##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period endedJune 30, 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
 001-32866
 FLORIDA EAST COAST INDUSTRIES, INC.
  Florida
    
    20-4427296(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)One Malaga StreetSt. Augustine, Florida
    
    32084(Address of principal executive offices)
    
    (Zip Code)
 (904) 829-3421
 þ o
 
 þ o o
 o þ
  Class
    
    Outstanding at June 30, 2006Common Stock-no par value
    
    35,584,626 shares




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##### 



FLORIDA EAST COAST INDUSTRIES, INC.
 INDEX
 PageNumbersPART IFINANCIAL INFORMATIONItem 1.

Financial StatementsConsolidated Balance Sheets -
June 30, 2006 and December 31, 2005
    
    
    2Consolidated Statements of Income -
Three Months and Six Months Ended June 30, 2006 and 2005
    
    
    3Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2006 and 2005
    
    
    4  5Notes to Consolidated Financial Statements
    
    
    6  20Item 2.

Managements Discussion and Analysis of the Consolidated
Financial Condition and Results of OperationsComparison of Second Quarter 2006 versus Second Quarter 2005 and
Six Months 2006 versus Six Months 2005
    
    
    21  37Changes in Financial Condition, Liquidity and Capital Resources
    
    
    38  40Off
Balance Sheet Arrangements
    
    
    41Other Matters
    
    
    42  45Item 3.

Quantitative and Qualitative Disclosures about Market Risk
    
    
    45Item 4.

Controls and Procedures
    
    
    45PART IIOTHER INFORMATIONItem 1.

Legal Proceedings
    
    
    46Item 1A.

Risk Factors
    
    
    46Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    47Item 4.

Submission of Matters to a Vote of Security Holders
    
    
    48Item 6.

Exhibits
    
    
    48Ex-10(n)Ex-10(p)Ex-10(q)Ex-31.1Ex-31.2Ex-32.1




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##### Table of Contents



Item 1. Financial Statements
 FLORIDA
EAST COAST INDUSTRIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 June 30
    
    December 312006
    
    2005(unaudited)AssetsCurrent Assets:Cash and cash equivalents (Note 16)
    
    
    9,039
    
    
    
    75,990Restricted cash (Note 16)
    
    
    1,883
    
    
    
    Accounts receivable (net)
    
    
    45,685
    
    
    
    35,732Accounts receivable from related parties
    
    
    2,869
    
    
    
    Materials and supplies
    
    
    4,290
    
    
    
    3,840Assets held for sale (Note 12)
    
    
    1,349
    
    
    
    9,761Deferred income taxes
    
    
    2,358
    
    
    
    1,345Prepaid expenses
    
    
    6,099
    
    
    
    6,727Straight line rent
    
    
    4,722
    
    
    
    4,429Total Current Assets
    
    
    78,294
    
    
    
    137,824Long Term Assets:Properties, less accumulated depreciation and amortization
    
    
    1,138,574
    
    
    
    955,395Investment in unconsolidated joint ventures
    
    
    37,015
    
    
    
    Goodwill (Note 2)
    
    
    31,383
    
    
    
    Intangible assets, less amortization (Note 2)
    
    
    20,183
    
    
    
    9,696Prepaid commissions
    
    
    12,180
    
    
    
    11,486Straight line rent
    
    
    18,888
    
    
    
    17,717Other assets
    
    
    5,008
    
    
    
    5,626Total Long Term Assets
    
    
    1,263,231
    
    
    
    999,920Total Assets
    
    
    1,341,525
    
    
    
    1,137,744Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable and accrued expenses
    
    
    58,523
    
    
    
    48,544Taxes payable (Note 15)
    
    
    14,748
    
    
    
    2,044Deferred revenue
    
    
    8,165
    
    
    
    5,527Short-term debt (Note 9)
    
    
    5,356
    
    
    
    5,198Other accrued liabilities
    
    
    6,257
    
    
    
    6,819Total Current Liabilities
    
    
    93,049
    
    
    
    68,132Deferred Income Taxes
    
    
    204,890
    
    
    
    187,241Long-Term Debt (net of current portion)(Note 9)
    
    
    331,279
    
    
    
    332,760Other Long-Term Liabilities
    
    
    35,283
    
    
    
    11,449Minority Interest in Joint Ventures
    
    
    4,466
    
    
    
    Shareholders EquityCommon Stock: (Note 10)
    
    
    163,829
    
    
    
    130,098Common stock, no par value; 150,000,000 shares
authorized; 39,909,446 shares issued and 35,584,626
shares outstanding at June 30, 2006 and 39,487,258
shares issued and 32,983,135 shares outstanding at
December 31, 2005. Amounts shown net of un-amortized
(expected weighted-average amortization period of 3.0
years) restricted stock deferred compensation of
$29,195 and $10,860, respectivelyRetained earnings
    
    
    646,869
    
    
    
    615,656Treasury stock at cost (4,324,820 shares at June 30, 2006
and 6,504,123 shares at December 31, 2005. June 30, 2006
treasury stock included 1,106,977 contingent shares)
(Note 7)
    
    
    (138,140
    )
    
    
    (207,592
    )Total Shareholders Equity
    
    
    672,558
    
    
    
    538,162Total Liabilities and Shareholders Equity
    
    
    1,341,525
    
    
    
    1,137,744
   2




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##### Table of Contents



FLORIDA EAST COAST INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 
 Three Months
    
    Six MonthsEnded June 30
    
    Ended June 302006
    
    2005
    
    2006
    
    2005Operating revenues:Railway operations
    
    
    70,012
    
    
    
    58,891
    
    
    
    137,080
    
    
    
    115,434Realty rental and services
    
    
    35,102
    
    
    
    22,242
    
    
    
    59,525
    
    
    
    43,697Flagler CAM recoveries associated with hurricane costs (Note 5)
    
    
    74
    
    
    
    
    
    
    
    211
    
    
    
    Total realty rental and services
    
    
    35,176
    
    
    
    22,242
    
    
    
    59,736
    
    
    
    43,697Realty sales
    
    
    1,656
    
    
    
    1,894
    
    
    
    46,078
    
    
    
    6,779Total revenues
    
    
    106,844
    
    
    
    83,027
    
    
    
    242,894
    
    
    
    165,910Operating expenses:Railway operations
    
    
    49,758
    
    
    
    42,968
    
    
    
    97,630
    
    
    
    84,499Hurricane costs (Note 5)
    
    
    104
    
    
    
    
    
    
    
    744
    
    
    
    Hurricane crossing reimbursement (recoveries)
    
    
    
    
    
    
    
    
    
    
    (285
    )
    
    
    Total railway operations
    
    
    49,862
    
    
    
    42,968
    
    
    
    98,089
    
    
    
    84,499Realty rental and services
    
    
    32,175
    
    
    
    18,726
    
    
    
    53,406
    
    
    
    35,640Hurricane costs (Note 5)
    
    
    189
    
    
    
    16
    
    
    
    696
    
    
    
    59Hurricane asset write-offs
    
    
    1,557
    
    
    
    
    
    
    
    1,595
    
    
    
    Hurricane insurance recoveries
    
    
    (1,197
    )
    
    
    
    
    
    
    (1,369
    )
    
    
    Total realty rental and services
    
    
    32,724
    
    
    
    18,742
    
    
    
    54,328
    
    
    
    35,699Realty sales
    
    
    1,110
    
    
    
    357
    
    
    
    31,738
    
    
    
    821Corporate general & administrative
    
    
    4,472
    
    
    
    3,189
    
    
    
    7,880
    
    
    
    15,654Total expenses
    
    
    88,168
    
    
    
    65,256
    
    
    
    192,035
    
    
    
    136,673Operating profit
    
    
    18,676
    
    
    
    17,771
    
    
    
    50,859
    
    
    
    29,237Minority interest
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    Loss from investment in unconsolidated joint ventures (Note 4)
    
    
    (58
    )
    
    
    
    
    
    
    (58
    )
    
    
    Interest income
    
    
    496
    
    
    
    336
    
    
    
    1,111
    
    
    
    743Interest expense
    
    
    (5,057
    )
    
    
    (5,073
    )
    
    
    (10,183
    )
    
    
    (9,747
    )Other income (Note 8)
    
    
    3,719
    
    
    
    2,997
    
    
    
    5,912
    
    
    
    9,249(896
    )
    
    
    (1,740
    )
    
    
    (3,214
    )
    
    
    245Income before income taxes
    
    
    17,780
    
    
    
    16,031
    
    
    
    47,645
    
    
    
    29,482Provision for income taxes
    
    
    (6,631
    )
    
    
    (5,627
    )
    
    
    (17,771
    )
    
    
    (11,007
    )Income from continuing operations
    
    
    11,149
    
    
    
    10,404
    
    
    
    29,874
    
    
    
    18,475Discontinued Operations(Note 3)Gain on disposition of discontinued operations (net of taxes)
    
    
    5,824
    
    
    
    
    
    
    
    5,824
    
    
    
    Net income
    
    
    16,973
    
    
    
    10,404
    
    
    
    35,698
    
    
    
    18,475Earnings Per ShareIncome from continuing operations  basic
    
    $
    0.32
    
    
    $
    0.32
    
    
    $
    0.89
    
    
    $
    0.58Income from continuing operations  diluted
    
    $
    0.31
    
    
    $
    0.32
    
    
    $
    0.88
    
    
    $
    0.56Gain on disposition of discontinued operations  basic & diluted
    
    $
    0.17
    
    
    
    
    
    
    $
    0.17
    
    
    
    Net income  basic
    
    $
    0.49
    
    
    $
    0.32
    
    
    $
    1.06
    
    
    $
    0.58Net income  diluted
    
    $
    0.48
    
    
    $
    0.32
    
    
    $
    1.05
    
    
    $
    0.56Average shares outstanding  basic
    
    
    34,713,761
    
    
    
    32,139,301
    
    
    
    33,754,928
    
    
    
    32,003,994Average shares outstanding  diluted
    
    
    35,010,293
    
    
    
    32,828,935
    
    
    
    34,004,425
    
    
    
    32,736,331
   3




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##### Table of Contents



FLORIDA EAST COAST INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Six MonthsEnded June 302006
    
    2005Cash Flows from Operating ActivitiesNet income
    
    
    35,698
    
    
    
    18,475Adjustments to reconcile net income to cash generated by operating activities:Depreciation and amortization
    
    
    28,563
    
    
    
    26,324Non-cash charge from hurricane, net of recoveries
    
    
    360
    
    
    
    Gain on disposition of properties, including those discontinued
    
    
    (23,629
    )
    
    
    (5,958
    )Deferred taxes
    
    
    (1,052
    )
    
    
    (3,493
    )Stock compensation expense (Note 10)
    
    
    5,539
    
    
    
    7,192Changes in operating assets and liabilities:Accounts receivable
    
    
    1,438
    
    
    
    (1,081
    )Prepaid expenses
    
    
    215
    
    
    
    13Materials and supplies
    
    
    (450
    )
    
    
    (1,417
    )Straight line rent
    
    
    (1,464
    )
    
    
    (812
    )Prepaid commissions
    
    
    (2,985
    )
    
    
    (2,068
    )Other assets and deferred charges
    
    
    1,722
    
    
    
    (3,531
    )Accounts payable
    
    
    (9,006
    )
    
    
    (8,119
    )Taxes payable
    
    
    11,905
    
    
    
    14,453Income tax refund
    
    
    
    
    
    
    2,800Other current liabilities
    
    
    1,829
    
    
    
    (2,498
    )Other long-term liabilities
    
    
    (119
    )
    
    
    (969
    )Net cash generated by operating activities
    
    
    48,564
    
    
    
    39,311Cash Flows from Investing ActivitiesPurchases of properties and equipment
    
    
    (75,520
    )
    
    
    (124,325
    )Acquisition of Codina Group Inc. and related interests, net of cash acquired
    
    
    (65,533
    )
    
    
    Investment in unconsolidated joint ventures
    
    
    (6,316
    )
    
    
    Increase in restricted cash
    
    
    (77
    )
    
    
    Proceeds from disposition of assets, including those discontinued
    
    
    57,050
    
    
    
    6,779Net cash used in investing activities
    
    
    (90,396
    )
    
    
    (117,546
    )Cash Flows from Financing ActivitiesBorrowings from long term debt
    
    
    230
    
    
    
    Payment of mortgage debt
    
    
    (2,561
    )
    
    
    (2,412
    )Payment of acquired debt
    
    
    (30,117
    )
    
    
    Payment of dividends
    
    
    (4,485
    )
    
    
    (3,567
    )Proceeds from exercise of options
    
    
    9,478
    
    
    
    9,654Tax benefit associated with equity based compensation
    
    
    3,980
    
    
    
    2,163Stock repurchase program payments (Note 7)
    
    
    
    
    
    
    (2,289
    )Purchase of common stock
    
    
    (1,894
    )
    
    
    (1,750
    )Investment by minority interest
    
    
    250
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (25,119
    )
    
    
    1,799Net Decrease in Cash and Cash Equivalents
    
    
    (66,951
    )
    
    
    (76,436
    )Cash and Cash Equivalents at Beginning of Period
    
    
    75,990
    
    
    
    126,166Cash and Cash Equivalents at End of Period
    
    
    9,039
    
    
    
    49,730Supplemental Disclosure of Cash Flow InformationCash paid for income taxes (net of refunds)
    
    
    19,027
    
    
    
    5,200Cash paid for interest
    
    
    11,351
    
    
    
    10,983
   4




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##### Table of Contents



Supplemental schedule on non-cash investing and financing activities
  (dollars in thousands)Fair value of assets acquired
    
    
    246,107Acquisition transaction costs
    
    
    5,345Equity issued for initial consideration
    
    
    (76,412
    )Cash paid for acquired Company (1)
    
    
    (71,190
    )Liabilities assumed
    
    
    103,850
 
 (1)
    
    Reconciliation to Statements of Cash Flows Cash paid for acquired Company
    
    
    71,190Less cash acquired
    
    
    (4,125
    )Less transaction costs paid in 2005
    
    
    (1,532
    )Acquisition of Codina Group, Inc. per Statements of Cash Flows
    
    
    65,533
  5




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##### Table of Contents



FLORIDA EAST COAST INDUSTRIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1. General
   Note 2 Acquisition of Codina Group and Related Interests
     *
    
    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.*
    
    Gables Office Building, a 45,000 sq. ft. office building currently under construction.
 6




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##### Table of Contents



*
    
    Beacon Lakes, a 480-acre
industrial park, including three industrial buildings and entitlements for an additional 6.2
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.*
    
    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, a proposed 30% interest in a venture with an affiliate of JPMorgan to acquire
land and construct a 15-story, 250,000 sq. ft. building for Burger Kings corporate
headquarters.
  Purchase Price Allocations
  (dollars in thousands)
    
    April 27, 2006Cash
    
    
    4,125Other current assets
    
    
    16,279Property and equipment, net
    
    
    161,241Goodwill
    
    
    21,870Intangible assets
    
    
    11,600Investments in joint ventures
    
    
    30,699Other assets
    
    
    293Assets acquired
    
    
    246,107Current liabilities
    
    
    25,645Acquired debt
    
    
    30,117Other long-term debt
    
    
    1,009Deferred tax liabilities
    
    
    18,663Other liabilities
    
    
    24,200Minority interest
    
    
    4,216Liabilities assumed
    
    
    103,850Net assets acquired
    
    
    142,257
   7




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##### Table of Contents



Pro Forma Financial Information
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 30(dollars in thousands, except per share amounts)
    
    2006
    
    2005
    
    2006
    
    2005Revenue
    
    
    108,520
    
    
    
    97,709
    
    
    
    266,816
    
    
    
    213,027Net income
    
    
    16,216
    
    
    
    10,122
    
    
    
    34,935
    
    
    
    17,101Earnings per share:Basic
    
    $
    0.47
    
    
    $
    0.31
    
    
    $
    1.03
    
    
    $
    0.53Diluted
    
    $
    0.46
    
    
    $
    0.31
    
    
    $
    1.03
    
    
    $
    0.52
  Note 3. Discontinued Operations
  Note 4. Investments in Joint Ventures
 Emerging Issues Task Force Abstracts
 Investments in Consolidated Joint Ventures
  *
    
    Beacon City Center (CM Doral Development Company LLC) A venture with an affiliate of JP
Morgan 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.
  8




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##### Table of Contents



Investments in Unconsolidated Joint Ventures
  *
    
    Beacon Lakes, a 480-acre industrial park, including three industrial buildings and entitlements for an
additional 6.2 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 an
affiliate of AMB Properties. Within the Beacon Lakes development is
included a 120-unit warehouse condominium project on 57 acres owned
by Beacon Village, LLC. Beacon
Village, LLC is owned 50% by the Company and 50% by an affiliate of AMB Properties. The Beacon Lakes
joint venture entities are accounted for using the equity method.*
    
    Boca 54 (Boca 54 Land Associates LLC)  On May 31, 2006, the Company contributed $5.5
million for a 20% interest in a venture with an affiliate of TIAA  CREF that owns a 54-acre land parcel
including entitlements for 941,000 sq. ft. of office space located in the City of Boca
Raton. The Boca 54 joint venture is accounted for using the equity method.
  June 30(unaudited)
    
    December 31(dollars in thousands)
    
    2006
    
    2005Assets:Real estate, net
    
    
    142,169
    
    
    
    Other assets
    
    
    17,278
    
    
    
    Total assets
    
    
    159,447
    
    
    
    Liabilities and partners equity:Mortgage notes payable
    
    
    33,399
    
    
    
    Bonds payable (CDD)
    
    
    52,990
    
    
    
    Other liabilities
    
    
    4,236
    
    
    
    Partners equity
    
    
    68,822
    
    
    
    Total liabilities and partners equity
    
    
    159,447
    
    
    
    
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 30(unaudited)
    
    (unaudited)(dollars in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Rental Income
    
    
    242
    
    
    
    
    
    
    
    242
    
    
    
    Operating and Other Expenses
    
    
    (264
    )
    
    
    
    
    
    
    (264
    )
    
    
    Interest Expense, net
    
    
    (128
    )
    
    
    
    
    
    
    (128
    )
    
    
    Depreciation Expense
    
    
    (97
    )
    
    
    
    
    
    
    (97
    )
    
    
    Net Loss
    
    
    (247
    )
    
    
    
    
    
    
    (247
    )
    
    
    
 Note 5. Impact from Hurricanes
   9




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##### Table of Contents



2005 HURRICANE COST AND RECOVERY SUMMARY
 Total
    
    Cost (Recovery)Estimated
    
    recognized
    
    Cost (Recovery)Cost and
    
    in first six months
    
    recognized(dollars in thousands)
    
    (Recovery)(1)
    
    of 2006
    
    since inceptionRailwayOperating expenses (Hurricane Costs)
    
    
    3,625
    
    
    
    744
    
    
    
    3,350Hurricane crossing reimbursement (recoveries) (net)
    
    
    (902
    )
    
    
    (285
    )
    
    
    (902
    )Insurance recovery (2)
    
    
    
    
    
    
    
    
    
    
    Railway Realty RentalOperating expenses (Hurricane Costs)
    
    
    495
    
    
    
    185
    
    
    
    469FlaglerOperating expenses (Hurricane Costs)
    
    
    1,665
    
    
    
    511
    
    
    
    1,283Capital expenditures (Properties)
    
    
    5,250
    
    
    
    3,130
    
    
    
    3,409Asset write-off due to replacement (3)
    
    
    1,946
    
    
    
    1,595
    
    
    
    1,782Flagler CAM recoveries associated with Hurricane
    
    
    (733
    )
    
    
    (211
    )
    
    
    (554
    )Insurance recovery
    
    
    (3,875
    )
    
    
    (1,369
    )
    
    
    (1,369
    )
 
 (1)
    
    The amounts shown in this column are managements best estimates of total costs to be incurred and amounts to be
recovered due to the 2005 hurricanes, however, these estimates are subject to change, which could be material.(2)
    
    The Railways insurance recovery (including extra expense and utility service interruption claims) cannot be
reasonably estimated for accounting purposes at this time as discussions with our insurance carrier are still in process. We expect
these discussions to continue throughout 2006.(3)
    
    Represents assets (primarily roofs) expected to be replaced in 2006 and their related write-off of remaining net book
value. Note 6. Commitments and Contingencies
   10




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##### Table of Contents



(dollars in thousands)Year
    
    Amount2006 (1)
    
    
    2,4162007
    
    
    3,5152008
    
    
    1,8372009
    
    
    1,2962010
    
    
    871Thereafter
    
    
    33,244
 
 (1)
    
    Represents the remaining six months of 2006 Note 7. Dividends and Stock Repurchase
    11




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##### Table of Contents



Note 8. Other Income
 Three Months
    
    Six MonthsEnded June 30
    
    Ended June 30(dollars in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Pipe & wire crossings/signboards
    
    
    1,896
    
    
    
    1,248
    
    
    
    2,570
    
    
    
    2,943Fiber lease income
    
    
    1,756
    
    
    
    1,827
    
    
    
    3,515
    
    
    
    3,577Air rights income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,049Other (net)
    
    
    67
    
    
    
    (78
    )
    
    
    (173
    )
    
    
    (320
    )3,719
    
    
    
    2,997
    
    
    
    5,912
    
    
    
    9,249
  Note 9. Debt
      12




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Note 10. Stock-Based Compensation
     13




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##### Table of Contents



Six Months Ended
    
    Years EndedJune 30
    
    December 312006
    
    2005
    
    2005
    
    2004Stock compensation cost ($ in
thousands) for share-based
payment plans:Stock options
    
    
    25
    
    
    
    458
    (1)
    
    
    458
    (1)
    
    
    2,009
    (2)Restricted stock
    
    
    5,491
    (3)
    
    
    6,734
    (1)
    
    
    9,442
    (1)
    
    
    2,810Employee Stock Purchase Plan
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    5,539
    
    
    
    7,192
    
    
    
    9,900
    
    
    
    4,819Amount of related income tax
benefit recognized
    
    
    2,132
    
    
    
    2,768
    
    
    
    3,811
    
    
    
    1,855
 
 (1)
    
    First quarter 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 in the
first quarter and included $5.3 million of additional equity compensation, which is
included in the above amounts.(2)
    
    In a first quarter 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 Company and another former employee.  Stock Options
 WeightedWeighted
    
    Average
    
    AggregateAverage
    
    Remaining
    
    IntrinsicNumber of
    
    Exercise
    
    Contractual
    
    ValueShares
    
    Price
    
    Term
    
    ($ in thousands)Outstanding balance at March 31, 2006
    
    
    413,828
    
    
    $
    31.10
    
    
    
    3.4
    
    
    
    Changes during the year:Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (99,201
    )
    
    $
    27.78
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding balance at June 30, 2006
    
    
    314,627
    
    
    $
    32.15
    
    
    
    3.3
    
    
    $
    6,349Exercisable at June 30, 2006
    
    
    311,687
    
    
    $
    32.25
    
    
    
    3.3
    
    
    $
    6,258
  14




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##### Table of Contents



Non-Vested Restricted Stock
 WeightedAverageNumber of
    
    Grant DateShares
    
    Fair ValueOutstanding balance at March 31, 2006
    
    
    386,375
    
    
    $
    43.64Changes during the year:Granted
    
    
    293,912
    
    
    $
    54.92Vested
    
    
    (13,645
    )
    
    $
    38.90Forfeited
    
    
    (1,514
    )
    
    $
    45.66Outstanding balance at June 30, 2006
    
    
    665,128
    
    
    $
    48.73
   Three Months
    
    Six MonthsEnded June 30
    
    Ended June 30(dollars in thousands, except per share amounts)
    
    2006
    
    2005
    
    2004
    
    2006
    
    2005
    
    2004Net income  as reported inclusive of compensation
cost for restricted stock
    
    
    16,973
    
    
    
    10,404
    
    
    
    8,368
    
    
    
    35,698
    
    
    
    18,475
    
    
    
    16,690Stock-based compensation expense included in
reported income for all stock option awards (net of
related tax effects)
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    Deduct: Total stock-based employee compensation
expense determined under the fair-value-based
method (Black Scholes) for all stock option awards
(net of related tax effects)
    
    
    4
    
    
    
    (92
    )
    
    
    (190
    )
    
    
    16
    
    
    
    (206
    )
    
    
    (380
    )Pro forma net income
    
    
    16,973
    
    
    
    10,312
    
    
    
    8,178
    
    
    
    35,698
    
    
    
    18,269
    
    
    
    16,310Earnings per share:Basic  as reported
    
    $
    0.49
    
    
    $
    0.32
    
    
    $
    0.23
    
    
    $
    1.06
    
    
    $
    0.58
    
    
    $
    0.46Basic  pro forma
    
    $
    0.49
    
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    1.06
    
    
    $
    0.57
    
    
    $
    0.45Diluted  as reported
    
    $
    0.48
    
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    1.05
    
    
    $
    0.56
    
    
    $
    0.45Diluted  pro forma
    
    $
    0.48
    
    
    $
    0.31
    
    
    $
    0.22
    
    
    $
    1.05
    
    
    $
    0.56
    
    
    $
    0.44
 Note 11. Earnings Per Share
    15




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##### Table of Contents



Note 12. Realty Acquisitions, Land Sales and Associated Costs
       Note 13. Segment Information
   16




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##### Table of Contents



17




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##### Table of Contents



Information by industry segment:
 Three Months
    
    Six MonthsEnded June 30
    
    Ended June 30(dollars in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Operating RevenuesRailway operations:Total Railway
    
    
    70,012
    
    
    
    58,891
    
    
    
    137,080
    
    
    
    115,434Flagler:Realty rental revenues
    
    
    23,064
    
    
    
    21,035
    
    
    
    45,846
    
    
    
    41,297CAM recoveries associated with hurricane costs
    
    
    74
    
    
    
    
    
    
    
    211
    
    
    
    Total realty rental revenues
    
    
    23,138
    
    
    
    21,035
    
    
    
    46,057
    
    
    
    41,297Realty services revenues
    
    
    10,925
    
    
    
    201
    
    
    
    11,345
    
    
    
    230Land use revenues
    
    
    188
    
    
    
    179
    
    
    
    361
    
    
    
    461Total Flagler realty rental and services revenues
    
    
    34,251
    
    
    
    21,415
    
    
    
    57,763
    
    
    
    41,988Flagler realty sales
    
    
    387
    
    
    
    1,273
    
    
    
    41,425
    
    
    
    1,473Railway realty rental revenues
    
    
    925
    
    
    
    827
    
    
    
    1,973
    
    
    
    1,709Railway realty sales
    
    
    1,269
    
    
    
    621
    
    
    
    4,653
    
    
    
    5,306Total realty
    
    
    36,832
    
    
    
    24,136
    
    
    
    105,814
    
    
    
    50,476Total Revenues
    
    
    106,844
    
    
    
    83,027
    
    
    
    242,894
    
    
    
    165,910Operating ExpensesRailway operations:Railway operations
    
    
    49,758
    
    
    
    42,968
    
    
    
    97,630
    
    
    
    84,499Hurricane costs
    
    
    104
    
    
    
    
    
    
    
    744
    
    
    
    Hurricane recoveries (net)
    
    
    
    
    
    
    
    
    
    
    (285
    )
    
    
    Total Railway
    
    
    49,862
    
    
    
    42,968
    
    
    
    98,089
    
    
    
    84,499Flagler:Realty rental expenses
    
    
    15,739
    
    
    
    14,660
    
    
    
    31,304
    
    
    
    27,697Hurricane expenses
    
    
    189
    
    
    
    16
    
    
    
    511
    
    
    
    23Hurricane asset write-offs
    
    
    1,557
    
    
    
    
    
    
    
    1,595
    
    
    
    Hurricane insurance recoveries
    
    
    (1,197
    )
    
    
    
    
    
    
    (1,369
    )
    
    
    Total realty rental expenses
    
    
    16,288
    
    
    
    14,676
    
    
    
    32,041
    
    
    
    27,720Realty services expenses
    
    
    10,464
    
    
    
    110
    
    
    
    10,713
    
    
    
    120Land & overhead expenses
    
    
    5,597
    
    
    
    3,387
    
    
    
    10,665
    
    
    
    6,907Total Flagler realty rental and services expenses
    
    
    32,349
    
    
    
    18,173
    
    
    
    53,419
    
    
    
    34,747Flagler realty sales
    
    
    55
    
    
    
    357
    
    
    
    30,467
    
    
    
    412Railway realty rental expenses
    
    
    375
    
    
    
    569
    
    
    
    724
    
    
    
    916Hurricane costs
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    36Total Railway realty rental expenses
    
    
    375
    
    
    
    569
    
    
    
    909
    
    
    
    952Railway realty sales
    
    
    1,055
    
    
    
    
    
    
    
    1,271
    
    
    
    409Total realty
    
    
    33,834
    
    
    
    19,099
    
    
    
    86,066
    
    
    
    36,520Corporate general & administrative
    
    
    4,472
    
    
    
    3,189
    
    
    
    7,880
    
    
    
    15,654Total Expenses
    
    
    88,168
    
    
    
    65,256
    
    
    
    192,035
    
    
    
    136,673Operating Profit (Loss)Railway operations
    
    
    20,150
    
    
    
    15,923
    
    
    
    38,991
    
    
    
    30,935Realty
    
    
    2,998
    
    
    
    5,037
    
    
    
    19,748
    
    
    
    13,956Corporate general & administrative
    
    
    (4,472
    )
    
    
    (3,189
    )
    
    
    (7,880
    )
    
    
    (15,654
    )Segment & consolidated operating profit
    
    
    18,676
    
    
    
    17,771
    
    
    
    50,859
    
    
    
    29,237Minority interest
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    Loss from investment in unconsolidated joint ventures
    
    
    (58
    )
    
    
    
    
    
    
    (58
    )
    
    
    Interest income
    
    
    496
    
    
    
    336
    
    
    
    1,111
    
    
    
    743Interest expense
    
    
    (5,057
    )
    
    
    (5,073
    )
    
    
    (10,183
    )
    
    
    (9,747
    )Other income
    
    
    3,719
    
    
    
    2,997
    
    
    
    5,912
    
    
    
    9,249(896
    )
    
    
    (1,740
    )
    
    
    (3,214
    )
    
    
    245Income before income taxes
    
    
    17,780
    
    
    
    16,031
    
    
    
    47,645
    
    
    
    29,482Provision for income taxes
    
    
    (6,631
    )
    
    
    (5,627
    )
    
    
    (17,771
    )
    
    
    (11,007
    )Income from continuing operations
    
    
    11,149
    
    
    
    10,404
    
    
    
    29,874
    
    
    
    18,475
  18




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Note 14. Related Party Transactions
   Note 15. Taxes Payable
 June 30
    
    December 31(dollars in thousands)
    
    2006
    
    2005Federal income tax
    
    
    1,063
    
    
    
    566State income tax
    
    
    
    
    
    
    Property taxes
    
    
    13,166
    
    
    
    939Other
    
    
    519
    
    
    
    539Taxes payable
    
    
    14,748
    
    
    
    2,044
     Note 16. Cash Deposits, §1031 Escrow Funds and Restricted Cash
    19




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Note 17 Supplemental Employee Retirement Plan
    Note 18. Subsequent Event
  20




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##### Table of Contents



Item 2.
 Managements Discussion and Analysis of the Consolidated
Financial Condition and Results of Operations
 Forward-Looking Statements
   21




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##### Table of Contents



Results of Operations
 Consolidated Results  Second Quarter and Six Months
   22




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##### Table of Contents



Railway  Second Quarter
  TRAFFIC  Three Months Ended June 30
 2006
    
    2005
    
    Percent
    
    2006
    
    2005
    
    PercentCommodity
    
    Units
    
    Units
    
    Variance
    
    Revenues
    
    Revenues
    
    VarianceRail CarloadsCrushed stone (aggregate)
    
    
    40.4
    
    
    
    36.6
    
    
    
    10.4
    
    
    
    21,443
    
    
    
    18,192
    
    
    
    17.9Construction materials
    
    
    2.0
    
    
    
    1.8
    
    
    
    11.1
    
    
    
    1,590
    
    
    
    1,318
    
    
    
    20.6Vehicles
    
    
    5.6
    
    
    
    5.8
    
    
    
    (3.4
    )
    
    
    5,157
    
    
    
    4,732
    
    
    
    9.0Foodstuffs & kindred
    
    
    3.4
    
    
    
    3.5
    
    
    
    (2.9
    )
    
    
    3,153
    
    
    
    3,061
    
    
    
    3.0Chemicals & distillants
    
    
    0.8
    
    
    
    1.0
    
    
    
    (20.0
    )
    
    
    1,166
    
    
    
    1,222
    
    
    
    (4.6
    )Paper & lumber
    
    
    2.0
    
    
    
    1.9
    
    
    
    5.3
    
    
    
    2,250
    
    
    
    2,060
    
    
    
    9.2Other
    
    
    3.6
    
    
    
    3.8
    
    
    
    (5.3
    )
    
    
    3,103
    
    
    
    2,578
    
    
    
    20.4Total carload
    
    
    57.8
    
    
    
    54.4
    
    
    
    6.3
    
    
    
    37,862
    
    
    
    33,163
    
    
    
    14.2Intermodal
    
    
    83.1
    
    
    
    76.1
    
    
    
    9.2
    
    
    
    30,528
    
    
    
    24,729
    
    
    
    23.5Total freight units/revenues
    
    
    140.9
    
    
    
    130.5
    
    
    
    8.0
    
    
    
    68,390
    
    
    
    57,892
    
    
    
    18.1Ancillary revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,622
    
    
    
    999
    
    
    
    62.4Railway segment revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,012
    
    
    
    58,891
    
    
    
    18.9
 RAILWAY OPERATING EXPENSES
 Three MonthsEnded June 302006
    
    2005Compensation & benefits
    
    
    16,197
    
    
    
    14,396Fuel
    
    
    8,781
    
    
    
    5,966Equipment rents (net)
    
    
    963
    
    
    
    1,134Car hire (net)
    
    
    368
    
    
    
    (419
    )Depreciation
    
    
    5,579
    
    
    
    5,399Purchased services
    
    
    2,607
    
    
    
    2,373Repairs to/by others (net)
    
    
    (903
    )
    
    
    (749
    )Load/unload
    
    
    2,478
    
    
    
    2,241Casualty & insurance
    
    
    1,000
    
    
    
    1,558Property taxes
    
    
    1,747
    
    
    
    1,535Materials
    
    
    3,703
    
    
    
    3,248General & administrative expenses
    
    
    2,296
    
    
    
    2,185Outside contractor delivery costs
    
    
    4,219
    
    
    
    3,488Other (1)
    
    
    827
    
    
    
    613Total operating expenses
    
    
    49,862
    
    
    
    42,968
 
 (1)
    
    Second quarter 2006 includes $0.1 million
of hurricane costs, net of recoveries. Second quarter
2005 contained no hurricane costs or recoveries.  23




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24




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##### Table of Contents



Six Months
  TRAFFIC  Six Months Ended June 30
 2006
    
    2005
    
    Percent
    
    2006
    
    2005
    
    PercentCommodity
    
    Units
    
    Units
    
    Variance
    
    Revenues
    
    Revenues
    
    VarianceRail CarloadsCrushed stone (aggregate)
    
    
    79.5
    
    
    
    72.5
    
    
    
    9.7
    
    
    
    41,529
    
    
    
    35,220
    
    
    
    17.9Construction materials
    
    
    3.9
    
    
    
    3.6
    
    
    
    8.3
    
    
    
    3,095
    
    
    
    2,640
    
    
    
    17.2Vehicles
    
    
    12.7
    
    
    
    12.1
    
    
    
    5.0
    
    
    
    11,116
    
    
    
    9,641
    
    
    
    15.3Foodstuffs & kindred
    
    
    6.8
    
    
    
    7.0
    
    
    
    (2.9
    )
    
    
    6,219
    
    
    
    6,029
    
    
    
    3.2Chemicals & distillants
    
    
    1.6
    
    
    
    1.9
    
    
    
    (15.8
    )
    
    
    2,316
    
    
    
    2,322
    
    
    
    (0.3
    )Paper & lumber
    
    
    3.9
    
    
    
    3.7
    
    
    
    5.4
    
    
    
    4,519
    
    
    
    3,985
    
    
    
    13.4Other
    
    
    8.1
    
    
    
    8.2
    
    
    
    (1.2
    )
    
    
    6,206
    
    
    
    5,430
    
    
    
    14.3Total carload
    
    
    116.5
    
    
    
    109.0
    
    
    
    6.9
    
    
    
    75,000
    
    
    
    65,267
    
    
    
    14.9Intermodal
    
    
    162.0
    
    
    
    150.8
    
    
    
    7.4
    
    
    
    58,627
    
    
    
    48,012
    
    
    
    22.1Total freight units/revenues
    
    
    278.5
    
    
    
    259.8
    
    
    
    7.2
    
    
    
    133,627
    
    
    
    113,279
    
    
    
    18.0Ancillary revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,453
    
    
    
    2,155
    
    
    
    60.2Railway segment revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137,080
    
    
    
    115,434
    
    
    
    18.8
 RAILWAY OPERATING EXPENSES
 Six MonthsEnded June 302006
    
    
    2005Compensation & benefits
    
    
    32,702
    
    
    
    29,612Fuel
    
    
    16,631
    
    
    
    11,323Equipment rents (net)
    
    
    2,111
    
    
    
    2,254Car hire (net)
    
    
    393
    
    
    
    (1,312
    )Depreciation
    
    
    11,063
    
    
    
    10,770Purchased services
    
    
    5,352
    
    
    
    4,833Repairs to/by others (net)
    
    
    (1,983
    )
    
    
    (1,559
    )Load/unload
    
    
    4,873
    
    
    
    4,467Casualty & insurance
    
    
    2,106
    
    
    
    2,613Property taxes
    
    
    3,288
    
    
    
    3,070Materials
    
    
    7,057
    
    
    
    6,324General & administrative expenses
    
    
    4,547
    
    
    
    4,212Outside contractor delivery costs
    
    
    8,145
    
    
    
    6,597Other (1)
    
    
    1,804
    
    
    
    1,295Total operating expenses
    
    
    98,089
    
    
    
    84,499
 
 (1)
    
    Six months 2006 includes $0.5 million of
hurricane costs, net of recoveries. Six months 2005
contained no hurricane costs or recoveries.  25




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##### Table of Contents



26




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##### Table of Contents



Realty  Second Quarter
  FLAGLER DEVELOPMENT CONSOLIDATED
 Three Months EndedJune 30(dollars in thousands)
    
    2006
    
    2005Revenues:Rental income
    
    
    19,756
    
    
    
    16,941Rental income  straight-line rent adjustments
    
    
    526
    
    
    
    2,073Operating expense recoveries
    
    
    2,708
    
    
    
    1,999Operating expense recoveries  hurricane related
    
    
    74
    
    
    
    Rental revenues  undeveloped land
    
    
    6
    
    
    
    5Other rental revenues
    
    
    68
    
    
    
    17Total Realty Rental Revenues
    
    
    23,138
    
    
    
    21,035Construction revenues
    
    
    7,446
    
    
    
    Brokerage revenues
    
    
    2,178
    
    
    
    201Property management
    
    
    1,116
    
    
    
    Development & other services
    
    
    185
    
    
    
    Total Realty Services Revenues
    
    
    10,925
    
    
    
    201Land use revenues
    
    
    188
    
    
    
    179Total Realty Rental & Services Revenues
    
    
    34,251
    
    
    
    21,415Realty sales
    
    
    387
    
    
    
    1,273Total Flagler Revenues
    
    
    34,638
    
    
    
    22,688Expenses:Real estate taxes
    
    
    2,816
    
    
    
    2,575Repairs & maintenance
    
    
    899
    
    
    
    707Services, utilities, management costs
    
    
    4,553
    
    
    
    4,112Recoverable expenses  hurricane related
    
    
    179
    
    
    
    16Total recoverable expenses
    
    
    8,447
    
    
    
    7,410Real estate taxes  undeveloped land
    
    
    
    
    
    
    (6
    )Repairs & maintenance
    
    
    (4
    )
    
    
    69Depreciation & amortization
    
    
    7,424
    
    
    
    7,179Salaries, general & administrative
    
    
    51
    
    
    
    24Non-recoverable expenses  hurricane related
    
    
    370
    
    
    
    Total non-recoverable expenses
    
    
    7,841
    
    
    
    7,266Total Realty Rental Expenses
    
    
    16,288
    
    
    
    14,676Construction expenses
    
    
    7,318
    
    
    
    Brokerage expenses
    
    
    1,822
    
    
    
    110Property management
    
    
    698
    
    
    
    Development & other services
    
    
    626
    
    
    
    Total Realty Services Expenses
    
    
    10,464
    
    
    
    110Land and overhead expenses
    
    
    5,597
    
    
    
    3,387Total Realty Rental & Services Expenses
    
    
    32,349
    
    
    
    18,173Realty sales expenses
    
    
    55
    
    
    
    357Total Flagler Expenses
    
    
    32,404
    
    
    
    18,530Operating Profit
    
    
    2,234
    
    
    
    4,158Minority interest
    
    
    4
    
    
    
    Loss from investment in unconsolidated joint ventures
    
    
    (58
    )
    
    
    Interest income
    
    
    257
    
    
    
    74Interest expense
    
    
    (4,985
    )
    
    
    (5,007
    )Other income
    
    
    152
    
    
    
    Loss Before Income Taxes
    
    
    (2,396
    )
    
    
    (775
    )
   27




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##### Table of Contents



FLAGLER DEVELOPMENT  SAME STORE and NEW IN 2005  Three Months Ended June 30
 Same Store
    
    New in 2005(dollars in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Revenues:Rental income
    
    
    16,938
    
    
    
    16,066
    
    
    
    2,818
    
    
    
    875Rental income  straight-line rent adjustments
    
    
    (69
    )
    
    
    1,116
    
    
    
    595
    
    
    
    957Operating expense recoveries
    
    
    1,888
    
    
    
    1,516
    
    
    
    820
    
    
    
    483Operating expense recoveries  hurricane related
    
    
    70
    
    
    
    
    
    
    
    4
    
    
    
    Rental revenues  undeveloped land
    
    
    6
    
    
    
    5
    
    
    
    
    
    
    
    Other rental revenues
    
    
    64
    
    
    
    16
    
    
    
    4
    
    
    
    1Total Realty Rental Revenues
    
    
    18,897
    
    
    
    18,719
    
    
    
    4,241
    
    
    
    2,316Construction revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brokerage revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Land use revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental and Services Revenues
    
    
    18,897
    
    
    
    18,719
    
    
    
    4,241
    
    
    
    2,316Realty sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Flagler Revenues
    
    
    18,897
    
    
    
    18,719
    
    
    
    4,241
    
    
    
    2,316Expenses:Real estate taxes
    
    
    2,342
    
    
    
    2,278
    
    
    
    474
    
    
    
    297Repairs & maintenance
    
    
    826
    
    
    
    671
    
    
    
    73
    
    
    
    36Services, utilities, management costs
    
    
    3,730
    
    
    
    3,553
    
    
    
    823
    
    
    
    559Recoverable expenses  hurricane related
    
    
    171
    
    
    
    16
    
    
    
    8
    
    
    
    Total recoverable expenses
    
    
    7,069
    
    
    
    6,518
    
    
    
    1,378
    
    
    
    892Real estate taxes  undeveloped land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Repairs & maintenance
    
    
    56
    
    
    
    58
    
    
    
    (60
    )
    
    
    11Depreciation & amortization
    
    
    5,550
    
    
    
    5,945
    
    
    
    1,874
    
    
    
    1,234Salaries, general & administrative
    
    
    41
    
    
    
    17
    
    
    
    10
    
    
    
    7Non-recoverable expenses  hurricane related
    
    
    66
    
    
    
    
    
    
    
    304
    
    
    
    Total non-recoverable expenses
    
    
    5,713
    
    
    
    6,020
    
    
    
    2,128
    
    
    
    1,246Total Realty Rental Expenses
    
    
    12,782
    
    
    
    12,538
    
    
    
    3,506
    
    
    
    2,138Construction expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brokerage expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Land and overhead expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental and Services Expenses
    
    
    12,782
    
    
    
    12,538
    
    
    
    3,506
    
    
    
    2,138Realty sales expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Flagler Expenses
    
    
    12,782
    
    
    
    12,538
    
    
    
    3,506
    
    
    
    2,138Operating Profit
    
    
    6,115
    
    
    
    6,181
    
    
    
    735
    
    
    
    178
    28




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##### Table of Contents



FLAGLER DEVELOPMENT  REALTY SERVICES and LAND & CORPORATE OVERHEAD  Three Months Ended June 30
 Realty
    
    Land & CorporateServices
    
    Overhead(dollars in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Revenues: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
    
    
    7,446
    
    
    
    
    
    
    
    
    
    
    
    Brokerage revenues
    
    
    2,178
    
    
    
    201
    
    
    
    
    
    
    
    Property management
    
    
    1,116
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    185
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Revenues
    
    
    10,925
    
    
    
    201
    
    
    
    
    
    
    
    Land use revenues
    
    
    
    
    
    
    
    
    
    
    188
    
    
    
    179Total Realty Rental and Services Revenues
    
    
    10,925
    
    
    
    201
    
    
    
    188
    
    
    
    179Realty sales
    
    
    
    
    
    
    
    
    
    
    387
    
    
    
    1,273Total Flagler Revenues
    
    
    10,925
    
    
    
    201
    
    
    
    575
    
    
    
    1,452Expenses: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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction expenses
    
    
    7,318
    
    
    
    
    
    
    
    
    
    
    
    Brokerage expenses
    
    
    1,822
    
    
    
    110
    
    
    
    
    
    
    
    Property management
    
    
    698
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    626
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Expenses
    
    
    10,464
    
    
    
    110
    
    
    
    
    
    
    
    Land and overhead expenses
    
    
    
    
    
    
    
    
    
    
    5,597
    
    
    
    3,387Total Realty Rental and Services Expenses
    
    
    10,464
    
    
    
    110
    
    
    
    5,597
    
    
    
    3,387Realty sales expenses
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    357Total Flagler Expenses
    
    
    10,464
    
    
    
    110
    
    
    
    5,652
    
    
    
    3,744Operating Profit (Loss)
    
    
    461
    
    
    
    91
    
    
    
    (5,077
    )
    
    
    (2,292
    )
 
  29




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##### Table of Contents



Results from Operations
         30




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##### Table of Contents



31




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##### Table of Contents



Six Months
  FLAGLER DEVELOPMENT CONSOLIDATED
 Six MonthsEnded June 30(dollars in thousands)
    
    2006
    
    2005Revenues:Rental income
    
    
    38,946
    
    
    
    33,105Rental income  straight-line rent adjustments
    
    
    1,535
    
    
    
    4,131Operating expense recoveries
    
    
    5,236
    
    
    
    4,014Operating expense recoveries  hurricane related
    
    
    211
    
    
    
    Rental revenues  undeveloped land
    
    
    13
    
    
    
    9Other rental revenues
    
    
    116
    
    
    
    38Total Realty Rental Revenues
    
    
    46,057
    
    
    
    41,297Construction revenues
    
    
    7,446
    
    
    
    Brokerage revenues
    
    
    2,598
    
    
    
    230Property management
    
    
    1,116
    
    
    
    Development & other services
    
    
    185
    
    
    
    Total Realty Services Revenues
    
    
    11,345
    
    
    
    230Land use revenues
    
    
    361
    
    
    
    461Total Realty Rental and Services Revenues
    
    
    57,763
    
    
    
    41,988Realty sales
    
    
    41,425
    
    
    
    1,473Total Flagler Revenues
    
    
    99,188
    
    
    
    43,461Expenses:Real estate taxes
    
    
    5,668
    
    
    
    4,941Repairs & maintenance
    
    
    1,694
    
    
    
    1,370Services, utilities, management costs
    
    
    9,069
    
    
    
    8,021Recoverable expenses  hurricane related
    
    
    483
    
    
    
    23Total recoverable expenses
    
    
    16,914
    
    
    
    14,355Real estate taxes  undeveloped land
    
    
    
    
    
    
    (57
    )Repairs & maintenance
    
    
    41
    
    
    
    112Depreciation & amortization
    
    
    14,683
    
    
    
    13,238Salaries, general & administrative
    
    
    149
    
    
    
    72Non-recoverable expenses  hurricane related
    
    
    254
    
    
    
    Total non-recoverable expenses
    
    
    15,127
    
    
    
    13,365Total Realty Rental Expenses
    
    
    32,041
    
    
    
    27,720Construction expenses
    
    
    7,318
    
    
    
    Brokerage expenses
    
    
    2,071
    
    
    
    120Property management
    
    
    698
    
    
    
    Development & other services
    
    
    626
    
    
    
    Total Realty Services Expenses
    
    
    10,713
    
    
    
    120Land and overhead expenses
    
    
    10,665
    
    
    
    6,907Total Realty Rental and Services Expenses
    
    
    53,419
    
    
    
    34,747Realty sales expenses
    
    
    30,467
    
    
    
    412Total Flagler Expenses
    
    
    83,886
    
    
    
    35,159Operating Profit
    
    
    15,302
    
    
    
    8,302Minority interest
    
    
    4
    
    
    
    Loss from investment in unconsolidated joint ventures
    
    
    (58
    )
    
    
    Interest income
    
    
    335
    
    
    
    301Interest expense
    
    
    (10,029
    )
    
    
    (9,507
    )Other expense
    
    
    (23
    )
    
    
    (173
    )Income (Loss) Before Income Taxes
    
    
    5,531
    
    
    
    (1,077
    )
   32




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##### Table of Contents



FLAGLER DEVELOPMENT  SAME STORE and NEW IN 2005  Six Months Ended June 30
 Same Store
    
    New in 2005(dollars in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Revenues:Rental income
    
    
    33,602
    
    
    
    31,798
    
    
    
    5,344
    
    
    
    1,307Rental income  straight-line rent adjustments
    
    
    217
    
    
    
    2,423
    
    
    
    1,318
    
    
    
    1,708Operating expense recoveries
    
    
    3,618
    
    
    
    3,202
    
    
    
    1,618
    
    
    
    812Operating expense recoveries  hurricane related
    
    
    189
    
    
    
    
    
    
    
    22
    
    
    
    Rental revenues  undeveloped land
    
    
    13
    
    
    
    9
    
    
    
    
    
    
    
    Other rental revenues
    
    
    109
    
    
    
    35
    
    
    
    7
    
    
    
    3Total Realty Rental Revenues
    
    
    37,748
    
    
    
    37,467
    
    
    
    8,309
    
    
    
    3,830Construction revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brokerage revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Land use revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental and Services Revenues
    
    
    37,748
    
    
    
    37,467
    
    
    
    8,309
    
    
    
    3,830Realty sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Flagler Revenues
    
    
    37,748
    
    
    
    37,467
    
    
    
    8,309
    
    
    
    3,830Expenses:Real estate taxes
    
    
    4,743
    
    
    
    4,449
    
    
    
    925
    
    
    
    492Repairs & maintenance
    
    
    1,544
    
    
    
    1,315
    
    
    
    150
    
    
    
    55Services, utilities, management costs
    
    
    7,513
    
    
    
    7,191
    
    
    
    1,556
    
    
    
    830Recoverable expenses  hurricane related
    
    
    434
    
    
    
    23
    
    
    
    49
    
    
    
    Total recoverable expenses
    
    
    14,234
    
    
    
    12,978
    
    
    
    2,680
    
    
    
    1,377Real estate taxes  undeveloped land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )Repairs & maintenance
    
    
    74
    
    
    
    97
    
    
    
    (33
    )
    
    
    15Depreciation & amortization
    
    
    11,162
    
    
    
    11,543
    
    
    
    3,521
    
    
    
    1,695Salaries, general & administrative
    
    
    52
    
    
    
    49
    
    
    
    97
    
    
    
    23Non-recoverable expenses  hurricane related
    
    
    (53
    )
    
    
    
    
    
    
    307
    
    
    
    Total non-recoverable expenses
    
    
    11,235
    
    
    
    11,689
    
    
    
    3,892
    
    
    
    1,676Total Realty Rental Expenses
    
    
    25,469
    
    
    
    24,667
    
    
    
    6,572
    
    
    
    3,053Construction expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brokerage expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Rental Services Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Land and overhead expenses
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental and Services Expenses
    
    
    25,469
    
    
    
    24,667
    
    
    
    6,572
    
    
    
    3,053Realty sales expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Flagler Expenses
    
    
    25,469
    
    
    
    24,667
    
    
    
    6,572
    
    
    
    3,053Operating Profit
    
    
    12,279
    
    
    
    12,800
    
    
    
    1,737
    
    
    
    777
    33




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##### Table of Contents



FLAGLER DEVELOPMENT  REALTY SERVICES and LAND & CORPORATE OVERHEAD  Six Months Ended June 30
 Realty
    
    Land & CorporateServices
    
    Overhead(dollars in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Revenues: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
    
    
    7,446
    
    
    
    
    
    
    
    
    
    
    
    Brokerage revenues
    
    
    2,598
    
    
    
    230
    
    
    
    
    
    
    
    Property management
    
    
    1,116
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    185
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Revenues
    
    
    11,345
    
    
    
    230
    
    
    
    
    
    
    
    Land use revenue
    
    
    
    
    
    
    
    
    
    
    361
    
    
    
    461Total Realty Rental and Services Revenues
    
    
    11,345
    
    
    
    230
    
    
    
    361
    
    
    
    461Realty sales
    
    
    
    
    
    
    
    
    
    
    41,425
    
    
    
    1,473Total Flagler Revenues
    
    
    11,345
    
    
    
    230
    
    
    
    41,786
    
    
    
    1,934Expenses: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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction expenses
    
    
    7,318
    
    
    
    
    
    
    
    
    
    
    
    Brokerage expenses
    
    
    2,071
    
    
    
    120
    
    
    
    
    
    
    
    Property management
    
    
    698
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    626
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Expenses
    
    
    10,713
    
    
    
    120
    
    
    
    
    
    
    
    Land and overhead expenses
    
    
    
    
    
    
    
    
    
    
    10,665
    
    
    
    6,907Total Realty Rental and Services Expenses
    
    
    10,713
    
    
    
    120
    
    
    
    10,665
    
    
    
    6,907Realty sales expenses
    
    
    
    
    
    
    
    
    
    
    30,467
    
    
    
    412Total Flagler Expenses
    
    
    10,713
    
    
    
    120
    
    
    
    41,132
    
    
    
    7,319Operating Profit (Loss)
    
    
    632
    
    
    
    110
    
    
    
    654
    
    
    
    (5,385
    )
 
  34




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##### Table of Contents



Results from Continuing Operations
        35




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##### Table of Contents



Railway Realty Rental and Sales
  Corporate Expenses
 Second Quarter and Six Months
   Interest Expense
 Second Quarter and Six Months
  Other Income
 Second Quarter and Six Months
  36




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##### Table of Contents



Income Tax
  Discontinued Operations
  37




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##### Table of Contents



Financial Condition, Liquidity and Capital Resources
  Six MonthsEnded June 30(dollars in thousands  unaudited)
    
    2006
    
    2005Cash Flows from Operating ActivitiesNet income
    
    
    35,698
    
    
    
    18,475Adjustments to reconcile net income to cash generated by operating activities:Depreciation and amortization
    
    
    28,563
    
    
    
    26,324Non-cash charge from hurricane, net of recoveries
    
    
    360
    
    
    
    Gain on disposition of properties, including those discontinued
    
    
    (23,629
    )
    
    
    (5,958
    )Deferred taxes
    
    
    (1,052
    )
    
    
    (3,493
    )Stock compensation expense (Note 10)
    
    
    5,539
    
    
    
    7,192Changes in operating assets and liabilities:Accounts receivable
    
    
    1,438
    
    
    
    (1,081
    )Prepaid expenses
    
    
    215
    
    
    
    13Materials and supplies
    
    
    (450
    )
    
    
    (1,417
    )Straight line rent
    
    
    (1,464
    )
    
    
    (812
    )Prepaid commissions
    
    
    (2,985
    )
    
    
    (2,068
    )Other assets and deferred charges
    
    
    1,722
    
    
    
    (3,531
    )Accounts payable
    
    
    (9,006
    )
    
    
    (8,119
    )Taxes payable
    
    
    11,905
    
    
    
    14,453Income tax refund
    
    
    
    
    
    
    2,800Other current liabilities
    
    
    1,829
    
    
    
    (2,498
    )Other long-term liabilities
    
    
    (119
    )
    
    
    (969
    )Net cash generated by operating activities
    
    
    48,564
    
    
    
    39,311Cash Flows from Investing ActivitiesPurchases of properties and equipment
    
    
    (75,520
    )
    
    
    (124,325
    )Acquisition of Codina Group Inc. and related interests, net of cash acquired
    
    
    (65,533
    )
    
    
    Investment in unconsolidated joint ventures
    
    
    (6,316
    )
    
    
    Increase in restricted cash
    
    
    (77
    )
    
    
    Proceeds from disposition of assets, including those discontinued
    
    
    57,050
    
    
    
    6,779Net cash used in investing activities
    
    
    (90,396
    )
    
    
    (117,546
    )Cash Flows from Financing ActivitiesBorrowings from long term debt
    
    
    230
    
    
    
    Payment of mortgage debt
    
    
    (2,561
    )
    
    
    (2,412
    )Payment of acquired debt
    
    
    (30,117
    )
    
    
    Payment of dividends
    
    
    (4,485
    )
    
    
    (3,567
    )Proceeds from exercise of options
    
    
    9,478
    
    
    
    9,654Tax benefit associated with equity based compensation
    
    
    3,980
    
    
    
    2,163Stock repurchase program payments (Note 7)
    
    
    
    
    
    
    (2,289
    )Purchase of common stock
    
    
    (1,894
    )
    
    
    (1,750
    )Investment by minority interest
    
    
    250
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (25,119
    )
    
    
    1,799Net Decrease in Cash and Cash Equivalents
    
    
    (66,951
    )
    
    
    (76,436
    )Cash and Cash Equivalents at Beginning of Period
    
    
    75,990
    
    
    
    126,166Cash and Cash Equivalents at End of Period
    
    
    9,039
    
    
    
    49,730Supplemental Disclosure of Cash Flow InformationCash paid for income taxes (net of refunds)
    
    
    19,027
    
    
    
    5,200Cash paid for interest
    
    
    11,351
    
    
    
    10,983
    38




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##### Table of Contents



Supplemental Schedule on Non-Cash Investing and financing activities
  (dollars in thousands)Fair value of assets acquired
    
    
    246,107Acquisition transaction costs
    
    
    5,345Equity issued for initial consideration
    
    
    (76,412
    )Cash paid for acquired Company (1)
    
    
    (71,190
    )Liabilities assumed
    
    
    103,850
 
 (1)
    
    Reconciliation to Statements of Cash Flows Cash paid for acquired Company
    
    
    71,190Less cash acquired
    
    
    (4,125
    )Less transaction costs paid in 2005
    
    
    (1,532
    )Acquisition of Codina Group, Inc. per Statements of Cash Flows
    
    
    65,533
      39




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##### Table of Contents



40




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##### Table of Contents



Off Balance Sheet Arrangements
  Contractual Obligations and Commercial Commitments  Contractual Obligations  Payments due by Period
 Less(3)Contractual Cash Obligations
    
    
    
    
    
    than 1
    
    
    
    
    
    
    
    
    
    After 5At June 30, 2006
    
    Total
    
    year
    
    2-3 years
    
    4-5 years
    
    yearsLong-term debt obligations (2)
    
    
    433,633
    
    
    
    15,822
    
    
    
    132,389
    
    
    
    41,710
    
    
    
    243,712Capital lease obligations
    
    
    633
    
    
    
    93
    
    
    
    370
    
    
    
    170
    
    
    
    Operating lease obligations
    
    
    43,179
    
    
    
    2,416
    
    
    
    5,352
    
    
    
    2,167
    
    
    
    33,244Unconditional purchase obligations (1)
    
    
    15,692
    
    
    
    12,207
    
    
    
    3,189
    
    
    
    296
    
    
    
    Other long-term obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    
    493,137
    
    
    
    30,538
    
    
    
    141,300
    
    
    
    44,343
    
    
    
    276,956
 
 (1)
    
    Unconditional purchase obligations at June 30, 2006 consisted of
outstanding forward purchase agreements for diesel fuel at FECR and various
purchase agreements.(2)
    
    Includes payments of principal and interest.(3)
    
    Represents the remaining six months of 2006. Amount of Commitments  Expiration per Period
 Total
    
    Less(2)Other Commercial Commitments
    
    Amounts
    
    than 1
    
    
    
    
    
    
    
    
    
    Over 5at June 30, 2006
    
    Committed
    
    year
    
    2-3 years
    
    4-5 years
    
    yearsLines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Standby letters of credit (1)
    
    
    615
    
    
    
    129
    
    
    
    486
    
    
    
    
    
    
    
    Guarantees
    
    
    2,549
    
    
    
    
    
    
    
    2,549
    
    
    
    
    
    
    
    Other commercial commitments
    
    
    41,296
    
    
    
    40,546
    
    
    
    750
    
    
    
    
    
    
    
    Total commercial commitments
    
    
    44,460
    
    
    
    40,675
    
    
    
    3,785
    
    
    
    
    
    
    
    
 
 (1)
    
    Excludes letters of credit for AMB Codina Lakes, LLC (a Codina joint venture with
AMB Properties in West Dade) in the amounts of $190,374 and $433,218 with expirations in 2-3
years and over 5 years, respectively.(2)
    
    Represents the remaining six months of 2006.   41




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##### Table of Contents



OTHER MATTERS
 Critical Accounting Policies
  Allocation of Acquisition Costs
   Principles of Consolidation
 Emerging Issues Task Force Abstracts
  Impairment of Long-lived Assets
 42




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##### Table of Contents



Income Tax Provisions
   Revenue Recognition
 Realty Rental Revenues
 Realty Sales
 43




---



##### Table of Contents



Construction Contracts
  Real Estate Infrastructure Costs
   Cost Capitalization
  44




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##### Table of Contents



Contingencies
 
 Item 3.
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 Item 4.
 CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
   45




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##### Table of Contents



PART II
 
 Item 1.
 LEGAL PROCEEDINGS
  
 Item 1A.
 RISK FACTORS
  Concentration Risks of Business with Aggregate Customers:
   Windstorms
 46




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##### Table of Contents



Item 2.
 UNREGISTERED SALES OF EQUITY SECURITIES  AND USE OF PROCEEDS
   Average Price
    
    Total Number of Shares
    
    Maximum Amount ofPaid Per Share
    
    Purchased as Part of
    
    Value that may yet beTotal Number of
    
    (including
    
    Publicly Announced Plans
    
    Purchased under theShares Purchased
    
    commissions)
    
    or Programs
    
    Plans or ProgramsApril
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,711,048May
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,711,048June
    
    
    3,864

(1)
    
    $
    53.69
    
    
    
    
    
    
    
    37,711,048
 
 (1)
    
    Shares purchased represent shares surrendered to the Company for federal withholding
obligations related to employees vesting on previously restricted stock.   47




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##### Table of Contents



Item 4.
 SUBMISSION OF MATTERS TO A  VOTE OF SECURITY HOLDERS
  Proposal 1:
 Number of Votes CastCommon Class
    
    Votes For
    
    Votes WithheldArmando Codina
    
    
    30,328,981
    
    
    
    487,058David M. Foster
    
    
    27,425,484
    
    
    
    3,390,555Adolfo Henriques
    
    
    27,422,472
    
    
    
    3,393,567James E. Jordan
    
    
    27,161,258
    
    
    
    3,654,781Gilbert H. Lamphere
    
    
    27,124,030
    
    
    
    3,692,009Joseph Nemec
    
    
    27,159,180
    
    
    
    3,656,859Jorge Perez
    
    
    27,421,333
    
    
    
    3,394,706Wellford L. Sanders, Jr.
    
    
    27,391,165
    
    
    
    3,424,874Rosa Sugrañes
    
    
    30,589,995
    
    
    
    226,044George R. Zoffinger
    
    
    30,598,100
    
    
    
    217,939
 Proposal 2:
 Votes For
    
    Votes Against
    
    Abstention
    
    Broker Non-Votes30,625,114
    
    160,461
    
    30,464
    
    0
 
 Item 6.
 EXHIBITS
 (a)
    
    ExhibitsThe Exhibits listed on the accompanying Index to Exhibits are filed as part of this Report or
furnished with this Report.
 48




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##### Table of Contents



SIGNATURES
  FLORIDA EAST COAST INDUSTRIES, INC.
  Dated:  August 8, 2006
    /s/ Amy BramlittAmy BramlittVice President and ControllerDated:  August 8, 2006
    /s/ Daniel H. PopkyDaniel H. Popky, Executive Vice Presidentand Chief Financial Officer 49




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##### Table of Contents



INDEX TO EXHIBITS
 S-K ITEM 601
    
    DOCUMENTS2
    (i)
    
    Codina acquisition documents
    
    (8)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)
    

Shareholders Agreement dated as of October 26, 1999 among Alfred I. duPont Testamentary Trust, Nemours Foundation and Florida East Coast Industries, Inc.
    
    (6)10
    (d)
    
    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
    (e)
    
    Representative Change in Control Agreement between FECI and certain FECI Executive Officers
    
    (4)10
    (f)
    
    2002 Stock Incentive Plan, as amended
    
    (14)10
    (g)
    
    FECI 2002 Employee Stock Purchase Plan
    
    (10)10
    (h)
    
    Stock Purchase Agreement dated as of August 4, 2004 between Florida East Coast Industries,
Inc. and Alfred I. duPont Testamentary Trust and the Nemours Foundation
    
    (11)10
    (i)
    
    Mortgage Notes dated as of August 10, 2004 between Flagler Development Company and
Metropolitan Life Insurance Company
    
    (12)10
    (j)
    
    Representative Restricted Stock Agreement dated August 25, 2004 between FECI and certain
Executive Officers
    
    (13)10
    (k).1 - 10(k).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.
    
    (7)10
    (l)
    
    Supplemental Employee Retirement Plan (SERP) dated as of March 28, 2005.
    
    (7)10
    (m)
    
    Codina acquisition documents
    
    (8)10
    (n)
    
    First Amendment to Credit Agreement, 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 Arranger10
    (o)
    
    Employment and Change in Control Agreements dated April 27, 2006, effective April 27, 2006,
between FECI and Armando Codina.
    
    (9)10
    (p)
    
    Restricted stock agreement dated May 3, 2006 between FECI and Jorgé San Miguel.10
    (q)
    
    Representative restricted stock agreement between FECI and certain employees of Codina Group31.1
     31.2
    
    Section 302 Certifications32.1
    
    
    Section 906 Certification
 50




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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 an exhibit to Form
8-K with the Securities and Exchange Commission on February 24, 2005.(3)
    
    These documents filed on Form 10-Q with the Securities and Exchange
Commission on August 14, 2001 and November 8, 2001.(4)
    
    This document filed 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)
    
    Shareholders Agreement, incorporated by reference to Appendix C to the
definitive Proxy Statement on Schedule 14A, was filed with the Securities and Exchange
Commission on February 4, 2000 (Registration No. 001-08728).(7)
    
    These documents dated February 10, 2005 and March 28, 2005, are filed as
an exhibit to Form 10-Q with the Securities and Exchange Commission on April 22, 2005.(8)
    
    These documents dated January 5, 2006 are filed as an Exhibit 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.(9)
    
    These documents dated April 27, 2006 are filed as an Exhibit to Form 8-K
with the Securities and Exchange Commission on May 2, 2006.(10)
    
    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).(11)
    
    These documents, dated August 4, 2004, are filed as exhibits to Form
10-Q with the Securities and Exchange Commission on August 9,
2004.(12)
    
    These documents, dated August 10, 2004, are filed on Form 8-K with the
Securities and Exchange Commission on August 17, 2004.(13)
    
    This document dated August 25, 2004, is filed as an exhibit to Form
10-Q with the Securities and Exchange Commission on November 3, 2004.(14)
    
    This document, dated June 2, 2005, is filed as an exhibit to Form 10-K
with the Securities and Exchange Commission on March 1, 2006. 51