



Years Ended December 31(dollars in thousands)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Balance Sheet DataTotal assets
    
    
    1,394,826
    
    
    
    1,137,744
    
    
    
    1,063,193
    
    
    
    1,008,350
    
    
    
    1,051,236Cash and cash equivalents
    
    
    5,096
    
    
    
    75,990
    
    
    
    126,166
    
    
    
    125,057
    
    
    
    83,872Restricted Cash
    
    
    424
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Properties, less accumulated depreciation
    
    
    1,179,641
    
    
    
    955,395
    
    
    
    853,458
    
    
    
    814,683
    
    
    
    795,650Long-term debt
    
    
    328,638
    
    
    
    332,760
    
    
    
    338,065
    
    
    
    238,305
    
    
    
    294,143Shareholders equity
    
    
    713,236
    
    
    
    538,162
    
    
    
    464,926
    
    
    
    558,133
    
    
    
    573,316
  Years Ended December 31(dollars in thousands)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Summary of Operating Results of Discontinued OperationsFlagler realty rental revenues
    
    
    
    
    
    
    
    
    
    
    718
    
    
    
    2,030
    
    
    
    4,133Flagler realty rental expenses
    
    
    
    
    
    
    
    
    
    
    545
    
    
    
    2,540
    
    
    
    2,440Operating income
    
    
    
    
    
    
    
    
    
    
    173
    
    
    
    (510
    )
    
    
    1,693Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    73Income before income taxes
    
    
    
    
    
    
    
    
    
    
    173
    
    
    
    (467
    )
    
    
    1,766Income taxes
    
    
    
    
    
    
    
    
    
    
    (67
    )
    
    
    180
    
    
    
    (680
    )Income from operation of discontinued operations
    
    
    
    
    
    
    
    
    
    
    106
    
    
    
    (287
    )
    
    
    1,086
 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  GENERAL OVERVIEW
     25




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26




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##### Table of Contents



FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
       27




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Off-Balance Sheet Arrangements
  Contractual Obligations and Commercial Commitments  Contractual Obligations  Payments due by Period  (dollars in thousands)
 LessContractual Cash Obligations
    
    
    
    
    
    than 1
    
    
    
    
    
    
    
    
    
    
    After 5At December 31, 2006
    
    Total
    
    
    year
    
    
    2-3 years
    
    
    4-5 years
    
    
    yearsLong-term debt obligations (2)
    
    
    419,599
    
    
    
    27,916
    
    
    
    126,889
    
    
    
    264,794
    
    
    
    Capital lease obligations
    
    
    539
    
    
    
    184
    
    
    
    355
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    50,324
    
    
    
    5,095
    
    
    
    4,340
    
    
    
    2,712
    
    
    
    38,177Purchase obligations (1)
    
    
    8,949
    
    
    
    7,931
    
    
    
    1,018
    
    
    
    
    
    
    
    Other long-term liabilities reflected on
the balance sheet
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    
    479,411
    
    
    
    41,126
    
    
    
    132,602
    
    
    
    267,506
    
    
    
    38,177
 
 (1)
        
    Unconditional purchase obligations at December 31, 2006 consisted of outstanding forward purchase agreements for
diesel fuel at FECR and various purchase agreements.(2)
    
    Includes payments of principal and interest.  Amount of Commitments  Expiration per Period  (dollars in thousands)
 Total
    
    
    LessOther Commercial Commitments
    
    Amounts
    
    
    than 1
    
    
    
    
    
    
    
    
    
    
    Over 5at December 31, 2006
    
    Committed
    
    
    year
    
    
    2-3 years
    
    
    4-5 years
    
    
    yearsLines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Standby letters of credit (1)
    
    
    2,588
    
    
    
    600
    
    
    
    1,988
    
    
    
    
    
    
    
    Guarantees
    
    
    5,136
    
    
    
    5,136
    
    
    
    
    
    
    
    
    
    
    
    Other commercial commitments
    
    
    62,918
    
    
    
    62,168
    
    
    
    750
    
    
    
    
    
    
    
    Total commercial commitments
    
    
    70,642
    
    
    
    67,904
    
    
    
    2,738
    
    
    
    
    
    
    
    
 
 (1)
    
    Excludes letters of credit for AMB Codina Lakes, LLC (a Codina joint venture with AMB Properties in West Dade) in
the amounts of $338,387 and $433,218 with expirations of less than one year and 2-3 years, respectively.   28




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS  Years Ended December 31, 2006, 2005 and 2004
 Years Ended December 31(dollars in thousands)
    
    2006
    
    
    2005
    
    
    2004Cash Flows from Operating ActivitiesNet income
    
    
    63,119
    
    
    
    49,366
    
    
    
    80,598Adjustments to reconcile net income to cash generated by operating activities:Depreciation and amortization
    
    
    59,658
    
    
    
    55,477
    
    
    
    48,769Gain on involuntary conversion, due to Hurricane Wilma
    
    
    (1,913
    )
    
    
    
    
    
    
    Gain on disposition of properties, including those discontinued
    
    
    (30,113
    )
    
    
    (25,351
    )
    
    
    (93,265
    )Tax benefit associated with equity based compensation
    
    
    
    
    
    
    5,261
    
    
    
    4,056Deferred taxes
    
    
    8,019
    
    
    
    7,438
    
    
    
    48,052Stock compensation expense (Note 13)
    
    
    12,667
    
    
    
    9,900
    
    
    
    4,819Changes in operating assets and liabilities:Accounts receivable
    
    
    2,276
    
    
    
    (3,297
    )
    
    
    (8,836
    )Prepaid expenses
    
    
    (5,748
    )
    
    
    (2,012
    )
    
    
    206Materials and supplies
    
    
    (1,305
    )
    
    
    (2,018
    )
    
    
    (219
    )Straight line rent
    
    
    (2,498
    )
    
    
    (6,488
    )
    
    
    (5,604
    )Prepaid commissions
    
    
    (7,307
    )
    
    
    (5,448
    )
    
    
    (1,172
    )Other assets and deferred charges
    
    
    2,877
    
    
    
    (201
    )
    
    
    (8,224
    )Accounts payable
    
    
    (1,700
    )
    
    
    1,194
    
    
    
    17,356Taxes payable
    
    
    (2,246
    )
    
    
    2,201
    
    
    
    (8,335
    )Income tax refund
    
    
    
    
    
    
    2,800
    
    
    
    Other current liabilities
    
    
    11,207
    
    
    
    (2,915
    )
    
    
    (7,494
    )Other long-term liabilities
    
    
    (402
    )
    
    
    (1,013
    )
    
    
    1,548Net cash generated by operating activities
    
    
    106,591
    
    
    
    84,894
    
    
    
    72,255Cash Flows from Investing ActivitiesPurchases of properties and equipment, net of accrued capital expendituresof $8,576 in 2006
    
    
    (144,329
    )
    
    
    (174,752
    )
    
    
    (111,551
    )Acquisition of Codina Group Inc. and related interests, net of cash acquired
    
    
    (65,844
    )
    
    
    
    
    
    
    Investment in unconsolidated real estate joint ventures
    
    
    (14,403
    )
    
    
    
    
    
    
    Distributions from unconsolidated joint ventures
    
    
    2,840
    
    
    
    
    
    
    
    Decrease in restricted cash
    
    
    1,382
    
    
    
    
    
    
    
    Proceeds from hurricane related insurance settlement
    
    
    3,343
    
    
    
    
    
    
    
    Proceeds from disposition of assets, including those discontinued
    
    
    71,271
    
    
    
    35,202
    
    
    
    121,537Net cash (used in)/provided by investing activities
    
    
    (145,740
    )
    
    
    (139,550
    )
    
    
    9,986Cash Flows from Financing ActivitiesBorrowings from long term debt (Note 17)
    
    
    389
    
    
    
    
    
    
    
    105,000Payment of mortgage debt
    
    
    (5,199
    )
    
    
    (4,896
    )
    
    
    (3,289
    )Payment of acquired debt
    
    
    (30,117
    )
    
    
    
    
    
    
    Payment of dividends
    
    
    (9,489
    )
    
    
    (7,518
    )
    
    
    (6,498
    )Proceeds from exercise of options
    
    
    10,550
    
    
    
    21,594
    
    
    
    16,674Tax benefit associated with equity based compensation
    
    
    3,213
    
    
    
    
    
    
    
    Stock repurchase program payments (Note 17)
    
    
    
    
    
    
    (2,289
    )
    
    
    (191,126
    )Purchase of common stock
    
    
    (2,447
    )
    
    
    (2,411
    )
    
    
    (1,893
    )Investment by minority interest
    
    
    1,355
    
    
    
    
    
    
    
    Net cash (used in)/provided by financing activities
    
    
    (31,745
    )
    
    
    4,480
    
    
    
    (81,132
    )Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (70,894
    )
    
    
    (50,176
    )
    
    
    1,109Cash and Cash Equivalents at Beginning of Period
    
    
    75,990
    
    
    
    126,166
    
    
    
    125,057Cash and Cash Equivalents at End of Period
    
    
    5,096
    
    
    
    75,990
    
    
    
    126,166Supplemental Disclosure of Cash Flow InformationCash paid for income taxes (net of refunds)
    
    
    22,719
    
    
    
    11,500
    
    
    
    4,700Cash paid for interest
    
    
    22,825
    
    
    
    22,320
    
    
    
    19,252
 (Prior year results have been reclassified to conform to current year presentation)
 29




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Supplemental Schedule on Non-Cash Investing and Financing Activities
  (dollars in thousands)Fair value of assets acquired
    
    
    246,193Acquisition transaction costs
    
    
    5,656Equity issued for initial consideration
    
    
    (76,412
    )Cash paid for acquired Company (1)
    
    
    (71,501
    )Liabilities assumed
    
    
    103,936
 
 (1)
    
    Reconciliation to Statements of Cash Flows
 Cash paid for acquired Company
    
    
    71,501Less cash acquired
    
    
    (4,125
    )Less transaction costs paid in 2005
    
    
    (1,532
    )Acquisition of Codina Group, Inc. per Statements of Cash Flows
    
    
    65,844
      30




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##### Table of Contents



Results of Operations for 2006 compared to 2005 and 2005 compared to 2004
  Impact from Hurricanes
     31




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##### Table of Contents



2005 and 2006 HURRICANE COST AND RECOVERY SUMMARY
 TotalEstimated
    
    
    Cost (Recovery)
    
    
    Cost (Recovery)Cost and
    
    
    recognized
    
    
    recognized(dollars in thousands)
    
    (Recovery)
    
    
    in 2006
    
    
    since inceptionRailwayOperating expenses (Hurricane Costs)
    
    
    3,696
    
    
    
    990
    
    
    
    3,596Hurricane recoveries (net) (1)
    
    
    (997
    )
    
    
    (380
    )
    
    
    (997
    )Insurance recovery  Physical damage and extra expenses
    
    
    (2,302
    )
    
    
    (2,202
    )
    
    
    (2,202
    )Utility service interruption insurance settlement
    
    
    (3,732
    )
    
    
    (3,732
    )
    
    
    (3,732
    )Hurricane recoveries, net of expenses
    
    
    (3,335
    )
    
    
    (5,324
    )
    
    
    (3,335
    )Railway Realty RentalOperating expenses (Hurricane Costs)
    
    
    461
    
    
    
    177
    
    
    
    461Insurance recovery  Physical damage
    
    
    (195
    )
    
    
    (195
    )
    
    
    (195
    )Hurricane recoveries, net of expenses
    
    
    266
    
    
    
    (18
    )
    
    
    266FlaglerFlagler CAM recoveries associated with Hurricane
    
    
    (680
    )
    
    
    (337
    )
    
    
    (680
    )Capital expenditures (Properties)
    
    
    6,060
    
    
    
    5,781
    
    
    
    6,060Operating expenses (Hurricane Costs)
    
    
    1,418
    
    
    
    646
    
    
    
    1,418Asset write-off due to replacement (2)
    
    
    1,937
    
    
    
    1,750
    
    
    
    1,937Insurance proceeds
    
    
    (3,862
    )
    
    
    (3,862
    )
    
    
    (3,862
    )Hurricane recoveries, net of expenses
    
    
    (507
    )
    
    
    (1,466
    )
    
    
    (507
    )
 
 (1)
    
    Hurricane recoveries (net) represent amounts recovered from various municipalities located along the
Railways right-of-way and other governmental authorities for reimbursement for operation of rail crossings during the
outage and for related repairs of those crossings.(2)
    
    Represents assets (primarily roofs) most of which have been replaced during 2006 and their related
write-off of remaining net book value. Railway
  32




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RAILWAY OPERATING RESULTS  (dollars in thousands)
 Years Ended December 312006
    
    
    2005
    
    
    2004Railway segments operating revenues
    
    
    264,093
    
    
    
    237,870
    
    
    
    200,762Railway segments operating expenses
    
    
    185,622
    
    
    
    174,141
    
    
    
    153,436Railway segments operating profit
    
    
    78,471
    
    
    
    63,729
    
    
    
    47,326Railway segments operating ratio
    
    
    70.3
    %
    
    
    73.2
    %
    
    
    76.4
    %
 TRAFFIC  Years Ended December 31  (dollars and units in thousands)
 2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Commodity
    
    Units
    
    
    Units
    
    
    Units
    
    
    Revenues
    
    
    Revenues
    
    
    RevenuesRail carloadsCrushed stone (aggregate)
    
    
    145.1
    
    
    
    140.3
    
    
    
    127.2
    
    
    
    76,468
    
    
    
    69,897
    
    
    
    60,271Construction materials
    
    
    7.2
    
    
    
    7.2
    
    
    
    5.7
    
    
    
    5,766
    
    
    
    5,333
    
    
    
    3,827Vehicles
    
    
    22.2
    
    
    
    23.5
    
    
    
    22.2
    
    
    
    20,059
    
    
    
    19,025
    
    
    
    17,577Foodstuffs & kindred
    
    
    13.4
    
    
    
    13.7
    
    
    
    12.5
    
    
    
    12,611
    
    
    
    11,972
    
    
    
    9,922Chemicals & distillants
    
    
    3.4
    
    
    
    3.5
    
    
    
    3.7
    
    
    
    4,988
    
    
    
    4,489
    
    
    
    4,367Paper & lumber
    
    
    7.0
    
    
    
    7.4
    
    
    
    5.6
    
    
    
    8,050
    
    
    
    8,092
    
    
    
    6,162Other
    
    
    14.0
    
    
    
    15.0
    
    
    
    14.1
    
    
    
    11,422
    
    
    
    10,486
    
    
    
    8,592Total carload
    
    
    212.3
    
    
    
    210.6
    
    
    
    191.0
    
    
    
    139,364
    
    
    
    129,294
    
    
    
    110,718Intermodal
    
    
    322.2
    
    
    
    309.3
    
    
    
    283.3
    
    
    
    118,584
    
    
    
    103,008
    
    
    
    86,379Total freight units/revenues
    
    
    534.5
    
    
    
    519.9
    
    
    
    474.3
    
    
    
    257,948
    
    
    
    232,302
    
    
    
    197,097Ancillary revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,145
    
    
    
    5,568
    
    
    
    3,665Railway segment revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264,093
    
    
    
    237,870
    
    
    
    200,762
 RAILWAY OPERATING EXPENSES  (dollars in thousands)
 Years Ended December 312006
    
    
    2005
    
    
    2004Compensation & benefits
    
    
    62,769
    
    
    
    58,714
    
    
    
    54,775Fuel
    
    
    31,867
    
    
    
    25,117
    
    
    
    16,273Equipment rents (net)
    
    
    4,238
    
    
    
    4,290
    
    
    
    3,315Car hire (net)
    
    
    (169
    )
    
    
    (1,954
    )
    
    
    (2,818
    )Depreciation
    
    
    22,430
    
    
    
    21,820
    
    
    
    20,167Purchased services
    
    
    10,926
    
    
    
    9,786
    
    
    
    9,793Repairs billed to/by others (net)
    
    
    (4,105
    )
    
    
    (3,690
    )
    
    
    (3,454
    )Load/unload
    
    
    9,550
    
    
    
    9,188
    
    
    
    8,009Casualty & insurance
    
    
    4,328
    
    
    
    5,352
    
    
    
    6,212Property taxes
    
    
    6,170
    
    
    
    5,797
    
    
    
    5,565Materials
    
    
    13,556
    
    
    
    12,487
    
    
    
    10,220General & administrative expenses
    
    
    9,099
    
    
    
    8,167
    
    
    
    8,724Outside contractor delivery costs
    
    
    16,847
    
    
    
    14,376
    
    
    
    11,651Other (1)
    
    
    1,848
    
    
    
    4,691
    
    
    
    5,004Utility service interruption insurance settlement
    
    
    (3,732
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    185,622
    
    
    
    174,141
    
    
    
    153,436
 
 (1)
    
    2006 includes $1.0 million of hurricane costs and $2.6 million of
hurricane recoveries (net). 2005 included $2.0 million of hurricane costs (net). 33




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##### Table of Contents



Revenues  2006 versus 2005
    Revenues  2005 versus 2004
  Expenses  2006 versus 2005
  34




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##### Table of Contents



Expenses  2005 versus 2004
    35




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##### Table of Contents



Previous
    
    
    CurrentDepreciable Life
    
    
    Depreciable LifeLocomotives:Hulk/chassis
    
    10 years
    
    7 yearsOverhauls
    
    10 years
    
    7 yearsRolling Stock:Hoppers & gondolas
    
    7  32.5 years
    
    7  50 yearsFlats
    
    7  18.5 years
    
    7  50 yearsVans & flatbeds
    
    10 years
    
    20 yearsChassis
    
    10 years
    
    20 yearsAuto racks
    
    19 years
    
    15 yearsTrack:Rail/other track material
    
    50 years
    
    45 yearsTurnouts
    
    50 years
    
    45 years
 Real Estate
    100% Owned
 §
    
    Beacon Countyline, 497 acres in Hialeah; future plans are for the creation of a large industrial and office park.§
    
    Beacon Commons, 92 acres in Doral: future site of a retail, office and residential development.§
    
    Sevilla Office Building, a 45,000 sq. ft. office building currently under construction.
 36




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##### Table of Contents



Joint Ventures
 §
    
    Beacon Lakes, a 480-acre industrial park, including five industrial buildings and
entitlements for an additional 6.0 million sq. ft. in West Dade. The Company owns a 21.2%
interest in a venture with an affiliate of AMB Properties that owns the Beacon Lakes
development, except for the 57 acres described herein. Within the Beacon Lakes development
is included a 120-unit warehouse condominium project on 57 acres known as Beacon Village.
Beacon Village is owned by Beacon Village, LLC, which is owned 50% by the Company and 50% by
an affiliate of AMB Properties.§
    
    Red Road Commons, a proposed 50% interest in a venture with an affiliate of Fairfield
Properties, Inc. to build 407-unit residential apartments on land to be leased in South
Miami.§
    
    Downtown Doral (formerly Beacon City Center), a venture with an affiliate of JPMorgan that
holds an exclusive option to acquire and redevelop a 77-acre property in Doral for
residential and commercial uses.§
    
    Burger King, which when acquired, was a proposed 30% interest in a venture with an
affiliate of JPMorgan to acquire land and construct a 15-story, 248,000 sq. ft. building for
Burger Kings corporate headquarters. JPMorgan and the Company entered into the venture
agreement in January 2007.
    37




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##### Table of Contents



FLAGLER DEVELOPMENT CONSOLIDATED  (Excluding Discontinued Operations)
 Years Ended December 31(dollars in thousands)
    
    2006
    
    
    2005
    
    
    2004Revenues:Rental income
    
    
    80,796
    
    
    
    69,998
    
    
    
    60,053Rental income  straight-line rent adjustments
    
    
    3,046
    
    
    
    6,658
    
    
    
    3,524Operating expense recoveries
    
    
    13,041
    
    
    
    8,719
    
    
    
    4,896Operating expense recoveries  hurricane related
    
    
    337
    
    
    
    343
    
    
    
    93Rental revenues  undeveloped land
    
    
    28
    
    
    
    22
    
    
    
    16Other rental revenues
    
    
    180
    
    
    
    111
    
    
    
    83Total Realty Rental Revenues
    
    
    97,428
    
    
    
    85,851
    
    
    
    68,665Construction revenues
    
    
    27,210
    
    
    
    
    
    
    
    Brokerage revenues
    
    
    9,691
    
    
    
    704
    
    
    
    148Property management
    
    
    4,375
    
    
    
    
    
    
    
    Development & other services
    
    
    1,870
    
    
    
    
    
    
    
    Total Realty Services Revenues
    
    
    43,146
    
    
    
    704
    
    
    
    148Land use revenues
    
    
    667
    
    
    
    795
    
    
    
    772Total Realty Rental & Services Revenues
    
    
    141,241
    
    
    
    87,350
    
    
    
    69,585Realty sales
    
    
    42,618
    
    
    
    24,820
    
    
    
    99,677Total Flagler Revenues
    
    
    183,859
    
    
    
    112,170
    
    
    
    169,262Expenses:Real estate taxes
    
    
    11,109
    
    
    
    9,324
    
    
    
    7,825Repairs & maintenance
    
    
    3,646
    
    
    
    2,820
    
    
    
    2,545Services, utilities, management costs
    
    
    21,089
    
    
    
    16,589
    
    
    
    12,737Recoverable expenses  hurricane related
    
    
    76
    
    
    
    742
    
    
    
    109Total recoverable expenses
    
    
    35,920
    
    
    
    29,475
    
    
    
    23,216Real estate taxes  undeveloped land
    
    
    
    
    
    
    (17
    )
    
    
    9Repairs & maintenance
    
    
    256
    
    
    
    474
    
    
    
    512Depreciation & amortization
    
    
    30,148
    
    
    
    27,943
    
    
    
    23,152Salaries, general & administrative
    
    
    248
    
    
    
    105
    
    
    
    158Non-recoverable expenses  hurricane related
    
    
    371
    
    
    
    217
    
    
    
    Total non-recoverable expenses
    
    
    31,023
    
    
    
    28,722
    
    
    
    23,831Gain on involuntary conversion of assets  hurricane related
    
    
    (1,913
    )
    
    
    
    
    
    
    Total Realty Rental Expenses
    
    
    65,030
    
    
    
    58,197
    
    
    
    47,047Construction expenses
    
    
    27,265
    
    
    
    
    
    
    
    Brokerage expenses
    
    
    7,227
    
    
    
    481
    
    
    
    85Property management
    
    
    2,804
    
    
    
    
    
    
    
    Development & other services
    
    
    2,024
    
    
    
    
    
    
    
    Total Realty Services Expenses
    
    
    39,320
    
    
    
    481
    
    
    
    85Land and overhead expenses
    
    
    26,951
    
    
    
    14,413
    
    
    
    13,448Total Realty Rental & Services Expenses
    
    
    131,301
    
    
    
    73,091
    
    
    
    60,580Realty sales expenses
    
    
    31,126
    
    
    
    7,022
    
    
    
    14,871Total Flagler Expenses
    
    
    162,427
    
    
    
    80,113
    
    
    
    75,451Operating Profit
    
    
    21,432
    
    
    
    32,057
    
    
    
    93,811Loss from investment in unconsolidated joint ventures
    
    
    (970
    )
    
    
    
    
    
    
    Minority interest
    
    
    81
    
    
    
    
    
    
    
    Interest income
    
    
    506
    
    
    
    390
    
    
    
    151Interest expense
    
    
    (20,098
    )
    
    
    (19,594
    )
    
    
    (16,008
    )Other expense
    
    
    (373
    )
    
    
    (518
    )
    
    
    (521
    )Income Before Income Taxes
    
    
    578
    
    
    
    12,335
    
    
    
    77,433
 (Prior year results have been reclassified to conform to current year presentation)
  38




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##### Table of Contents



FLAGLER DEVELOPMENT
 SAME STORE  For the Years Ended December 31
 Same Store(dollars in thousands)
    
    2006
    
    
    2005
    
    
    2004Revenues:Rental income
    
    
    67,672
    
    
    
    64,894
    
    
    
    60,053Rental income  straight-line rent adjustments
    
    
    440
    
    
    
    4,019
    
    
    
    3,524Operating expense recoveries
    
    
    9,054
    
    
    
    6,598
    
    
    
    4,896Operating expense recoveries  hurricane related
    
    
    314
    
    
    
    332
    
    
    
    93Rental revenues  undeveloped land
    
    
    26
    
    
    
    21
    
    
    
    16Other rental revenues
    
    
    167
    
    
    
    108
    
    
    
    83Total Realty Rental Revenues
    
    
    77,673
    
    
    
    75,972
    
    
    
    68,665Construction revenues
    
    
    
    
    
    
    
    
    
    
    Brokerage revenues
    
    
    
    
    
    
    
    
    
    
    Property management
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Revenues
    
    
    
    
    
    
    
    
    
    
    Land use revenues
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental and Services Revenues
    
    
    77,673
    
    
    
    75,972
    
    
    
    68,665Realty sales
    
    
    
    
    
    
    
    
    
    
    Total Flagler Revenues
    
    
    77,673
    
    
    
    75,972
    
    
    
    68,665Expenses:Real estate taxes
    
    
    9,092
    
    
    
    8,320
    
    
    
    7,825Repairs & maintenance
    
    
    3,254
    
    
    
    2,689
    
    
    
    2,545Services, utilities, management costs
    
    
    16,870
    
    
    
    14,550
    
    
    
    12,737Recoverable expenses  hurricane related
    
    
    1
    
    
    
    695
    
    
    
    109Total recoverable expenses
    
    
    29,217
    
    
    
    26,254
    
    
    
    23,216Real estate taxes  undeveloped land
    
    
    
    
    
    
    
    
    
    
    (17
    )Repairs & maintenance
    
    
    283
    
    
    
    451
    
    
    
    499Depreciation & amortization
    
    
    22,378
    
    
    
    23,010
    
    
    
    23,022Salaries, general & administrative
    
    
    147
    
    
    
    73
    
    
    
    158Non-recoverable expenses  hurricane related
    
    
    60
    
    
    
    217
    
    
    
    Total non-recoverable expenses
    
    
    22,868
    
    
    
    23,751
    
    
    
    23,662Gain on involuntary conversion of assets  hurricane related
    
    
    (1,913
    )
    
    
    
    
    
    
    Total Realty Rental Expenses
    
    
    50,172
    
    
    
    50,005
    
    
    
    46,878Construction expenses
    
    
    
    
    
    
    
    
    
    
    Brokerage expenses
    
    
    
    
    
    
    
    
    
    
    Property management
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Expenses
    
    
    
    
    
    
    
    
    
    
    Land and overhead expenses
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental and Services Expenses
    
    
    50,172
    
    
    
    50,005
    
    
    
    46,878Realty sales expenses
    
    
    
    
    
    
    
    
    
    
    Total Flagler Expenses
    
    
    50,172
    
    
    
    50,005
    
    
    
    46,878Operating Profit
    
    
    27,501
    
    
    
    25,967
    
    
    
    21,787
 (Prior year results have been reclassified to conform to current year presentation)
 Same Store
 39




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##### Table of Contents



FLAGLER DEVELOPMENT  NEW IN 2006 and NEW IN 2005  For the Years Ended December 31
 New in 2006
    
    New in 2005(dollars in thousands)
    
    2006
    
    2005
    
    2004
    
    2006
    
    2005
    
    2004Revenues:Rental income
    
    
    168
    
    
    
    
    
    
    
    
    
    
    
    12,956
    
    
    
    5,104
    
    
    
    Rental income  straight-line rent adjustments
    
    
    128
    
    
    
    
    
    
    
    
    
    
    
    2,478
    
    
    
    2,639
    
    
    
    Operating expense recoveries
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    3,916
    
    
    
    2,121
    
    
    
    Operating expense recoveries  hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    11
    
    
    
    Rental revenues  undeveloped land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1
    
    
    
    Other rental revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    3
    
    
    
    Total Realty Rental Revenues
    
    
    367
    
    
    
    
    
    
    
    
    
    
    
    19,388
    
    
    
    9,879
    
    
    
    Construction revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brokerage revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Land use revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental and Services Revenues
    
    
    367
    
    
    
    
    
    
    
    
    
    
    
    19,388
    
    
    
    9,879
    
    
    
    Realty sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Flagler Revenues
    
    
    367
    
    
    
    
    
    
    
    
    
    
    
    19,388
    
    
    
    9,879
    
    
    
    Expenses:Real estate taxes
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    1,968
    
    
    
    1,004
    
    
    
    Repairs & maintenance
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    385
    
    
    
    131
    
    
    
    Services, utilities, management costs
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    4,099
    
    
    
    2,039
    
    
    
    Recoverable expenses  hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    47
    
    
    
    Total recoverable expenses
    
    
    176
    
    
    
    
    
    
    
    
    
    
    
    6,527
    
    
    
    3,221
    
    
    
    Real estate taxes  undeveloped land
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26Repairs & maintenance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    23
    
    
    
    13Depreciation & amortization
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    7,616
    
    
    
    4,933
    
    
    
    130Salaries, general & administrative
    
    
    6
    
    
    
    9
    
    
    
    
    
    
    
    95
    
    
    
    23
    
    
    
    Non-recoverable expenses  hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    311
    
    
    
    
    
    
    
    Total non-recoverable expenses
    
    
    160
    
    
    
    (8
    )
    
    
    
    
    
    
    7,995
    
    
    
    4,979
    
    
    
    169Gain on involuntary conversion of assets 
hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental Expenses
    
    
    336
    
    
    
    (8
    )
    
    
    
    
    
    
    14,522
    
    
    
    8,200
    
    
    
    169Construction expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brokerage expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Land and overhead expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental and Services Expenses
    
    
    336
    
    
    
    (8
    )
    
    
    
    
    
    
    14,522
    
    
    
    8,200
    
    
    
    169Realty sales expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Flagler Expenses
    
    
    336
    
    
    
    (8
    )
    
    
    
    
    
    
    14,522
    
    
    
    8,200
    
    
    
    169Operating Profit (Loss)
    
    
    31
    
    
    
    8
    
    
    
    
    
    
    
    4,866
    
    
    
    1,679
    
    
    
    (169
    )
 (Prior year results have been reclassified to conform to current year presentation)
 New in 2006
 New in 2005
 40




---



##### Table of Contents



FLAGLER DEVELOPMENT  REALTY SERVICES and LAND & OVERHEAD  For the Years Ended December 31
 Realty Services
    
    
    Land & Overhead(dollars in thousands)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Revenues:Rental income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rental income  straight-line rent adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating expense recoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating expense recoveries  hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rental revenues  undeveloped land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other rental revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental Revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction revenues
    
    
    27,210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brokerage revenues
    
    
    9,691
    
    
    
    704
    
    
    
    148
    
    
    
    
    
    
    
    
    
    
    
    Property management
    
    
    4,375
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    1,870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Revenues
    
    
    43,146
    
    
    
    704
    
    
    
    148
    
    
    
    
    
    
    
    
    
    
    
    Land use revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    667
    
    
    
    795
    
    
    
    772Total Realty Rental and Services Revenues
    
    
    43,146
    
    
    
    704
    
    
    
    148
    
    
    
    667
    
    
    
    795
    
    
    
    772Realty sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,618
    
    
    
    24,820
    
    
    
    99,677Total Flagler Revenues
    
    
    43,146
    
    
    
    704
    
    
    
    148
    
    
    
    43,285
    
    
    
    25,615
    
    
    
    100,449Expenses:Real estate taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repairs & maintenance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Services, utilities, management costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recoverable expenses  hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total recoverable expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate taxes  undeveloped land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repairs & maintenance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation & amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Salaries, general & administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-recoverable expenses  hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-recoverable expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on involuntary conversion of assets 
hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction expenses
    
    
    27,265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brokerage expenses
    
    
    7,227
    
    
    
    481
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    Property management
    
    
    2,804
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    2,024
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Expenses
    
    
    39,320
    
    
    
    481
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    Land and overhead expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,951
    
    
    
    14,413
    
    
    
    13,448Total Realty Rental and Services Expenses
    
    
    39,320
    
    
    
    481
    
    
    
    85
    
    
    
    26,951
    
    
    
    14,413
    
    
    
    13,448Realty sales expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,126
    
    
    
    7,022
    
    
    
    14,871Total Flagler Expenses
    
    
    39,320
    
    
    
    481
    
    
    
    85
    
    
    
    58,077
    
    
    
    21,435
    
    
    
    28,319Operating Profit (Loss)
    
    
    3,826
    
    
    
    223
    
    
    
    63
    
    
    
    (14,792
    )
    
    
    4,180
    
    
    
    72,130
 (Prior year results have been reclassified to conform to current year presentation)
  Realty Services
 41




---



##### Table of Contents



Revenues from Continuing Operations  2006 versus 2005
      Revenues from Continuing Operations  2005 versus 2004
     42




---



##### Table of Contents



Expenses from Continuing Operations  2006 versus 2005
      Expenses from Continuing Operations  2005 versus 2004
   43




---



##### Table of Contents



Results from Discontinued Operations
   Years Ended December 31(dollars in thousands)
    
    2006
    
    
    2005
    
    
    2004Summary of Operating Results of Discontinued OperationsFlagler realty rental revenues
    
    
    
    
    
    
    
    
    
    
    718Flagler realty rental expenses
    
    
    
    
    
    
    
    
    
    
    545Operating income
    
    
    
    
    
    
    
    
    
    
    173Interest income
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    
    
    
    
    
    
    
    
    173Income taxes
    
    
    
    
    
    
    
    
    
    
    (67
    )Income from operation of discontinued operations
    
    
    
    
    
    
    
    
    
    
    106Gain on disposition of discontinued operations, net of
taxes of $1.7 million for the year ended December 31,
2004.
    
    
    
    
    
    
    
    
    
    
    2,590
  Corporate Expenses
   Interest Expense
  44




---



##### Table of Contents



Other Income
  Gain on Sale of Asset
  Income Tax
   Net Income
  45




---



##### Table of Contents



Summary of Operating Results  2006 versus 2005  Information by industry segment
 (dollars in thousands)
    
    2006
    
    2005
    
    $ ChangeOperating RevenuesRailway operations
    
    
    264,093
    
    
    
    237,870
    
    
    
    26,223Flagler:Realty rental revenues
    
    
    97,091
    
    
    
    85,508
    
    
    
    11,583CAM recoveries associated with hurricane costs
    
    
    337
    
    
    
    343
    
    
    
    (6
    )Total realty rental revenues
    
    
    97,428
    
    
    
    85,851
    
    
    
    11,577Realty services revenues
    
    
    43,146
    
    
    
    704
    
    
    
    42,442Land use revenues
    
    
    667
    
    
    
    795
    
    
    
    (128
    )Total Flagler realty rental and services revenues
    
    
    141,241
    
    
    
    87,350
    
    
    
    53,891Flagler realty sales
    
    
    42,618
    
    
    
    24,820
    
    
    
    17,798Railway realty rental revenues
    
    
    3,690
    
    
    
    3,488
    
    
    
    202Railway realty sales
    
    
    6,605
    
    
    
    8,818
    
    
    
    (2,213
    )Total realty
    
    
    194,154
    
    
    
    124,476
    
    
    
    69,678Total Revenues (segment)
    
    
    458,247
    
    
    
    362,346
    
    
    
    95,901Intersegment revenues
    
    
    (45
    )
    
    
    
    
    
    
    (45
    )Total Revenues (consolidated)
    
    
    458,202
    
    
    
    362,346
    
    
    
    95,856Operating ExpensesRailway operations:Railway operations
    
    
    190,946
    
    
    
    172,152
    
    
    
    18,794Hurricane recoveries, net of expenses
    
    
    (5,324
    )
    
    
    1,989
    
    
    
    (7,313
    )Total Railway
    
    
    185,622
    
    
    
    174,141
    
    
    
    11,481Flagler:Realty rental expenses
    
    
    66,496
    
    
    
    57,238
    
    
    
    9,258Hurricane recoveries, net of expenses
    
    
    (1,466
    )
    
    
    959
    
    
    
    (2,425
    )Total realty rental expenses
    
    
    65,030
    
    
    
    58,197
    
    
    
    6,833Realty services expenses
    
    
    39,320
    
    
    
    481
    
    
    
    38,839Land & overhead expenses
    
    
    26,951
    
    
    
    14,413
    
    
    
    12,538Total Flagler realty rental and services expenses
    
    
    131,301
    
    
    
    73,091
    
    
    
    58,210Flagler realty sales
    
    
    31,126
    
    
    
    7,022
    
    
    
    24,104Railway realty rental expenses
    
    
    1,456
    
    
    
    1,893
    
    
    
    (437
    )Hurricane recoveries, net of expenses
    
    
    (18
    )
    
    
    284
    
    
    
    (302
    )Total Railway realty rental expenses
    
    
    1,438
    
    
    
    2,177
    
    
    
    (739
    )Railway realty sales
    
    
    2,060
    
    
    
    1,264
    
    
    
    796Total realty
    
    
    165,925
    
    
    
    83,554
    
    
    
    82,371Corporate general & administrative
    
    
    16,259
    
    
    
    22,388
    
    
    
    (6,129
    )Total Expenses (segment)
    
    
    367,806
    
    
    
    280,083
    
    
    
    87,723Intersegment expenses
    
    
    (45
    )
    
    
    
    
    
    
    (45
    )Total Expenses (consolidated)
    
    
    367,761
    
    
    
    280,083
    
    
    
    87,678Operating Profit (Loss)Railway operations
    
    
    78,471
    
    
    
    63,729
    
    
    
    14,742Realty
    
    
    28,229
    
    
    
    40,922
    
    
    
    (12,693
    )Corporate general & administrative
    
    
    (16,259
    )
    
    
    (22,388
    )
    
    
    6,129Segment & consolidated operating profit
    
    
    90,441
    
    
    
    82,263
    
    
    
    8,178Loss from investment in unconsolidated joint ventures
    
    
    (970
    )
    
    
    
    
    
    
    (970
    )Minority interest
    
    
    81
    
    
    
    
    
    
    
    81Interest income
    
    
    1,565
    
    
    
    1,659
    
    
    
    (94
    )Interest expense
    
    
    (20,378
    )
    
    
    (20,105
    )
    
    
    (273
    )Gain on sale of assets
    
    
    4,787
    
    
    
    
    
    
    
    4,787Other income
    
    
    11,478
    
    
    
    14,555
    
    
    
    (3,077
    )(3,437
    )
    
    
    (3,891
    )
    
    
    454Income before income taxes
    
    
    87,004
    
    
    
    78,372
    
    
    
    8,632Provision from income taxes
    
    
    (29,598
    )
    
    
    (29,006
    )
    
    
    (592
    )Income from continuing operations
    
    
    57,406
    
    
    
    49,366
    
    
    
    8,040Discontinued OperationsGain on sale of discontinued
operations (net of taxes)
    
    
    5,713
    
    
    
    
    
    
    
    5,713Net income
    
    
    63,119
    
    
    
    49,366
    
    
    
    13,753
 (Prior year results have been reclassified to conform to current year presentation)
 46




---



##### Table of Contents



Summary of Operating Results  2005 versus 2004  Information by industry segment
 (dollars in thousands)
    
    2005
    
    2004
    
    $ ChangeOperating RevenuesRailway operations
    
    
    237,870
    
    
    
    200,762
    
    
    
    37,108Flagler:Realty rental revenues
    
    
    85,508
    
    
    
    68,572
    
    
    
    16,936CAM recoveries associated with hurricane costs
    
    
    343
    
    
    
    93
    
    
    
    250Total realty rental revenues
    
    
    85,851
    
    
    
    68,665
    
    
    
    17,186Realty services revenues
    
    
    704
    
    
    
    148
    
    
    
    556Land use revenues
    
    
    795
    
    
    
    772
    
    
    
    23Total Flagler realty rental and services revenues
    
    
    87,350
    
    
    
    69,585
    
    
    
    17,765Flagler realty sales
    
    
    24,820
    
    
    
    99,677
    
    
    
    (74,857
    )Railway realty rental revenues
    
    
    3,488
    
    
    
    3,028
    
    
    
    460Railway realty sales
    
    
    8,818
    
    
    
    5,135
    
    
    
    3,683Total realty
    
    
    124,476
    
    
    
    177,425
    
    
    
    (52,949
    )Total Revenues (segment)
    
    
    362,346
    
    
    
    378,187
    
    
    
    (15,841
    )Intersegment revenues
    
    
    
    
    
    
    
    
    
    
    Total Revenues (consolidated)
    
    
    362,346
    
    
    
    378,187
    
    
    
    (15,841
    )Operating ExpensesRailway operations:Railway operations
    
    
    172,152
    
    
    
    151,356
    
    
    
    20,796Hurricane recoveries, net of expenses
    
    
    1,989
    
    
    
    2,080
    
    
    
    (91
    )Total Railway
    
    
    174,141
    
    
    
    153,436
    
    
    
    20,705Flagler:Realty rental expenses
    
    
    57,238
    
    
    
    46,938
    
    
    
    10,300Hurricane recoveries, net of expenses
    
    
    959
    
    
    
    109
    
    
    
    850Total realty rental expenses
    
    
    58,197
    
    
    
    47,047
    
    
    
    11,150Realty services expenses
    
    
    481
    
    
    
    85
    
    
    
    396Land & overhead expenses
    
    
    14,413
    
    
    
    13,448
    
    
    
    965Total Flagler realty rental and services expenses
    
    
    73,091
    
    
    
    60,580
    
    
    
    12,511Flagler realty sales
    
    
    7,022
    
    
    
    14,871
    
    
    
    (7,849
    )Railway realty rental expenses
    
    
    1,893
    
    
    
    2,887
    
    
    
    (994
    )Hurricane recoveries, net of expenses
    
    
    284
    
    
    
    179
    
    
    
    105Total Railway realty rental expenses
    
    
    2,177
    
    
    
    3,066
    
    
    
    (889
    )Railway realty sales
    
    
    1,264
    
    
    
    922
    
    
    
    342Total realty
    
    
    83,554
    
    
    
    79,439
    
    
    
    4,115Corporate general & administrative
    
    
    22,388
    
    
    
    15,080
    
    
    
    7,308Total Expenses (segment)
    
    
    280,083
    
    
    
    247,955
    
    
    
    32,128Intersegment expenses
    
    
    
    
    
    
    
    
    
    
    Total Expenses (consolidated)
    
    
    280,083
    
    
    
    247,955
    
    
    
    32,128Operating Profit (Loss)Railway operations
    
    
    63,729
    
    
    
    47,326
    
    
    
    16,403Realty
    
    
    40,922
    
    
    
    97,986
    
    
    
    (57,064
    )Corporate general & administrative
    
    
    (22,388
    )
    
    
    (15,080
    )
    
    
    (7,308
    )Segment & consolidated operating profit
    
    
    82,263
    
    
    
    130,232
    
    
    
    (47,969
    )Loss from investment in unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    
    
    
    
    
    
    
    
    Interest income
    
    
    1,659
    
    
    
    1,124
    
    
    
    535Interest expense
    
    
    (20,105
    )
    
    
    (16,671
    )
    
    
    (3,434
    )Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    Other income
    
    
    14,555
    
    
    
    13,023
    
    
    
    1,532(3,891
    )
    
    
    (2,524
    )
    
    
    (1,367
    )Income before income taxes
    
    
    78,372
    
    
    
    127,708
    
    
    
    (49,336
    )Provision from income taxes
    
    
    (29,006
    )
    
    
    (49,806
    )
    
    
    20,800Income from continuing operations
    
    
    49,366
    
    
    
    77,902
    
    
    
    (28,536
    )Discontinued OperationsGain on sale of discontinued
operations (net of taxes)
    
    
    
    
    
    
    2,696
    
    
    
    (2,696
    )Net income
    
    
    49,366
    
    
    
    80,598
    
    
    
    (31,232
    )
 (Prior year results have been reclassified to conform to current year presentation)
 47




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##### Table of Contents



OTHER MATTERS
 Critical Accounting Policies
  Allocation of Acquisition Costs
   Principles of Consolidation
 Emerging Issues Task Force Abstracts Determining Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights
  Impairment of Long-lived Assets
 48




---



##### Table of Contents



Income Tax Provisions
   Revenue Recognition
 Realty Rental Revenues
 Realty Sales
 Construction Contracts
  49




---



##### Table of Contents



Railway Revenues
 Real Estate Infrastructure Costs
   Cost Capitalization
  Contingencies
 50




---



##### Table of Contents



Trading Activities that Include Non-Exchange Traded Contracts Accounted for at Fair Value
  Effects of Transactions with Related and Certain Other Parties
  Environmental Liabilities
     New Accounting Pronouncements
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    51




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##### Table of Contents



Expected Maturity Date  (dollars in thousands)
 12/31/06Liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FairLong-Term Debt:
    
    2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    Thereafter
    
    Total
    
    ValueFixed Rate ($US)Ten Year Notes
    
    
    2,246
    
    
    
    2,418
    
    
    
    2,603
    
    
    
    2,802
    
    
    
    140,265
    
    
    
    
    
    
    
    150,334
    
    
    
    160,242Seven Year Notes
    
    
    2,225
    
    
    
    81,370
    
    
    
    1,054
    
    
    
    1,111
    
    
    
    53,925
    
    
    
    
    
    
    
    139,685
    
    
    
    140,342Average Interest Rate
    
    
    6.84
    %
    
    
    6.83
    %
    
    
    6.80
    %
    
    
    6.80
    %
    
    
    6.80
    %Variable Rate ($US)Seven Year Notes
    
    
    1,048
    
    
    
    1,076
    
    
    
    1,106
    
    
    
    1,136
    
    
    
    38,378
    
    
    
    
    
    
    
    42,744
    
    
    
    42,744Average Interest Rate
    
    
    6.29
    %
    
    
    6.01
    %
    
    
    5.99
    %
    
    
    6.12
    %
    
    
    6.21
    %
  52




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
       
 53




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##### Table of Contents



CONSOLIDATED STATEMENTS OF INCOME  Years Ended December 31, 2006, 2005, and 2004
 Years Ended December 31(dollars in thousands)
    
    2006
    
    2005
    
    2004Operating revenues:Railway operations
    
    
    264,093
    
    
    
    237,870
    
    
    
    200,762Realty rental and services
    
    
    144,594
    
    
    
    90,495
    
    
    
    72,520Flagler CAM recoveries associated with hurricane costs (Note 4)
    
    
    337
    
    
    
    343
    
    
    
    93Total realty rental and services
    
    
    144,931
    
    
    
    90,838
    
    
    
    72,613Realty sales
    
    
    49,223
    
    
    
    33,638
    
    
    
    104,812Total revenues (segment)
    
    
    458,247
    
    
    
    362,346
    
    
    
    378,187Intersegment
    
    
    (45
    )
    
    
    
    
    
    
    Total revenues
    
    
    458,202
    
    
    
    362,346
    
    
    
    378,187Operating expenses:Railway operations
    
    
    190,946
    
    
    
    172,152
    
    
    
    151,356Hurricane costs (net of recoveries) (Note 4)
    
    
    (5,324
    )
    
    
    1,989
    
    
    
    2,080Total railway operations
    
    
    185,622
    
    
    
    174,141
    
    
    
    153,436Realty rental and services
    
    
    134,223
    
    
    
    74,025
    
    
    
    63,358Hurricane costs (net of recoveries) (Note 4)
    
    
    (1,484
    )
    
    
    1,243
    
    
    
    288Total realty rental and services
    
    
    132,739
    
    
    
    75,268
    
    
    
    63,646Realty sales
    
    
    33,186
    
    
    
    8,286
    
    
    
    15,793Corporate general & administrative
    
    
    16,259
    
    
    
    22,388
    
    
    
    15,080Total expenses (segment)
    
    
    367,806
    
    
    
    280,083
    
    
    
    247,955Intersegment
    
    
    (45
    )
    
    
    
    
    
    
    Total expenses
    
    
    367,761
    
    
    
    280,083
    
    
    
    247,955Operating profit
    
    
    90,441
    
    
    
    82,263
    
    
    
    130,232Loss from investment in unconsolidated joint ventures (Note 6)
    
    
    (970
    )
    
    
    
    
    
    
    Minority interest
    
    
    81
    
    
    
    
    
    
    
    Interest income
    
    
    1,565
    
    
    
    1,659
    
    
    
    1,124Interest expense
    
    
    (20,378
    )
    
    
    (20,105
    )
    
    
    (16,671
    )Gain on sale of asset
    
    
    4,787
    
    
    
    
    
    
    
    Other income (Note 16)
    
    
    11,478
    
    
    
    14,555
    
    
    
    13,023(3,437
    )
    
    
    (3,891
    )
    
    
    (2,524
    )Income before income taxes
    
    
    87,004
    
    
    
    78,372
    
    
    
    127,708Provision for income taxes (Note 9)
    
    
    (29,598
    )
    
    
    (29,006
    )
    
    
    (49,806
    )Income from continuing operations
    
    
    57,406
    
    
    
    49,366
    
    
    
    77,902Discontinued Operations(Note 5)Earnings
from discontinued operations
    
    
    5,713
    
    
    
    
    
    
    
    2,696Net income
    
    
    63,119
    
    
    
    49,366
    
    
    
    80,598Cash Dividends Per Share
    
    $
    0.27
    
    
    $
    0.23
    
    
    $
    0.19Earnings Per ShareIncome from continuing operations  basic
    
    $
    1.67
    
    
    $
    1.53
    
    
    $
    2.25Income from continuing operations  diluted
    
    $
    1.66
    
    
    $
    1.52
    
    
    $
    2.21Gain on disposition of discontinued operations  basic & diluted
    
    $
    0.17
    
    
    
    
    
    
    $
    0.08Net income  basic
    
    $
    1.84
    
    
    $
    1.53
    
    
    $
    2.33Net income  diluted
    
    $
    1.83
    
    
    $
    1.52
    
    
    $
    2.29Average shares outstanding  basic
    
    
    34,380,070
    
    
    
    32,280,614
    
    
    
    34,529,869Average shares outstanding  diluted
    
    
    34,532,570
    
    
    
    32,583,528
    
    
    
    35,216,957
 (Prior year results have been reclassified to conform to current year presentation)
 54




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS  Years Ended December 31, 2006 and 2005
 Years Ended December 31(dollars in thousands)
    
    2006
    
    2005AssetsCurrent Assets:Cash and cash equivalents (Note 8)
    
    
    5,096
    
    
    
    75,990Restricted cash (Note 8)
    
    
    424
    
    
    
    Accounts receivable (net)
    
    
    41,501
    
    
    
    35,732Accounts receivable from related parties (Note 3)
    
    
    5,381
    
    
    
    Materials and supplies
    
    
    5,145
    
    
    
    3,840Assets held for sale (Note 7)
    
    
    2,820
    
    
    
    9,761Deferred income taxes
    
    
    2,166
    
    
    
    1,345Prepaid expenses
    
    
    11,578
    
    
    
    6,727Straight line rent
    
    
    4,929
    
    
    
    4,429Total Current Assets
    
    
    79,040
    
    
    
    137,824Long Term Assets:Properties, less accumulated depreciation and amortization (Note 7)
    
    
    1,179,641
    
    
    
    955,395Investment in unconsolidated real estate joint ventures (Note 6)
    
    
    42,262
    
    
    
    Goodwill (Note 4)
    
    
    37,003
    
    
    
    Intangible assets, less amortization (Note 4)
    
    
    18,448
    
    
    
    9,696Prepaid commissions
    
    
    14,033
    
    
    
    11,486Straight line rent
    
    
    19,715
    
    
    
    17,717Other assets
    
    
    4,684
    
    
    
    5,626Total Long Term Assets
    
    
    1,315,786
    
    
    
    999,920Total Assets
    
    
    1,394,826
    
    
    
    1,137,744Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable and accrued expenses
    
    
    73,794
    
    
    
    48,544Taxes payable (Note 9)
    
    
    2,037
    
    
    
    2,044Deferred revenue
    
    
    10,215
    
    
    
    5,527Short-term debt (Note 17)
    
    
    5,519
    
    
    
    5,198Other accrued liabilities
    
    
    14,586
    
    
    
    6,819Total Current Liabilities
    
    
    106,151
    
    
    
    68,132Deferred Income Taxes(Note 9)
    
    
    205,365
    
    
    
    187,241Long-Term Debt (net of current portion)(Note 17)
    
    
    328,638
    
    
    
    332,760Other Long-Term Liabilities
    
    
    35,865
    
    
    
    11,449Minority Interest in Joint Ventures(Note 6)
    
    
    5,571
    
    
    
    Shareholders EquityCommon Stock: (Notes 3 and 13)
    
    
    175,433
    
    
    
    140,958Common stock, no par value; 150,000,000 shares authorized,
39,944,902 shares issued and 35,717,854 shares outstanding at
December 31, 2006 and 39,487,258 shares issued and 32,983,135
shares outstanding at December 31, 2005. 2006 amount shown net
of un-amortized (expected weighted-average amortization period
of 3.2 years) restricted stock deferred compensation of $21,355.Restricted stock deferred compensation (Note 13)
    
    
    
    
    
    
    (10,860
    )Retained
earnings (Note 14)
    
    
    672,826
    
    
    
    615,656Treasury stock at cost (4,227,048 shares at December 31, 2006 and
6,504,123 shares at December 31, 2005. December 31, 2006 treasury
stock includes 1,012,766 contingent shares) (Note 2)
    
    
    (135,023
    )
    
    
    (207,592
    )Total Shareholders Equity
    
    
    713,236
    
    
    
    538,162Total Liabilities and Shareholders Equity
    
    
    1,394,826
    
    
    
    1,137,744
 (Prior year amounts have been reclassified to conform to current year presentation)
 55




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY  AND COMPREHENSIVE INCOME  (dollars in thousands, except share amounts)
 RESTRICTEDSTOCKCOMMON STOCK
    
    DEFERRED
    
    TREASURY STOCK
    
    RETAINEDSHARES
    
    AMOUNT
    
    COMPENSATION
    
    SHARES
    
    AMOUNT
    
    EARNINGS
    
    TOTALBalance at December 31,
2003
    
    
    37,701,406
    
    
    
    77,784
    
    
    
    (4,592
    )
    
    
    (984,002
    )
    
    
    (14,767
    )
    
    
    499,708
    
    
    
    558,133Net income &
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,598
    
    
    
    80,598Sale of common stock
(ESPP)
    
    
    5,569
    
    
    
    163
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163Dividends declared on
common stock ($0.19)
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,498
    )
    
    
    (6,498
    )Issuance of stock under
executive compensation
plan
    
    
    36,407
    
    
    
    1,276
    
    
    
    
    
    
    
    (59,769
    )
    
    
    (2,296
    )
    
    
    
    
    
    
    (1,020
    )Trust Shares repurchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,500,000
    )
    
    
    (191,126
    )
    
    
    
    
    
    
    (191,126
    )Exercise of stock
options including
income tax benefit
    
    
    708,975
    
    
    
    23,026
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,026Restricted stock
purchased/granted, net
of amortization &
forfeitures
    
    
    101,138
    
    
    
    3,715
    
    
    
    (1,956
    )
    
    
    (2,756
    )
    
    
    (109
    )
    
    
    
    
    
    
    1,650Balance at December 31,
2004
    
    
    38,553,495
    
    
    
    105,964
    
    
    
    (6,548
    )
    
    
    (6,546,527
    )
    
    
    (208,298
    )
    
    
    573,808
    
    
    
    464,926Net income &
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,366
    
    
    
    49,366Sale of common stock
(ESPP)
    
    
    6,399
    
    
    
    228
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    228Dividends declared on
common stock ($0.23)
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,518
    )
    
    
    (7,518
    )Issuance of stock under
executive compensation
plan
    
    
    22,106
    
    
    
    2,720
    
    
    
    
    
    
    
    105,500
    
    
    
    3,357
    
    
    
    
    
    
    
    6,077Shares purchased under
stock repurchase
program
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54,500
    )
    
    
    (2,289
    )
    
    
    
    
    
    
    (2,289
    )Exercise of stock
options including
income tax benefit
    
    
    766,714
    
    
    
    26,855
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,855Restricted stock
granted/purchased, net
of amortization &
forfeitures
    
    
    138,544
    
    
    
    5,191
    
    
    
    (4,312
    )
    
    
    (8,596
    )
    
    
    (362
    )
    
    
    
    
    
    
    517Balance at December 31,
2005
    
    
    39,487,258
    
    
    
    140,958
    
    
    
    (10,860
    )
    
    
    (6,504,123
    )
    
    
    (207,592
    )
    
    
    615,656
    
    
    
    538,162Cumulative effect of
adjustments resulting
from the adoption of
SAB No. 108, net of tax (Note 14)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,540
    
    
    
    3,540Adjusted Balance at
December 31, 2005
    
    
    39,487,258
    
    
    
    140,958
    
    
    
    (10,860
    )
    
    
    (6,504,123
    )
    
    
    (207,592
    )
    
    
    619,196
    
    
    
    541,702Net income &
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,119
    
    
    
    63,119Reclassification of
restricted stock
deferred compensation
due to FAS 123R
implementation (Note 13)
    
    
    
    
    
    
    (10,860
    )
    
    
    10,860
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sale of common stock
(ESPP)
    
    
    9,581
    
    
    
    469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    469Dividends declared on
common stock ($0.27)
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,489
    )
    
    
    (9,489
    )Issuance of stock under
executive compensation
plan
    
    
    1,686
    
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95Shares issued for
Codina acquisition
including contingent
shares
    
    
    
    
    
    
    34,515
    
    
    
    
    
    
    
    1,999,924
    
    
    
    57,290
    
    
    
    
    
    
    
    91,805Exercise of stock
options including
income tax benefit and
amortization
    
    
    340,825
    
    
    
    13,340
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,340Restricted stock
granted/purchased, net
of amortization &
forfeitures
    
    
    105,552
    
    
    
    (3,084
    )
    
    
    
    
    
    
    277,151
    
    
    
    15,279
    
    
    
    
    
    
    
    12,195Balance at December 31,
2006
    
    
    39,944,902
    
    
    
    175,433
    
    
    
    
    
    
    
    (4,227,048
    )
    
    
    (135,023
    )
    
    
    672,826
    
    
    
    713,236
 (Prior year amounts have been reclassified to conform to current year presentation)
 56




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS  Years Ended December 31, 2006, 2005 and 2004
 Years Ended December 31(dollars in thousands)
    
    2006
    
    2005
    
    2004Cash Flows from Operating ActivitiesNet income
    
    
    63,119
    
    
    
    49,366
    
    
    
    80,598Adjustments to reconcile net income to cash generated by
operating activities:Depreciation and amortization
    
    
    59,658
    
    
    
    55,477
    
    
    
    48,769Gain on involuntary conversion, due to Hurricane Wilma
    
    
    (1,913
    )
    
    
    
    
    
    
    Gain on disposition of properties, including those discontinued
    
    
    (30,113
    )
    
    
    (25,351
    )
    
    
    (93,265
    )Tax benefit associated with equity based compensation
    
    
    
    
    
    
    5,261
    
    
    
    4,056Deferred taxes
    
    
    8,019
    
    
    
    7,438
    
    
    
    48,052Stock compensation expense (Note 13)
    
    
    12,667
    
    
    
    9,900
    
    
    
    4,819Changes in operating assets and liabilities:Accounts receivable
    
    
    2,276
    
    
    
    (3,297
    )
    
    
    (8,836
    )Prepaid expenses
    
    
    (5,748
    )
    
    
    (2,012
    )
    
    
    206Materials and supplies
    
    
    (1,305
    )
    
    
    (2,018
    )
    
    
    (219
    )Straight line rent
    
    
    (2,498
    )
    
    
    (6,488
    )
    
    
    (5,604
    )Prepaid commissions
    
    
    (7,307
    )
    
    
    (5,448
    )
    
    
    (1,172
    )Other assets and deferred charges
    
    
    2,877
    
    
    
    (201
    )
    
    
    (8,224
    )Accounts payable
    
    
    (1,700
    )
    
    
    1,194
    
    
    
    17,356Taxes payable
    
    
    (2,246
    )
    
    
    2,201
    
    
    
    (8,335
    )Income tax refund
    
    
    
    
    
    
    2,800
    
    
    
    Other current liabilities
    
    
    11,207
    
    
    
    (2,915
    )
    
    
    (7,494
    )Other long-term liabilities
    
    
    (402
    )
    
    
    (1,013
    )
    
    
    1,548Net cash generated by operating activities
    
    
    106,591
    
    
    
    84,894
    
    
    
    72,255Cash Flows from Investing ActivitiesPurchases of properties and equipment, net of accrued capital
expenditures of $8,576 in 2006
    
    
    (144,329
    )
    
    
    (174,752
    )
    
    
    (111,551
    )Acquisition of Codina Group Inc. and related interests, net of
cash acquired
    
    
    (65,844
    )
    
    
    
    
    
    
    Investment in unconsolidated real estate joint ventures
    
    
    (14,403
    )
    
    
    
    
    
    
    Distributions from unconsolidated joint ventures
    
    
    2,840
    
    
    
    
    
    
    
    Decrease in restricted cash
    
    
    1,382
    
    
    
    
    
    
    
    Proceeds from hurricane related insurance settlement
    
    
    3,343
    
    
    
    
    
    
    
    Proceeds from disposition of assets, including those
discontinued
    
    
    71,271
    
    
    
    35,202
    
    
    
    121,537Net cash (used in)/provided by investing activities
    
    
    (145,740
    )
    
    
    (139,550
    )
    
    
    9,986Cash Flows from Financing ActivitiesBorrowings from long term debt (Note 17)
    
    
    389
    
    
    
    
    
    
    
    105,000Payment of mortgage debt
    
    
    (5,199
    )
    
    
    (4,896
    )
    
    
    (3,289
    )Payment of acquired debt
    
    
    (30,117
    )
    
    
    
    
    
    
    Payment of dividends
    
    
    (9,489
    )
    
    
    (7,518
    )
    
    
    (6,498
    )Proceeds from exercise of options
    
    
    10,550
    
    
    
    21,594
    
    
    
    16,674Tax benefit associated with equity based compensation
    
    
    3,213
    
    
    
    
    
    
    
    Stock repurchase program payments (Note 17)
    
    
    
    
    
    
    (2,289
    )
    
    
    (191,126
    )Purchase of common stock
    
    
    (2,447
    )
    
    
    (2,411
    )
    
    
    (1,893
    )Investment by minority interest
    
    
    1,355
    
    
    
    
    
    
    
    Net cash (used in)/provided by financing activities
    
    
    (31,745
    )
    
    
    4,480
    
    
    
    (81,132
    )Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (70,894
    )
    
    
    (50,176
    )
    
    
    1,109Cash and Cash Equivalents at Beginning of Period
    
    
    75,990
    
    
    
    126,166
    
    
    
    125,057Cash and Cash Equivalents at End of Period
    
    
    5,096
    
    
    
    75,990
    
    
    
    126,166Supplemental Disclosure of Cash Flow InformationCash paid for income taxes (net of refunds)
    
    
    22,719
    
    
    
    11,500
    
    
    
    4,700Cash paid for interest
    
    
    22,825
    
    
    
    22,320
    
    
    
    19,252
 (Prior year results have been reclassified to conform to current year presentation)
 57




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##### Table of Contents



Supplemental Schedule on Non-Cash Investing and Financing Activities
  (dollars in thousands)Fair value of assets acquired
    
    
    246,193Acquisition transaction costs
    
    
    5,656Equity issued for initial consideration
    
    
    (76,412
    )Cash paid for acquired Company (1)
    
    
    (71,501
    )Liabilities assumed
    
    
    103,936
 
 (1)
    
    Reconciliation to Statements of Cash Flows Cash paid for acquired Company
    
    
    71,501Less cash acquired
    
    
    (4,125
    )Less transaction costs paid in 2005
    
    
    (1,532
    )Acquisition of Codina Group, Inc. per Statements of Cash Flows
    
    
    65,844
 58




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Notes to Consolidated Financial Statements  Years Ended December 31, 2006, 2005 and 2004
 Note 1. Nature of Business
  Note 2. Acquisition of Codina Group and Related Interests
    100% Owned
 §
    
    Beacon Countyline, 497 acres in Hialeah; future plans are for the creation of a large
industrial and office park.§
    
    Beacon Commons, 92 acres in Doral, future site of a retail, office and residential development.§
    
    Sevilla Office Building, a 45,000 sq. ft. office building currently under construction.
 Joint Ventures
 §
    
    Beacon Lakes, a 480-acre industrial park, including five industrial buildings and entitlements for
an additional 6.0 million sq. ft. in West Dade. The Company owns a 21.2% interest in a venture
with an affiliate of AMB Properties that owns the Beacon Lakes development, except for the 57 acres
described herein. Within the Beacon Lakes development is included a 120-unit warehouse condominium
project on 57 acres known as Beacon Village. Beacon Village is owned by Beacon Village, LLC, which
is owned 50% by the Company and 50% by an affiliate of AMB Properties.
 59




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##### Table of Contents



§
    
    Red Road Commons, a proposed 50% interest in a venture with an affiliate of Fairfield
Properties, Inc. to build 407-unit residential apartments on land to be leased in South
Miami.§
    
    Downtown Doral (formerly Beacon City Center), a venture with an affiliate of JPMorgan that
holds an exclusive option to acquire and redevelop a 77-acre property in Doral for
residential and commercial uses.§
    
    Burger King, which when acquired, was a proposed 30% interest in a venture with an
affiliate of JPMorgan to acquire land and construct a 15-story, 248,000 sq. ft. building for
Burger Kings corporate headquarters. JPMorgan and the Company entered into the venture
agreement in January 2007.
  Purchase Price Allocations
 (dollars in thousands)
    
    April 27, 2006Cash
    
    
    4,125Other current assets
    
    
    16,576Property and equipment, net
    
    
    161,116Goodwill
    
    
    21,784Intangible assets
    
    
    11,600Investments in joint ventures
    
    
    30,699Other assets
    
    
    293Assets acquired
    
    
    246,193Current liabilities
    
    
    25,731Acquired debt
    
    
    30,117Other long-term debt
    
    
    1,009Deferred tax liabilities
    
    
    18,663Other liabilities
    
    
    24,200Minority interest
    
    
    4,216Liabilities assumed
    
    
    103,936Net assets acquired
    
    
    142,257
    Pro Forma Financial Information
 Years Ended December 31(dollars in thousands, except per share amounts)
    
    2006
    
    2005Revenue
    
    
    482,124
    
    
    
    435,053Net income
    
    
    61,802
    
    
    
    43,218Earnings per share:Basic
    
    $
    1.80
    
    
    $
    1.27Diluted
    
    $
    1.79
    
    
    $
    1.26
 60




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Note 3. Related Party Transactions
    Note 4. Summary of Significant Accounting Policies
 Principles of Consolidation
  Emerging Issues Task Force Abstracts Determining Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights
 Revenue Recognition
 Railway Revenues
 Realty Land Sales
 Realty Rental Income
 Construction Contracts
 61




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##### Table of Contents



Allowance for Doubtful Accounts
  Materials and Supplies
  Properties
        62




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##### Table of Contents



Earnings Per Share
     Cash, Cash Equivalents and Restricted Cash
    Income Taxes
  Real Estate Infrastructure Costs
   63




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##### Table of Contents



Use of Estimates
  Natural Disaster Costs
     64




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##### Table of Contents



2005 and 2006 HURRICANE COST AND RECOVERY SUMMARY
 TotalEstimated
    
    Cost (Recovery)
    
    Cost (Recovery)Cost and
    
    recognized
    
    recognized(dollars in thousands)
    
    (Recovery)
    
    in 2006
    
    since inceptionRailwayOperating expenses (Hurricane Costs)
    
    
    3,696
    
    
    
    990
    
    
    
    3,596Hurricane recoveries (net) (1)
    
    
    (997
    )
    
    
    (380
    )
    
    
    (997
    )Insurance recovery  Physical damage and extra expenses
    
    
    (2,302
    )
    
    
    (2,202
    )
    
    
    (2,202
    )Utility service interruption insurance settlement
    
    
    (3,732
    )
    
    
    (3,732
    )
    
    
    (3,732
    )Hurricane recoveries, net of expenses
    
    
    (3,335
    )
    
    
    (5,324
    )
    
    
    (3,335
    )Railway Realty RentalOperating expenses (Hurricane Costs)
    
    
    461
    
    
    
    177
    
    
    
    461Insurance recovery  Physical damage
    
    
    (195
    )
    
    
    (195
    )
    
    
    (195
    )Hurricane recoveries, net of expenses
    
    
    266
    
    
    
    (18
    )
    
    
    266FlaglerFlagler CAM recoveries associated with Hurricane
    
    
    (680
    )
    
    
    (337
    )
    
    
    (680
    )Capital expenditures (Properties)
    
    
    6,060
    
    
    
    5,781
    
    
    
    6,060Operating expenses (Hurricane Costs)
    
    
    1,418
    
    
    
    646
    
    
    
    1,418Asset write-off due to replacement (2)
    
    
    1,937
    
    
    
    1,750
    
    
    
    1,937Insurance proceeds
    
    
    (3,862
    )
    
    
    (3,862
    )
    
    
    (3,862
    )Hurricane recoveries, net of expenses
    
    
    (507
    )
    
    
    (1,466
    )
    
    
    (507
    )
 
 (1)
    
    Hurricane recoveries (net) represent amounts recovered from various municipalities located along the
Railways right-of-way and other governmental authorities for reimbursement for operation of rail crossings during the
outage and for related repairs of those crossings.(2)
    
    Represents assets (primarily roofs) most of which have been replaced during 2006 and their
related write-off of remaining net book value.
 Allocation of Acquisition Costs
   Joint Ventures
 Emerging
Issues Task Force Abstracts Determining Whether a General Partner, or the
General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights
 65




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Impairment of Long-lived Assets
   Cost Capitalization
   Contingencies
  Stock-Based Compensation
  66




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##### Table of Contents



Years Ended December 31(dollars in thousands, except per share amounts)
    
    2006
    
    2005
    
    2004Net income  as reported
    
    
    63,119
    
    
    
    49,366
    
    
    
    80,598Stock-based compensation expense included in
reported income for all stock option awards (net of
related tax effects)
    
    
    22
    
    
    
    
    
    
    
    Deduct: Total stock-based employee compensation
expense determined under the fair value based method
for all stock option awards (net of related tax
effects)
    
    
    (22
    )
    
    
    (342
    )
    
    
    (785
    )Pro forma net income
    
    
    63,119
    
    
    
    49,024
    
    
    
    79,813Earnings per share:Basic  as reported
    
    $
    1.84
    
    
    $
    1.53
    
    
    $
    2.33Basic  pro forma
    
    $
    1.84
    
    
    $
    1.52
    
    
    $
    2.31Diluted  as reported
    
    $
    1.83
    
    
    $
    1.52
    
    
    $
    2.29Diluted  pro forma
    
    $
    1.83
    
    
    $
    1.50
    
    
    $
    2.27
  Comprehensive Income
  Reclassification
  Recently Issued Accounting Standards
   67




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Note 5. Discontinued Operations
   Years Ended December 31(dollars in thousands)
    
    2006
    
    2005
    
    2004Summary of Flaglers Operating Results of
Discontinued OperationsFlagler realty rental revenues
    
    
    
    
    
    
    
    
    
    
    718Flagler realty rental expenses
    
    
    
    
    
    
    
    
    
    
    545Operating income
    
    
    
    
    
    
    
    
    
    
    173Interest income
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    
    
    
    
    
    
    
    
    173Income taxes
    
    
    
    
    
    
    
    
    
    
    (67
    )Income from operation of discontinued operations
    
    
    
    
    
    
    
    
    
    
    106Gain on disposition of discontinued operations,
net of taxes of $1.7 million for the year ended
December 31, 2004.
    
    
    
    
    
    
    
    
    
    
    2,590
  Note 6. Investments in Joint Ventures
 Emerging
Issues Task Force Abstracts Determining Whether a General Partner, or the
General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights
 Investments in Consolidated Joint Ventures
 §
    
    Downtown Doral (CM Doral Development Company LLC)  A venture with an affiliate of
JPMorgan that holds an exclusive option to acquire and redevelop a 77-acre property in Doral
for residential and commercial uses. The Company has an interest in a partnership (Codina
Doral Ltd) with Armando Codina and his children, which holds a 50.1% interest in this
venture.
  Investments in Unconsolidated Joint Ventures
 §
    
    Beacon Lakes, a 480-acre industrial park, including five industrial buildings and
entitlements for an additional 6.0 million sq. ft. in West Dade. AMB Codina Beacon Lakes,
LLC owns the Beacon Lakes development, except for the 57 acres described herein. AMB Codina
Beacon Lakes LLC is owned 21.2% by the Company and 78.8% by
 68




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##### Table of Contents



an affiliate of AMB Properties. Within the Beacon Lakes development is included a 120-unit
warehouse condominium project on 57 acres. Beacon Village is owned by Beacon Village LLC,
which is owned 50% by the Company and 50% by an affiliate of AMB Properties. During 2006, 2.5
acres of land was sold by Beacon Lakes. Additionally, both partners sold their interest in
Building 10, a 192,476 sq. ft. building, to an affiliate of AMB Properties. The Companys
investment in this joint venture at December 31, 2006 was $32.5 million.Portions of the infrastructure within the project are owned by Beacon Lakes Community
Development District (CDD). The CDD, a local government district operating in accordance with
Chapter 190 of the Florida Statutes, purchased these infrastructure assets by issuing
tax-exempt bonds. The bonds are serviced by special assessment taxes levied on property
within the park. The infrastructure is collateral for the obligations and such assessments,
with AMB Codina Beacon Lakes LLC paying the assessments on the parcels owned by the
partnership until such parcels are sold. At such point, the liability for the assessments
related to parcels sold becomes the responsibility of the purchasers through a tax assessment
on their property. The bond liability of the CDD at December 31, 2006 is $53.6 million and is
not included in the chart below.§
    
    Flagler Corporate Center (Boca 54 Land Associates LLC)  On May 31, 2006, the Company
entered into and owns a 20% interest in a venture with an affiliate of TIAA  CREF that owns
a 54-acre land parcel with entitlements for 941,000 sq. ft. of office space located in the
City of Boca Raton. On November 20, 2006, Flagler announced a build-to-suit transaction to
develop Office Depots new 624,000 square foot global headquarters. The headquarters complex
will be on 29 acres. The Companys investment in this joint venture at December 31, 2006 was
$9.8 million.
  (dollars in thousands)
    
    December 31,(Unaudited)
    
    2006Assets:Real estate, net
    
    
    120,395Other assets
    
    
    17,588Total assets
    
    
    137,983Liabilities and partners equity:Mortgage notes payable
    
    
    30,967Other liabilities
    
    
    7,500Partners equity
    
    
    99,516Total liabilities and partners equity
    
    
    137,983
  Period Ended(dollars in thousands)
    
    December 31,(Unaudited)
    
    2006Rental income
    
    
    1,674Gain on sale
    
    
    1,270Total revenue
    
    
    2,944Operating and other expenses
    
    
    478Interest expense, net
    
    
    695Depreciation expense
    
    
    300Total expense
    
    
    1,473Net income
    
    
    1,471
 69




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Note 7. Properties
  Years Ended December 31,(dollars in thousands)
    
    2006
    
    2005FECR Properties(1)Road equipment and structures
    
    
    472,279
    
    
    
    442,954Buildings
    
    
    2,680
    
    
    
    13,234Equipment
    
    
    201,066
    
    
    
    203,188Land and land improvements
    
    
    22,279
    
    
    
    12,562Fiber
    
    
    3,200
    
    
    
    3,200Construction in progress
    
    
    3,268
    
    
    
    7,018704,772
    
    
    
    682,156Less accumulated depreciation
    
    
    276,731
    
    
    
    279,121428,041
    
    
    
    403,035Flagler(1)Land and land improvements
    
    
    371,523
    
    
    
    240,149Buildings
    
    
    506,335
    
    
    
    469,833Equipment
    
    
    7,322
    
    
    
    3,193Construction in progress
    
    
    66,648
    
    
    
    13,039951,828
    
    
    
    726,214Less accumulated depreciation
    
    
    199,797
    
    
    
    168,242752,031
    
    
    
    557,972CorporateEquipment
    
    
    15,399
    
    
    
    15,077Construction in progress
    
    
    136
    
    
    
    1,57015,535
    
    
    
    16,647Less accumulated depreciation
    
    
    13,146
    
    
    
    12,4982,389
    
    
    
    4,149
 
 (1)
    
    Included in the December 31, 2006 and 2005
amounts, respectively, are $0.1 million and $0.8 million of FECR
properties and $2.7 million and $9.0 million of Flagler properties,
respectively, for land that is held for
sale.
  Note 8. Investments and Cash and Cash Equivalents
    70




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Note 9. Income Taxes
  Years Ended December 31(dollars in thousands)
    
    2006
    
    2005
    
    2004Income from continuing operations
    
    
    29,598
    
    
    
    29,006
    
    
    
    49,806Gain from operation of discontinued operations
    
    
    
    
    
    
    
    
    
    
    67Gain on disposition of discontinued operations
    
    
    3,576
    
    
    
    
    
    
    
    1,65633,174
    
    
    
    29,006
    
    
    
    51,529
  Years Ended December 31(dollars in thousands)

    
    2006
    
    2005
    
    2004CurrentFederal
    
    
    25,155
    
    
    
    21,568
    
    
    
    3,477State
    
    
    
    
    
    
    
    
    
    
    25,155
    
    
    
    21,568
    
    
    
    3,477DeferredFederal
    
    
    5,732
    
    
    
    5,040
    
    
    
    40,541State
    
    
    2,287
    
    
    
    2,398
    
    
    
    7,5118,019
    
    
    
    7,438
    
    
    
    48,052Income Taxes
    
    
    33,174
    
    
    
    29,006
    
    
    
    51,529
   Years Ended December 31(dollars in thousands)

    
    2006
    
    2005
    
    2004Amount computed at statutory federal rate
    
    
    33,702
    
    
    
    27,429
    
    
    
    45,396State taxes (net of federal benefit)
    
    
    1,487
    
    
    
    2,802
    
    
    
    4,746Non-deductible related to 162(m) compensation
    
    
    610
    
    
    
    761
    
    
    
    1,070Tax credit related to rail right-of-way maintenance
    
    
    (1,690
    )
    
    
    (1,916
    )
    
    
    Charitable contribution of building value in
excess of sale proceeds
    
    
    (2,012
    )
    
    
    
    
    
    
    Other (net)
    
    
    1,077
    
    
    
    (70
    )
    
    
    31733,174
    
    
    
    29,006
    
    
    
    51,529
  71




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Years Ended December 31(dollars in thousands)
    
    2006
    
    2005Deferred Tax AssetsAllowance for doubtful accounts
    
    
    987
    
    
    
    842Tax benefit for equity compensation
    
    
    3,136
    
    
    
    80Accrued casualty and other liabilities
    
    
    4,041
    
    
    
    3,192Deferred revenue
    
    
    2,190
    
    
    
    147State NOL tax carry forward
    
    
    2,887
    
    
    
    4,588Other
    
    
    2,768
    
    
    
    2,768Total deferred tax assets
    
    
    16,009
    
    
    
    11,617Deferred Tax LiabilitiesProperties, principally due to differences in depreciation
    
    
    111,300
    
    
    
    115,247Deferred gain on land sales
    
    
    83,202
    
    
    
    67,858Straight-line rent
    
    
    9,506
    
    
    
    8,608Amortization of intangible assets
    
    
    3,816
    
    
    
    Investment in joint ventures
    
    
    7,609
    
    
    
    Other
    
    
    3,775
    
    
    
    5,800Total deferred tax liabilities
    
    
    219,208
    
    
    
    197,513Net deferred tax liabilities
    
    
    203,199
    
    
    
    185,896
     Note 10. Segment Information
    72




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Information by industry segment:
 Years Ended December 31(dollars in thousands)
    
    2006
    
    2005
    
    2004Operating RevenuesRailway operations
    
    
    264,093
    
    
    
    237,870
    
    
    
    200,762Flagler:Realty rental revenues
    
    
    97,091
    
    
    
    85,508
    
    
    
    68,572CAM recoveries associated with hurricane costs
    
    
    337
    
    
    
    343
    
    
    
    93Total realty rental revenues
    
    
    97,428
    
    
    
    85,851
    
    
    
    68,665Realty services revenues
    
    
    43,146
    
    
    
    704
    
    
    
    148Land use revenues
    
    
    667
    
    
    
    795
    
    
    
    772Total Flagler realty rental and services revenues
    
    
    141,241
    
    
    
    87,350
    
    
    
    69,585Flagler realty sales
    
    
    42,618
    
    
    
    24,820
    
    
    
    99,677Railway realty rental revenues
    
    
    3,690
    
    
    
    3,488
    
    
    
    3,028Railway realty sales
    
    
    6,605
    
    
    
    8,818
    
    
    
    5,135Total realty
    
    
    194,154
    
    
    
    124,476
    
    
    
    177,425Total Revenues (segment)
    
    
    458,247
    
    
    
    362,346
    
    
    
    378,187Intersegment revenues
    
    
    (45
    )
    
    
    
    
    
    
    Total Revenues (consolidated)
    
    
    458,202
    
    
    
    362,346
    
    
    
    378,187Operating Profit (Loss)Railway operations
    
    
    78,471
    
    
    
    63,729
    
    
    
    47,326Realty
    
    
    28,229
    
    
    
    40,922
    
    
    
    97,986Corporate general & administrative
    
    
    (16,259
    )
    
    
    (22,388
    )
    
    
    (15,080
    )Segment & consolidated operating profit
    
    
    90,441
    
    
    
    82,263
    
    
    
    130,232Loss from investment in unconsolidated joint ventures
    
    
    (970
    )
    
    
    
    
    
    
    Minority interest
    
    
    81
    
    
    
    
    
    
    
    Interest income
    
    
    1,565
    
    
    
    1,659
    
    
    
    1,124Interest expense
    
    
    (20,378
    )
    
    
    (20,105
    )
    
    
    (16,671
    )Gain on sale of asset
    
    
    4,787
    
    
    
    
    
    
    
    Other income
    
    
    11,478
    
    
    
    14,555
    
    
    
    13,023(3,437
    )
    
    
    (3,891
    )
    
    
    (2,524
    )Income before income taxes
    
    
    87,004
    
    
    
    78,372
    
    
    
    127,708
 (Prior year results have been reclassified to conform to current year presentation)
 Years Ended December 31(dollars in thousands)
    
    2006
    
    2005
    
    2004Identifiable AssetsTransportation  Railway
    
    
    470,849
    
    
    
    444,647
    
    
    
    426,300Realty
    
    
    895,968
    
    
    
    627,232
    
    
    
    594,234Corporate
    
    
    28,009
    
    
    
    65,865
    
    
    
    42,6591,394,826
    
    
    
    1,137,744
    
    
    
    1,063,193Capital ExpendituresTransportation  Railway
    
    
    45,275
    
    
    
    39,239
    
    
    
    30,280Realty(1)
    
    
    107,165
    
    
    
    132,711
    
    
    
    79,867Corporate
    
    
    465
    
    
    
    2,802
    
    
    
    1,404152,905
    
    
    
    174,752
    
    
    
    111,551Depreciation & AmortizationTransportation  Railway
    
    
    22,668
    
    
    
    22,054
    
    
    
    20,360Realty
    
    
    35,999
    
    
    
    32,381
    
    
    
    26,825Corporate
    
    
    991
    
    
    
    1,042
    
    
    
    1,58459,658
    
    
    
    55,477
    
    
    
    48,769
 
 (1)
    
    2006 includes $8.6 million of accrued capital expenditures
 Note 11. Other Long-Term Liabilities
  74




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Note 12. Retirement Plans
   401(k) Plan for Salaried Employees
 401(k) Plan for Hourly Wage Employees and/or Employees Covered by Collective Bargaining
Agreement
 75




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##### Table of Contents



Pension Plan
 Supplemental Employee Retirement Plan
  Note 13. Stock-Based Compensation
    76




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Years Ended December 31(dollars in thousands)
    
    2006
    
    2005
    
    2004Stock compensation cost for share-based payment plans:Stock options
    
    
    36
    
    
    
    458
    (1)
    
    
    2,009
    (2)Restricted stock
    
    
    12,561
    (3)
    
    
    9,442
    (1)
    
    
    2,810Employee Stock Purchase Plan
    
    
    70
    
    
    
    
    
    
    
    12,667
    
    
    
    9,900
    
    
    
    4,819Amount of related income tax benefit recognized
    
    
    4,877
    
    
    
    3,811
    
    
    
    1,855
 
 (1)
    
    2005 included costs associated with the appointment of Mr. Adolfo Henriques as Chairman, President and Chief Executive
Officer and termination benefits provided to Mr. Robert W. Anestis. These expenses totaled $9.1 million and included $5.3 million of additional
equity compensation, which is included in the above amounts.(2)
    
    In a 2004 transaction (the Transaction) initiated at the request of the Board of Directors, the Company cancelled vested,
in-the-money stock options (the Options) to acquire 144,000 shares of the Companys common stock held by the Companys former Chief Executive
Officer (CEO), Robert W. Anestis. The embedded value of the Options (fair market value less strike price) was $2 million. The embedded value,
less applicable tax withholding, was paid in common stock. The CEO was issued 36,407 shares (valued at $35.06, which was the closing price on
February 27, 2004). The stock, together with applicable withholdings, represents the pre-tax embedded value. Because the original stock option
award was cancelled and the Company replaced this award with FECI common stock, in accordance with FASB Interpretation No. 44, the Company was
required to recognize compensation expense in the amount of $2 million with respect to the Transaction, which is included in the above amount.(3)
    
    Included in this amount is $1.6 million of accelerated vesting related to the former President of Flagler Development Group and
another former employee.
  Stock Options
 WeightedAverage
    
    AggregateRemaining
    
    Intrinsic ValueNumber of
    
    Weighted
    
    Contractual
    
    (dollars inShares
    
    Average Price
    
    Term
    
    thousands)Outstanding balance at December 31, 2005
    
    
    616,487
    
    
    $
    31.78
    
    
    
    3.5
    
    
    
    Changes during the year:Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (340,825
    )
    
    $
    30.95
    
    
    
    
    
    
    
    Forfeited
    
    
    (1,098
    )
    
    $
    32.39
    
    
    
    
    
    
    
    Expired
    
    
    (2,571
    )
    
    $
    21.09
    
    
    
    
    
    
    
    Outstanding balance at December 31, 2006
    
    
    271,993
    
    
    $
    32.84
    
    
    
    2.9
    
    
    $
    7,277Exercisable at December 31, 2006
    
    
    271,153
    
    
    $
    32.87
    
    
    
    2.9
    
    
    $
    7,248
  77




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##### Table of Contents



Non-Vested Restricted Stock
 Weighted AverageGrant Date Fair(dollars in thousands, except per share amounts)
    
    Number of Shares
    
    ValueOutstanding balance at December 31, 2003
    
    
    204,397
    
    
    $
    29.01Changes during the year:Granted
    
    
    151,269
    
    
    $
    36.35Vested
    
    
    (102,855
    )
    
    $
    27.96Forfeited
    
    
    (21,714
    )
    
    $
    31.41Outstanding balance at December 31, 2004
    
    
    231,097
    
    
    $
    34.25Changes during the year:Granted
    
    
    291,791
    
    
    $
    42.66Vested
    
    
    (107,065
    )
    
    $
    34.09Forfeited
    
    
    (60,033
    )
    
    $
    38.72Outstanding balance at December 31, 2005
    
    
    355,790
    
    
    $
    40.40Changes during the year:Granted
    
    
    435,322
    
    
    $
    53.29Vested
    
    
    (147,529
    )
    
    $
    40.14Forfeited
    
    
    (7,297
    )
    
    $
    47.58Outstanding balance at December 31, 2006
    
    
    636,286
    
    
    $
    49.24
   Years Ended December 31(dollars in thousands, except per share amounts)
    
    2006
    
    2005
    
    2004Net income  as reported
    
    
    63,119
    
    
    
    49,366
    
    
    
    80,598Stock-based compensation expense included in
reported income for all stock option awards (net of
related tax effects)
    
    
    22
    
    
    
    
    
    
    
    Deduct: Total stock-based employee compensation
expense determined under the fair value based
method for all stock option awards (net of related
tax effects)
    
    
    (22
    )
    
    
    (342
    )
    
    
    (785
    )Pro forma net income
    
    
    63,119
    
    
    
    49,024
    
    
    
    79,813Earnings per share:Basic  as reported
    
    $
    1.84
    
    
    $
    1.53
    
    
    $
    2.33Basic  pro forma
    
    $
    1.84
    
    
    $
    1.52
    
    
    $
    2.31Diluted  as reported
    
    $
    1.83
    
    
    $
    1.52
    
    
    $
    2.29Diluted  pro forma
    
    $
    1.83
    
    
    $
    1.50
    
    
    $
    2.27
   78




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##### Table of Contents



Statement of Net Assets Available for Benefits  (dollars in thousands)
 Years Ended December 312006
    
    2005AssetsCash
    
    
    5.0
    
    
    
    2.1Investments in FECI stock at fair value
    
    
    1,247.9
    
    
    
    624.2Total assets available for benefit
    
    
    1,252.9
    
    
    
    626.3
 Statement of Changes in Net Assets Available for Benefits  (dollars in thousands)
 Years Ended December 312006
    
    2005AdditionsEmployee contributions
    
    
    523.6
    
    
    
    243.0Dividends
    
    
    3.8
    
    
    
    2.5Unrealized gain on Plan assets (FECI stock)
    
    
    339.6
    
    
    
    54.8867.0
    
    
    
    300.3DeductionsBenefits paid to participants
    
    
    240.4
    
    
    
    110.9Net increase
    
    
    626.6
    
    
    
    189.4Net assets available for benefit at beginning of year
    
    
    626.3
    
    
    
    436.9Net assets available for benefit at end of year
    
    
    1,252.9
    
    
    
    626.3
 Note 14. Staff Accounting Bulletin No. 108
    79




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##### Table of Contents



Retained Earnings
    
    $3.5 millionDeferred Revenue
    
    $1.9 millionDeferred Income Taxes
    
    $(5.4) million
 Note 15. Quarterly Financial Data (Unaudited)
 2006(dollars in thousands, except per share amounts)
    
    Dec. 31
    
    Sept. 30
    
    June 30
    
    Mar. 31Operating revenues (1)
    
    
    108,282
    
    
    
    107,026
    
    
    
    106,844
    
    
    
    136,050Operating expenses (3)
    
    
    92,847
    
    
    
    82,879
    
    
    
    88,168
    
    
    
    103,867(Loss) income from investment in unconsolidated joint ventures
    
    
    (979
    )
    
    
    67
    
    
    
    (58
    )
    
    
    Minority interest
    
    
    43
    
    
    
    34
    
    
    
    4
    
    
    
    Interest income
    
    
    301
    
    
    
    153
    
    
    
    496
    
    
    
    615Interest expense
    
    
    (5,061
    )
    
    
    (5,134
    )
    
    
    (5,057
    )
    
    
    (5,126
    )Gain on sale of assets (4)
    
    
    4,787
    
    
    
    
    
    
    
    
    
    
    
    Other income
    
    
    3,203
    
    
    
    2,363
    
    
    
    3,719
    
    
    
    2,193Income from continuing operations
    
    
    14,040
    
    
    
    13,492
    
    
    
    11,149
    
    
    
    18,725Income (loss) from discontinued operations (net of taxes) (2)
    
    
    
    
    
    
    (111
    )
    
    
    5,824
    
    
    
    Net income
    
    
    14,040
    
    
    
    13,381
    
    
    
    16,973
    
    
    
    18,725Diluted net income per share  continuing
    
    $
    0.40
    
    
    $
    0.38
    
    
    $
    0.31
    
    
    $
    0.57Diluted net income per share  discontinued
    
    
    
    
    
    
    
    
    
    $
    0.17
    
    
    
    Diluted net income per share
    
    $
    0.40
    
    
    $
    0.38
    
    
    $
    0.48
    
    
    $
    0.57
 2005(dollars in thousands, except per share amounts)
    
    Dec. 31
    
    Sept. 30
    
    June 30
    
    Mar. 31Operating revenues (1)
    
    
    109,763
    
    
    
    86,673
    
    
    
    83,027
    
    
    
    82,883Operating expenses (3)
    
    
    76,166
    
    
    
    67,244
    
    
    
    65,256
    
    
    
    71,417Interest income
    
    
    542
    
    
    
    374
    
    
    
    336
    
    
    
    407Interest expense
    
    
    (5,284
    )
    
    
    (5,074
    )
    
    
    (5,073
    )
    
    
    (4,674
    )Other income
    
    
    2,923
    
    
    
    2,383
    
    
    
    2,997
    
    
    
    6,252Income from continuing operations
    
    
    20,166
    
    
    
    10,725
    
    
    
    10,404
    
    
    
    8,071Income from discontinued operations (net of taxes)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    20,166
    
    
    
    10,725
    
    
    
    10,404
    
    
    
    8,071Diluted net income per share  continuing
    
    $
    0.61
    
    
    $
    0.32
    
    
    $
    0.32
    
    
    $
    0.25Diluted net income per share  discontinued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted net income per share
    
    $
    0.61
    
    
    $
    0.32
    
    
    $
    0.32
    
    
    $
    0.25
 
 (1)
    
    Operating revenues for the quarter ending December 31, 2006 included realty sales of large parcels of $1.8 million. December 31, 2005 included sales of
large parcels of land for $22.0 million.(2)
    
    Represents resolution of all outstanding matters relating to the sale by the Company of stock of EPIK Communications to Odyssey and resulted in a payment to
the Company of $9.3 million, net of related expenses, and is recorded, net of taxes of $3.6 million, as a $5.7 million gain on disposition of discontinued operations.(3)
    
    Includes $(5.3) million and $2.0 million at the Railway and $(1.5) million and $1.0 million at Flagler of hurricane (recoveries)/expenses, net, for December
31, 2006 and 2005, respectively.(4)
    
    Represents sale of corporate headquarters in St. Augustine
for cash proceeds of $10.0 million net of carrying costs of
$5.2 million. Proceeds and costs reflected net of charitable
contribution impact.
 80




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##### Table of Contents



Note 16. Other Income
 Years Ended December 31(dollars in thousands)
    
    2006
    
    2005
    
    2004Pipe & wire-crossings/signboards
    
    
    4,433
    
    
    
    5,235
    
    
    
    6,441Fiber lease income
    
    
    7,038
    
    
    
    7,083
    
    
    
    6,952Air rights income
    
    
    688
    
    
    
    3,049
    
    
    
    Other (net)
    
    
    (681
    )
    
    
    (812
    )
    
    
    (370
    )11,478
    
    
    
    14,555
    
    
    
    13,023
  Note 17. Debt and Other Commitments
       81




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##### Table of Contents



(dollars in thousands)Year
    
    Amount2007
    
    
    5,5192008
    
    
    84,8642009
    
    
    4,7632010
    
    
    5,0492011
    
    
    233,962Thereafter
    
    
    Total Debt Principal Obligation
    
    
    334,157Amount representing future interest
    
    
    85,442Long-Term Debt Obligation
    
    
    419,599
  (dollars in thousands)Year
    
    Amount2007
    
    
    1642008
    
    
    1692009
    
    
    163Net minimum lease payments
    
    
    496Amount representing interest
    
    
    43Obligation under capital leases
    
    
    539
  (dollars in thousands)Year
    
    Amount2007
    
    
    5,0952008
    
    
    2,4432009
    
    
    1,8972010
    
    
    1,4492011
    
    
    1,263Thereafter
    
    
    38,177
 82




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##### Table of Contents



Clean Air Non-road Diesel Rule Clean Air Non-road Diesel Rule
  Note 18. Subsequent Events
   83




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Management Annual Report on Internal Control Over Financial Reporting
  §
    
    Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the Company.§
    
    Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting
principals, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and§
    
    Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Companys assets that could have a
material effect on the financial statements.
      84




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
       .
  
 85




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##### Table of Contents



Changes in Internal Control over Financial Reporting
   
 ITEM 9B. OTHER INFORMATION
  86




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  http://www.feci.com
 
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  87




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 1. Financial Statements
  2. Exhibits
  88




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##### Table of Contents



FLORIDA EAST COAST INDUSTRIES, INC.
 
 INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
[ITEM 14(a) 3(b)]
 ReferenceForm 10-KPage Nos.Consolidated Statements of Income for each of the three years ended December 31, 2006
    
    
    54Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    55Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income for each of the
three years in the period ended December 31, 2006
    
    
    56Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2006
    
    
    57  58Notes to Consolidated Financial Statements
    
    
    59  84Report of Independent Registered Public Accounting Firm
    
    
    85Financial Statement Schedule:II
 Valuation ReservesIII
 Real Estate and Accumulated Depreciation
   89




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##### Table of Contents



FLORIDA EAST COAST INDUSTRIES, INC.
 
 INDEX TO EXHIBITS [ITEM 13(a) 3]
 S-K ITEM 601
    
    DOCUMENTS2 (i)
    
    Codina acquisition documents.
    
    (7)3 (i)
    
    Second Amended and Restated Articles of Incorporation.
    
    (1)3 (ii)
    
    Amended and Restated By-Laws.
    
    (1)4
    
    Amended and Restated Rights Agreement.
    
    (1)10(a)
    
    $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.
    
    (2)10(b)
    
    Distribution and Recapitalization Agreement.
    
    (5)10(c)
    
    Various Promissory Notes and Mortgage Security Agreements dated June 28, 2001 and September 27, 2001,
covering certain Flagler buildings at various office parks.
    
    (3)10(d)
    
    Representative Change in Control Agreement between FECI and certain FECI Executive Officers.
    
    (4)10(e)
    
    2002 Stock Incentive Plan, as amended.
    
    (12)10(f)
    
    FECI 2002 Employee Stock Purchase Plan.
    
    (9)10(g)
    
    Mortgage Notes dated as of August 10, 2004 between Flagler Development Group and Metropolitan Life
Insurance Company.
    
    (10)10(h)
    
    Representative Restricted Stock Agreement dated August 25, 2004 between FECI and certain Executive Officers.
    
    (11)10(i).1  10(i).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.
    
    (6)10(j)
    
    Supplemental Employee Retirement Plan (SERP) dated as of March 28, 2005.
    
    (6)10(k)
    
    Codina acquisition documents.
    
    (7)10(l)
    
    First Amendment to Credit Agreement dated April 27, 2006, amending $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.
    
    (13)10(m)
    
    Employment and Change in Control Agreements dated April 27, 2006, effective April 27, 2006, between FECI
and Armando Codina.
    
    (8)10(n)
    
    Restricted stock agreement dated May 3, 2006 between FECI and Jorgé San Miguel.
    
    (14)10(o)
    
    Representative restricted stock agreement between FECI and certain employees of Codina Group.
    
    (15)10(p)
    
    Second Amendment to Credit Agreement dated, October 16, 2006, amending $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.
    
    (16)10(q)
    
    Third Amendment to Credit Agreement dated, January 26, 2007, amending $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(r)
    
    Terms and Provisions relating to Restricted Stock Awards under the Florida East Coast Industries, Inc. 2002
Stock Incentive Plan (as amended and restated effective June 5, 2005).10(s)
    
    Representative Restricted Stock Award21
    
    Subsidiaries of Florida East Coast Industries, Inc.23
    
    Consent of Independent Registered Public Accounting Firm24
    
    Power of Attorney31.1  31.2
    
    Section 302 Certifications.32.1
    
    Section 906 Certification
 90




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##### Table of Contents



(1)
    
    Amended and Restated Articles of Incorporation of the Registrants, Amended
and Restated By-Laws of the Registrant and Amended and Restated Shareholder Rights
Agreement, dated April 27, 2006, as were filed on Form 8-K (all incorporated by reference
as an Exhibit to the Form 8-K) with the Securities and Exchange Commission on April 28,
2006 (File No. 001-32866).(2)
    
    This document dated February 22, 2005, is filed as exhibit 10 to Form 8-K with
the Securities and Exchange Commission on February 24, 2005.(3)
    
    These documents are filed as exhibits 10.1  10.8 on Form 10-Q with the
Securities and Exchange Commission on August 14, 2001 and exhibits 10.1  10.6 on November
8, 2001.(4)
    
    This document is filed as exhibit 10.7 on Form 10-Q with the Securities and
Exchange Commission on November 8, 2001.(5)
    
    Distribution and Recapitalization Agreement, incorporated by reference to
Appendix A to the definitive Proxy Statement on Schedule 14A, filed with the Securities and
Exchange Commission on February 4, 2000 (Registration No. 001-08728).(6)
    
    These documents dated February 10, 2005 and March 28, 2005, are filed as exhibits
10(c.1)  10(c.4) to Form 10-Q with the Securities and Exchange Commission on April 22,
2005.(7)
    
    These documents dated January 5, 2006 are filed as exhibits to Form 8-K with the
Securities and Exchange Commission on January 11, 2006 and exhibits to Form 8-K with the
Securities and Exchange Commission filed on April 28, 2006.(8)
    
    These documents dated April 27, 2006 are filed as exhibits 99.1 and 99.2 to Form
8-K with the Securities and Exchange Commission on May 2, 2006.(9)
    
    FECIs Employee Stock Purchase Plan was filed on Form S-8 with the Securities and
Exchange Commission on June 21, 2002 (Registration No. 333-90896).(10)
    
    These documents, dated August 10, 2004, are filed as exhibits 10.1  10.7 on
Form 8-K with the Securities and Exchange Commission on August 17, 2004.(11)
    
    This document dated August 25, 2004, is filed as exhibit 10(c) to Form 10-Q with
the Securities and Exchange Commission on November 3, 2004.(12)
    
    This document, dated June 2, 2005, is filed as exhibit 10(g) to Form 10-K with
the Securities and Exchange Commission on March 1, 2006. (Registration No 333-90894)(13)
    
    This document, dated April 27, 2006, is filed as exhibit 10(n) to Form 10-Q with
the Securities and Exchange Commission on August 8, 2006.(14)
    
    This document, dated May 3, 2006, is filed as exhibit 10(p) to Form 10-Q with
the Securities and Exchange Commission on August 8, 2006.(15)
    
    This document is filed as exhibit 10(q) to Form 10-Q with the Securities and
Exchange Commission on August 8, 2006.(16)
    
    This document is filed as exhibit 10(p) to Form 10-Q with the Securities and
Exchange Commission on November 3, 2006.
 91




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##### Table of Contents



SIGNATURES
  FLORIDA EAST COAST INDUSTRIES, INC.(Registrant)/s/ Daniel H. Popky

Daniel H. Popky, Executive Vice President
     and Chief Financial Officer/s/ Amy Bramlitt

Amy BramlittVice President and Controller
  /s/ A. Henriques

A. Henriques, Chairman, President, ChiefExecutive Officer and Director/s/ A. Codina

A. Codina, President, Chief Executive
    
    /s/ D. M. Foster

D. M. Foster, DirectorOfficer,
Flagler Development Group and Director/s/ J. E. Jordan
    
    /s/ G.H. LamphereJ.E. Jordan, Director
    
    G. H. Lamphere, Director/s/ J. Nemec
    
    /s/ J. Perez.J. Nemec, Director
    
    J. Perez, Director/s/ W. L. Sanders, Jr.
    
    /s/ R. SugranesW. L. Sanders, Jr., Director
    
    R. Sugranes, Director/s/ George Zoffinger

George Zoffinger, Director
  92