##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For
the quarterly period ended March 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 Number 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 Street
St. Augustine, Florida
    
    32084(Address of principal executive offices)
    
    (Zip Code)
 (904) 829-3421
 þ o
 þ o o
 o þ
  Class
    
    Outstanding at March 31, 2006Common Stock-no par value
    
    33,292,782 shares




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##### 



FLORIDA EAST COAST INDUSTRIES, INC.
 INDEX
 PageNumbersPART IFINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets  March 31, 2006 and December 31, 2005
    
    
    2Consolidated
Statements of Income  Three Months Ended March 31, 2006 and 2005
    
    
    3Consolidated
Statements of Cash Flows  Three Months Ended March 31, 2006 and 2005
    
    
    4Notes to Consolidated Financial Statements
    
    5  14Item 2.
    
    Managements Discussion and Analysis of the Consolidated
Financial Condition and Results of OperationsComparison of First Quarter 2006 versus First Quarter 2005
    
    15  22Changes in Financial Condition, Liquidity and Capital Resources
    
    23  25Other Matters
    
    25  27Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    27PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    28Item 1A.
    
    Risk Factors
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    28  29Item 6.
    
    Exhibits
    
    
    30Ex-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
  March 31
    
    December 312006
    
    2005(unaudited)AssetsCurrent Assets:Cash and cash equivalents (Note 13)
    
    
    107,893
    
    
    
    75,990Accounts receivable (net)
    
    
    38,498
    
    
    
    35,732Materials and supplies
    
    
    4,151
    
    
    
    3,840Assets held for sale (Note 10)
    
    
    1,380
    
    
    
    9,761Deferred income taxes
    
    
    355
    
    
    
    1,345Prepaid expenses
    
    
    7,405
    
    
    
    6,727Straight line rent
    
    
    4,628
    
    
    
    4,429Total Current Assets
    
    
    164,310
    
    
    
    137,824Long Term Assets:Properties, less accumulated depreciation and amortization
    
    
    961,789
    
    
    
    955,395Building intangible assets, less amortization
    
    
    9,301
    
    
    
    9,696Prepaid commissions
    
    
    12,038
    
    
    
    11,486Straight line rent
    
    
    18,513
    
    
    
    17,717Other assets
    
    
    5,109
    
    
    
    5,626Total Long Term Assets
    
    
    1,006,750
    
    
    
    999,920Total Assets
    
    
    1,171,060
    
    
    
    1,137,744Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable and accrued expenses
    
    
    36,480
    
    
    
    48,544Taxes payable (Note 12)
    
    
    19,228
    
    
    
    2,044Deferred revenue
    
    
    13,383
    
    
    
    5,527Short-term debt (Note 7)
    
    
    5,276
    
    
    
    5,198Short-term accrued casualty
    
    
    634
    
    
    
    618Amounts due to contractors
    
    
    1,022
    
    
    
    1,879Accrued interest
    
    
    1,889
    
    
    
    1,880Other accrued liabilities
    
    
    1,875
    
    
    
    2,442Total Current Liabilities
    
    
    79,787
    
    
    
    68,132Deferred Income Taxes
    
    
    185,170
    
    
    
    187,241Long-Term Debt(net of current portion) (Note 7)
    
    
    331,411
    
    
    
    332,760Accrued Casualty and Other Long-Term Liabilities
    
    
    11,059
    
    
    
    11,449Shareholders EquityCommon Stock: (Note 8)
    
    
    139,245
    
    
    
    130,098Common stock, no par value; 150,000,000 shares
authorized; 39,805,476 shares issued and 33,292,782
shares outstanding at March 31, 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 3.3
years) restricted stock deferred compensation of
$15,459 and $10,860, respectively.Retained earnings
    
    
    632,387
    
    
    
    615,656Treasury stock at cost (6,512,694 shares at March 31,
2006 and 6,504,123 shares at December 31, 2005) (Note 5)
    
    
    (207,999
    )
    
    
    (207,592
    )Total Shareholders Equity
    
    
    563,633
    
    
    
    538,162Total Liabilities and Shareholders Equity
    
    
    1,171,060
    
    
    
    1,137,744
 
 2




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##### Table of Contents



FLORIDA EAST COAST INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
   Three MonthsEnded March 312006
    
    2005Operating revenues:Railway operations
    
    
    67,068
    
    
    
    56,543Realty rental and services
    
    
    24,423
    
    
    
    21,455Flagler CAM recoveries associated with hurricanes (Note 3)
    
    
    137
    
    
    
    Total realty rental and services
    
    
    24,560
    
    
    
    21,455Realty sales
    
    
    44,422
    
    
    
    4,885Total revenues
    
    
    136,050
    
    
    
    82,883Operating expenses:Railway operations
    
    
    47,872
    
    
    
    41,531Hurricane costs (Note 3)
    
    
    640
    
    
    
    Hurricane crossing reimbursement (recoveries)
    
    
    (285
    )
    
    
    Total railway operations
    
    
    48,227
    
    
    
    41,531Realty rental and services
    
    
    21,231
    
    
    
    16,914Hurricane costs (Note 3)
    
    
    507
    
    
    
    43Hurricane assets write-offs
    
    
    38
    
    
    
    Hurricane insurance recoveries
    
    
    (172
    )
    
    
    Total realty rental and services
    
    
    21,604
    
    
    
    16,957Realty sales
    
    
    30,628
    
    
    
    464Corporate general & administrative
    
    
    3,408
    
    
    
    12,465Total expenses
    
    
    103,867
    
    
    
    71,417Operating profit
    
    
    32,183
    
    
    
    11,466Interest income
    
    
    615
    
    
    
    407Interest expense
    
    
    (5,126
    )
    
    
    (4,674
    )Other income (Note 6)
    
    
    2,193
    
    
    
    6,252(2,318
    )
    
    
    1,985Income before income taxes
    
    
    29,865
    
    
    
    13,451Provision for income taxes
    
    
    (11,140
    )
    
    
    (5,380
    )Net income
    
    
    18,725
    
    
    
    8,071Earnings Per ShareNet income  basic
    
    $
    0.57
    
    
    $
    0.25Net income  diluted
    
    $
    0.57
    
    
    $
    0.25Average shares outstanding  basic
    
    
    32,796,096
    
    
    
    31,868,687Average shares outstanding  diluted
    
    
    32,998,557
    
    
    
    32,643,728
 
 3




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##### Table of Contents



FLORIDA EAST COAST INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Three MonthsEnded March 312006
    
    2005Cash Flows from Operating ActivitiesNet income
    
    
    18,725
    
    
    
    8,071Adjustments to reconcile net income to cash generated by operating activities:Depreciation and amortization
    
    
    14,337
    
    
    
    12,871Gain on disposition of properties
    
    
    (13,794
    )
    
    
    (4,421
    )Deferred taxes
    
    
    (1,428
    )
    
    
    2,225Stock compensation expense
    
    
    2,389
    
    
    
    6,316Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,766
    )
    
    
    1,054Prepaid expenses
    
    
    (921
    )
    
    
    (726
    )Materials and supplies
    
    
    (311
    )
    
    
    (1,824
    )Straight line rent
    
    
    (995
    )
    
    
    (2,047
    )Prepaid commissions
    
    
    (1,674
    )
    
    
    (1,926
    )Other assets and deferred charges
    
    
    518
    
    
    
    1,768Accounts payable
    
    
    (12,000
    )
    
    
    (9,923
    )Taxes payable
    
    
    17,184
    
    
    
    7,153Income tax refund
    
    
    
    
    
    
    2,800Deferred revenue
    
    
    7,856
    
    
    
    (586
    )Amounts due to contractors
    
    
    (857
    )
    
    
    (14
    )Other current liabilities
    
    
    (558
    )
    
    
    3,464Accrued casualty and other long-term liabilities
    
    
    (374
    )
    
    
    (603
    )Net cash generated by operating activities
    
    
    25,331
    
    
    
    23,652Cash Flows from Investing ActivitiesPurchases of properties
    
    
    (41,907
    )
    
    
    (97,010
    )Proceeds from disposition of assets
    
    
    45,110
    
    
    
    4,885Net cash provided by (used in) investing activities
    
    
    3,203
    
    
    
    (92,125
    )Cash Flows from Financing ActivitiesPayment of mortgage debt
    
    
    (1,271
    )
    
    
    (1,197
    )Payment of dividends
    
    
    (1,994
    )
    
    
    (1,615
    )Proceeds from exercise of options
    
    
    6,722
    
    
    
    2,269Tax benefit associated with equity based compensation
    
    
    1,581
    
    
    
    838Stock repurchase program payments (Note 5)
    
    
    
    
    
    
    (84
    )Purchase of common stock
    
    
    (1,669
    )
    
    
    (1,731
    )Net cash provided by (used in) financing activities
    
    
    3,369
    
    
    
    (1,520
    )Net Increase (decrease) in Cash and Cash Equivalents
    
    
    31,903
    
    
    
    (69,993
    )Cash and Cash Equivalents at Beginning of Period
    
    
    75,990
    
    
    
    126,166Cash and Cash Equivalents at End of Period
    
    
    107,893
    
    
    
    56,173Supplemental Disclosure of Cash Flow InformationCash paid (received) for income taxes
    
    
    300
    
    
    
    (2,800
    )Cash paid for interest
    
    
    5,664
    
    
    
    5,472
 
 4




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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, 457 acres in Hialeah plus an additional 40 adjacent acres; future plans
are for the creation of a large industrial 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 to be developed in Coral Gables
during 2006
  *
    
    Beacon Lakes, 21.2% interest in ventures with AMB Properties that owns a 432-acre
industrial park, including three industrial buildings and entitlements for an additional 6.2
million sq. ft. in West Dade*
    
    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 into approximately 2,840 residential
units and 72 office condominiums*
    
    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.
 5




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##### Table of Contents



Note 3. Impact from Hurricanes
     6




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##### Table of Contents



2005 HURRICANE COST AND RECOVERY SUMMARY
 Total
    
    Cost (Recovery)Estimated
    
    recognized
    
    Cost (Recovery)Cost and
    
    in first quarter
    
    recognized(dollars in thousands)
    
    (Recovery) *
    
    of 2006
    
    since inceptionRailwayOperating expenses (Hurricane Costs)
    
    
    3,475
    
    
    
    640
    
    
    
    3,246Capital expenditures (Properties)
    
    
    
    
    
    
    
    
    
    
    Hurricane crossing reimbursement (recoveries) (net)
    
    
    (902
    )
    
    
    (285
    )
    
    
    (902
    )Insurance recovery **
    
    
    
    
    
    
    
    
    
    
    Other RentalOperating expenses (Hurricane Costs)
    
    
    495
    
    
    
    185
    
    
    
    469FlaglerOperating expenses (Hurricane Costs)
    
    
    1,666
    
    
    
    322
    
    
    
    1,094Capital expenditures (Properties)
    
    
    5,362
    
    
    
    492
    
    
    
    771Asset write-off due to replacement ***
    
    
    1,928
    
    
    
    38
    
    
    
    225Flagler CAM recoveries associated with Hurricane
    
    
    (734
    )
    
    
    (137
    )
    
    
    (480
    )Insurance recovery
    
    
    (3,845
    )
    
    
    (172
    )
    
    
    (172
    )
 
 *
    
    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.**
    
    The Railways insurance recovery (primarily business interruption) cannot be reasonably
estimated for accounting purposes at this time as discussions with our insurance carrier are
in the beginning stages. We expect these discussions to continue throughout 2006.***
    
    Represents assets (primarily roofs) expected to be replaced in 2006 and their related
write-off of remaining net book value. Note 4. Commitments and Contingencies
       7




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Note 5. Dividends and Stock Repurchase
   Note 6. Other Income
 Three MonthsEnded March 31(dollars in thousands)
    
    2006
    
    2005Pipe & wire crossings/signboards
    
    
    674
    
    
    
    1,695Fiber lease income
    
    
    1,759
    
    
    
    1,750Air rights income
    
    
    
    
    
    
    3,049Other (net)
    
    
    (240
    )
    
    
    (242
    )2,193
    
    
    
    6,252
  Note 7. Debt
    8




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##### Table of Contents



Note 8. Stock-Based Compensation
    9




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##### Table of Contents



Three Months Ended
    
    Years EndedMarch 31
    
    December 312006
    
    2005
    
    2005
    
    2004Stock compensation cost ($ in
thousands) for share-based
payment plans:Stock options
    
    
    19
    
    
    
    458
    *
    
    
    458
    *
    
    
    2,009
    **Restricted stock
    
    
    2,359
    ***
    
    
    5,858
    *
    
    
    9,442
    *
    
    
    2,810Employee Stock Purchase Plan
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    2,389
    
    
    
    6,316
    
    
    
    9,900
    
    
    
    4,819Amount of related income tax
benefit recognized
    
    
    919
    
    
    
    2,431
    
    
    
    3,811
    
    
    
    1,855
 *
    
    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.**
    
    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 $2.0 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 $2.0 million with respect to
the Transaction, which is included in the above amount.***
    
    Included in this amount is $1.1 million of accelerated vesting related to the
former President of Flagler Development Company.
  Stock Options
 Weighted
    
    Weighted
    
    AggregateAverage
    
    Average
    
    IntrinsicNumber of
    
    Exercise
    
    Remaining
    
    ValueShares
    
    Price
    
    Contractual Term
    
    ($ in thousands)Outstanding balance at December 31, 2005
    
    
    616,487
    
    
    $
    31.78
    
    
    
    3.5
    
    
    
    Changes during the year:Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (202,659
    )
    
    $
    33.17
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding balance at March 31, 2006
    
    
    413,828
    
    
    $
    31.10
    
    
    
    3.4
    
    
    $
    9,433Exercisable at March 31, 2006
    
    
    410,888
    
    
    $
    31.17
    
    
    
    3.3
    
    
    $
    9,338
 10




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##### Table of Contents



Non-Vested Restricted Stock
 WeightedAverageNumber of
    
    Grant Date FairShares
    
    ValueOutstanding balance at December 31, 2005
    
    
    355,790
    
    
    $
    40.40Changes during the year:Granted
    
    
    139,644
    
    
    $
    49.82Vested
    
    
    (108,339
    )
    
    $
    40.99Forfeited
    
    
    (720
    )
    
    $
    38.59Outstanding balance at March 31, 2006
    
    
    386,375
    
    
    $
    43.64
   Three MonthsEnded March 31(dollars in thousands, except per share amounts)
    
    2006
    
    2005
    
    2004Net income  as reported inclusive of compensation
cost for restricted stock.
    
    
    18,725
    
    
    
    8,071
    
    
    
    8,322Stock-based compensation expense included in
reported income for all stock option awards (net of
related tax effects)
    
    
    19
    
    
    
    
    
    
    
    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)
    
    
    (19
    )
    
    
    (110
    )
    
    
    (190
    )Pro forma net income
    
    
    18,725
    
    
    
    7,961
    
    
    
    8,132Earnings per share:Basic  as reported
    
    $
    0.57
    
    
    $
    0.25
    
    
    $
    0.23Basic  pro forma
    
    $
    0.57
    
    
    $
    0.25
    
    
    $
    0.22Diluted  as reported
    
    $
    0.57
    
    
    $
    0.25
    
    
    $
    0.22Diluted  pro forma
    
    $
    0.57
    
    
    $
    0.24
    
    
    $
    0.22
 Note 9. Earnings Per Share
  Note 10. Realty Acquisitions, Land Sales and Associated Costs
  11




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##### Table of Contents



Note 11. Segment Information
       12




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##### Table of Contents



Information by industry segment:
 Three MonthsEnded March 31(dollars in thousands)
    
    2006
    
    2005Operating RevenuesRailway operations
    
    
    67,068
    
    
    
    56,543Realty:Flagler realty rental and services
    
    
    23,375
    
    
    
    20,573Flagler CAM recoveries associated with hurricanes
    
    
    137
    
    
    
    Total Flagler realty rental and services
    
    
    23,512
    
    
    
    20,573Flagler realty sales
    
    
    41,038
    
    
    
    200Other realty rental
    
    
    1,048
    
    
    
    882Other realty sales
    
    
    3,384
    
    
    
    4,685Total realty
    
    
    68,982
    
    
    
    26,340Total Revenues
    
    
    136,050
    
    
    
    82,883Operating ExpensesRailway operations:Railway operations
    
    
    47,872
    
    
    
    41,531Hurricane costs
    
    
    640
    
    
    
    Hurricane crossing reimbursement (recoveries) (net)
    
    
    (285
    )
    
    
    Total Railway operations
    
    
    48,227
    
    
    
    41,531Realty:Flagler realty rental and services
    
    
    20,882
    
    
    
    16,567Hurricane costs
    
    
    322
    
    
    
    7Hurricane asset write-offs
    
    
    38
    
    
    
    Hurricane insurance recoveries
    
    
    (172
    )
    
    
    Total Flagler realty rental and services
    
    
    21,070
    
    
    
    16,574Flagler realty sales
    
    
    30,412
    
    
    
    55Other realty rental
    
    
    349
    
    
    
    347Hurricane costs
    
    
    185
    
    
    
    36Total other realty rental
    
    
    534
    
    
    
    383Other realty sales
    
    
    216
    
    
    
    409Total realty
    
    
    52,232
    
    
    
    17,421Corporate general & administrative
    
    
    3,408
    
    
    
    12,465Total Expenses
    
    
    103,867
    
    
    
    71,417Operating ProfitRailway operations
    
    
    18,841
    
    
    
    15,012Realty
    
    
    16,750
    
    
    
    8,919Corporate general & administrative
    
    
    (3,408
    )
    
    
    (12,465
    )Operating Profit
    
    
    32,183
    
    
    
    11,466Interest income
    
    
    615
    
    
    
    407Interest expense
    
    
    (5,126
    )
    
    
    (4,674
    )Other income
    
    
    2,193
    
    
    
    6,252(2,318
    )
    
    
    1,985Income before income taxes
    
    
    29,865
    
    
    
    13,451Provision for income taxes
    
    
    (11,140
    )
    
    
    (5,380
    )Net Income
    
    
    18,725
    
    
    
    8,071
  13




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##### Table of Contents



Note 12. Taxes Payable
 March 31
    
    
    December 31(dollars in thousands)
    
    2006
    
    
    2005Federal income tax
    
    
    12,598
    
    
    
    566State income tax
    
    
    
    
    
    
    Property taxes
    
    
    6,149
    
    
    
    939Other
    
    
    481
    
    
    
    539Taxes payable
    
    
    19,228
    
    
    
    2,044
    Note 13. Cash Deposits and §1031 Escrow Funds
   Note 14 Supplemental Employee Retirement Plan
   14




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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
  15




---



##### Table of Contents



Results of Operations
 Consolidated Results  First Quarter
  Railway  First Quarter
  TRAFFIC  Three Months Ended March 31
 2006
    
    2005
    
    Percent
    
    2006
    
    2005
    
    PercentCommodity
    
    Units
    
    Units
    
    Variance
    
    Revenues
    
    Revenues
    
    VarianceRail CarloadsCrushed stone (aggregate)
    
    
    39.1
    
    
    
    35.9
    
    
    
    8.9
    
    
    
    20,086
    
    
    
    17,028
    
    
    
    18.0Construction materials
    
    
    1.9
    
    
    
    1.8
    
    
    
    5.6
    
    
    
    1,505
    
    
    
    1,322
    
    
    
    13.8Vehicles
    
    
    7.1
    
    
    
    6.3
    
    
    
    12.7
    
    
    
    5,959
    
    
    
    4,909
    
    
    
    21.4Foodstuffs & kindred
    
    
    3.4
    
    
    
    3.5
    
    
    
    (2.9
    )
    
    
    3,066
    
    
    
    2,968
    
    
    
    3.3Chemicals & distillants
    
    
    0.8
    
    
    
    0.9
    
    
    
    (11.1
    )
    
    
    1,150
    
    
    
    1,100
    
    
    
    4.5Paper & lumber
    
    
    1.9
    
    
    
    1.8
    
    
    
    5.6
    
    
    
    2,269
    
    
    
    1,925
    
    
    
    17.9Other
    
    
    4.5
    
    
    
    4.4
    
    
    
    2.3
    
    
    
    3,103
    
    
    
    2,852
    
    
    
    8.8Total carload
    
    
    58.7
    
    
    
    54.6
    
    
    
    7.5
    
    
    
    37,138
    
    
    
    32,104
    
    
    
    15.7Intermodal
    
    
    78.9
    
    
    
    74.7
    
    
    
    5.6
    
    
    
    28,099
    
    
    
    23,283
    
    
    
    20.7Total freight units/revenues
    
    
    137.6
    
    
    
    129.3
    
    
    
    6.4
    
    
    
    65,237
    
    
    
    55,387
    
    
    
    17.8Ancillary revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,831
    
    
    
    1,156
    
    
    
    58.4Railway segment revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,068
    
    
    
    56,543
    
    
    
    18.6
 16




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##### Table of Contents



RAILWAY OPERATING EXPENSES
 Three MonthsEnded March 312006
    
    2005Compensation & benefits
    
    
    16,505
    
    
    
    15,216Fuel
    
    
    7,850
    
    
    
    5,357Equipment rents (net)
    
    
    1,148
    
    
    
    1,120Car hire (net)
    
    
    25
    
    
    
    (893
    )Depreciation
    
    
    5,484
    
    
    
    5,371Purchased services
    
    
    2,745
    
    
    
    2,460Repairs to/by others (net)
    
    
    (1,080
    )
    
    
    (810
    )Load/unload
    
    
    2,395
    
    
    
    2,226Casualty & insurance
    
    
    1,106
    
    
    
    1,055Property taxes
    
    
    1,541
    
    
    
    1,535Materials
    
    
    3,354
    
    
    
    3,076General & administrative expenses
    
    
    2,251
    
    
    
    2,027Outside contractor delivery costs
    
    
    3,926
    
    
    
    3,109Other *
    
    
    977
    
    
    
    682Total operating expenses
    
    
    48,227
    
    
    
    41,531
 
 *
    
    First quarter 2006 includes $0.6 million of hurricane costs and $(0.3) million of hurricane
crossing reimbursement (recoveries) (net). First quarter 2005 contained no hurricane costs or
recoveries.    
 17




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##### Table of Contents



Realty  First Quarter
  FLAGLER DEVELOPMENT CONSOLIDATED
 Three MonthsEnded March 31(dollars in thousands)
    
    2006
    
    2005Revenues:Rental revenues
    
    
    19,190
    
    
    
    16,164Rental income  straight-line rent adjustments
    
    
    1,009
    
    
    
    2,058Services fee revenues
    
    
    420
    
    
    
    29Operating expense recoveries
    
    
    2,528
    
    
    
    2,015Operating expense recoveries  hurricane related
    
    
    137
    
    
    
    Rental revenues  undeveloped land
    
    
    169
    
    
    
    260Other rental revenues
    
    
    59
    
    
    
    47Total Realty Rental and Services Revenues
    
    
    23,512
    
    
    
    20,573Realty sales
    
    
    41,038
    
    
    
    200Total Flagler Revenues
    
    
    64,550
    
    
    
    20,773Expenses:Real estate taxes
    
    
    2,852
    
    
    
    2,368Repairs & maintenance
    
    
    794
    
    
    
    664Services, utilities, management costs
    
    
    4,615
    
    
    
    3,921Recoverable expenses  hurricane related
    
    
    305
    
    
    
    7Total recoverable expenses
    
    
    8,566
    
    
    
    6,960Real estate taxes  undeveloped land
    
    
    817
    
    
    
    917Repairs & maintenance
    
    
    302
    
    
    
    195Depreciation & amortization
    
    
    8,378
    
    
    
    7,040Salaries, general & administrative
    
    
    3,124
    
    
    
    1,462Non-recoverable expenses  hurricane related
    
    
    (117
    )
    
    
    Total non-recoverable expenses
    
    
    12,504
    
    
    
    9,614Total Realty Rental and Services Expenses
    
    
    21,070
    
    
    
    16,574Realty sales expenses
    
    
    30,412
    
    
    
    55Total Flagler Expenses
    
    
    51,482
    
    
    
    16,629Operating Profit
    
    
    13,068
    
    
    
    4,144Interest income
    
    
    78
    
    
    
    227Interest expense
    
    
    (5,044
    )
    
    
    (4,500
    )Other expense
    
    
    (175
    )
    
    
    (173
    )Income (Loss) Before Income Taxes
    
    
    7,927
    
    
    
    (302
    )
   18




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##### Table of Contents



FLAGLER DEVELOPMENT  SAME STORE
 Three MonthsEnded March 31(dollars in thousands)
    
    2006
    
    2005Revenues:Rental revenues
    
    
    16,664
    
    
    
    15,732Rental income  straight-line rent adjustments
    
    
    286
    
    
    
    1,307Services fee revenues
    
    
    
    
    
    
    Operating expense recoveries
    
    
    1,730
    
    
    
    1,686Operating expense recoveries  hurricane related
    
    
    119
    
    
    
    Rental revenues  undeveloped land
    
    
    7
    
    
    
    4Other rental revenues
    
    
    45
    
    
    
    19Total Realty Rental and Services Revenues
    
    
    18,851
    
    
    
    18,748Realty sales
    
    
    
    
    
    
    Total Flagler Revenues
    
    
    18,851
    
    
    
    18,748Expenses:Real estate taxes
    
    
    2,401
    
    
    
    2,171Repairs & maintenance
    
    
    717
    
    
    
    644Services, utilities, management costs
    
    
    3,783
    
    
    
    3,638Recoverable expenses  hurricane related
    
    
    264
    
    
    
    7Total recoverable expenses
    
    
    7,165
    
    
    
    6,460Real estate taxes  undeveloped land
    
    
    
    
    
    
    Repairs & maintenance
    
    
    18
    
    
    
    39Depreciation & amortization
    
    
    5,612
    
    
    
    5,598Salaries, general & administrative
    
    
    11
    
    
    
    32Non-recoverable expenses  hurricane related
    
    
    (135
    )
    
    
    Total non-recoverable expenses
    
    
    5,506
    
    
    
    5,669Total Realty Rental and Services Expenses
    
    
    12,671
    
    
    
    12,129Realty sales expenses
    
    
    
    
    
    
    Total Flagler Expenses
    
    
    12,671
    
    
    
    12,129Operating Profit
    
    
    6,180
    
    
    
    6,619
  Same Store
 19




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##### Table of Contents



FLAGLER DEVELOPMENT  NEW IN 2005  AND LAND & CORPORATE OVERHEAD  Three Months Ended March 31
 Land & CorporateNew in 2005
    
    Overhead(dollars in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Revenues:Rental revenues
    
    
    2,526
    
    
    
    432
    
    
    
    
    
    
    
    Rental income  straight-line rent adjustments
    
    
    723
    
    
    
    751
    
    
    
    
    
    
    
    Services fee revenues
    
    
    
    
    
    
    
    
    
    
    420
    
    
    
    29Operating expense recoveries
    
    
    798
    
    
    
    329
    
    
    
    
    
    
    
    Operating expense recoveries  hurricane related
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    Rental revenues  undeveloped land
    
    
    
    
    
    
    
    
    
    
    162
    
    
    
    256Other rental revenues
    
    
    3
    
    
    
    2
    
    
    
    11
    
    
    
    26Total Realty Rental and Services Revenues
    
    
    4,068
    
    
    
    1,514
    
    
    
    593
    
    
    
    311Realty sales
    
    
    
    
    
    
    
    
    
    
    41,038
    
    
    
    200Total Flagler Revenues
    
    
    4,068
    
    
    
    1,514
    
    
    
    41,631
    
    
    
    511Expenses:Real estate taxes
    
    
    451
    
    
    
    195
    
    
    
    
    
    
    
    2Repairs & maintenance
    
    
    77
    
    
    
    19
    
    
    
    
    
    
    
    1Services, utilities, management costs
    
    
    733
    
    
    
    271
    
    
    
    99
    
    
    
    12Recoverable expenses  hurricane related
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    Total recoverable expenses
    
    
    1,302
    
    
    
    485
    
    
    
    99
    
    
    
    15Real estate taxes  undeveloped land
    
    
    
    
    
    
    (51
    )
    
    
    817
    
    
    
    968Repairs & maintenance
    
    
    27
    
    
    
    4
    
    
    
    257
    
    
    
    152Depreciation & amortization
    
    
    1,648
    
    
    
    461
    
    
    
    1,118
    
    
    
    981Salaries, general & administrative
    
    
    87
    
    
    
    16
    
    
    
    3,026
    
    
    
    1,414Non-recoverable expenses  hurricane related
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    Total non-recoverable expenses
    
    
    1,762
    
    
    
    430
    
    
    
    5,236
    
    
    
    3,515Total Realty Rental and Services Expenses
    
    
    3,064
    
    
    
    915
    
    
    
    5,335
    
    
    
    3,530Realty sales expenses
    
    
    
    
    
    
    
    
    
    
    30,412
    
    
    
    55Total Flagler Expenses
    
    
    3,064
    
    
    
    915
    
    
    
    35,747
    
    
    
    3,585Operating Profit (Loss)
    
    
    1,004
    
    
    
    599
    
    
    
    5,884
    
    
    
    (3,074
    )
  New in 2005
 20




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Other Realty Rental and Sales
  21




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##### Table of Contents



Corporate Expenses
  Interest Expense
  Other Income
  Income Tax
  EPIK Earn-out
  22




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##### Table of Contents



Financial Condition, Liquidity and Capital Resources
  Three MonthsEnded March 31(dollars in thousands  unaudited)
    
    2006
    
    
    2005Cash Flows from Operating ActivitiesNet income
    
    
    18,725
    
    
    
    8,071Adjustments to reconcile net income to cash generated by operating activities:Depreciation and amortization
    
    
    14,337
    
    
    
    12,871Gain on disposition of properties
    
    
    (13,794
    )
    
    
    (4,421
    )Deferred taxes
    
    
    (1,428
    )
    
    
    2,225Stock compensation expense
    
    
    2,389
    
    
    
    6,316Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,766
    )
    
    
    1,054Prepaid expenses
    
    
    (921
    )
    
    
    (726
    )Materials and supplies
    
    
    (311
    )
    
    
    (1,824
    )Straight line rent
    
    
    (995
    )
    
    
    (2,047
    )Prepaid commissions
    
    
    (1,674
    )
    
    
    (1,926
    )Other assets and deferred charges
    
    
    518
    
    
    
    1,768Accounts payable
    
    
    (12,000
    )
    
    
    (9,923
    )Taxes payable
    
    
    17,184
    
    
    
    7,153Income tax refund
    
    
    
    
    
    
    2,800Deferred revenue
    
    
    7,856
    
    
    
    (586
    )Amounts due to contractors
    
    
    (857
    )
    
    
    (14
    )Other current liabilities
    
    
    (558
    )
    
    
    3,464Accrued casualty and other long-term liabilities
    
    
    (374
    )
    
    
    (603
    )Net cash generated by operating activities
    
    
    25,331
    
    
    
    23,652Cash Flows from Investing ActivitiesPurchases of properties
    
    
    (41,907
    )
    
    
    (97,010
    )Proceeds from disposition of assets
    
    
    45,110
    
    
    
    4,885Net cash provided by (used in) investing activities
    
    
    3,203
    
    
    
    (92,125
    )Cash Flows from Financing ActivitiesPayment of mortgage debt
    
    
    (1,271
    )
    
    
    (1,197
    )Payment of dividends
    
    
    (1,994
    )
    
    
    (1,615
    )Proceeds from exercise of options
    
    
    6,722
    
    
    
    2,269Tax benefit associated with equity based compensation
    
    
    1,581
    
    
    
    838Stock repurchase program payments (Note 5)
    
    
    
    
    
    
    (84
    )Purchase of common stock
    
    
    (1,669
    )
    
    
    (1,731
    )Net cash provided by (used in) financing activities
    
    
    3,369
    
    
    
    (1,520
    )Net Increase (decrease) in Cash and Cash Equivalents
    
    
    31,903
    
    
    
    (69,993
    )Cash and Cash Equivalents at Beginning of Period
    
    
    75,990
    
    
    
    126,166Cash and Cash Equivalents at End of Period
    
    
    107,893
    
    
    
    56,173Supplemental Disclosure of Cash Flow InformationCash paid (received) for income taxes
    
    
    300
    
    
    
    (2,800
    )Cash paid for interest
    
    
    5,664
    
    
    
    5,472
 
 23




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24




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##### Table of Contents



OTHER MATTERS
 Critical Accounting Policies
  Real Estate Allocation of Acquisition Costs
  Impairment of Long-lived Assets
 Income Tax Provisions
 25




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##### Table of Contents



Revenue Recognition  Realty Rental Revenues
 Real Estate Infrastructure Costs
   Contingencies
 26




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##### Table of Contents



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
  27




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##### Table of Contents



PART II
 
 Item 1.
 LEGAL PROCEEDINGS
  
 Item 1A. Risk Factors
  Concentration Risks of Business with Aggregate Customers:
   
 Item 2.
 UNREGISTERED SALES OF EQUITY SECURITIES  AND USE OF PROCEEDS
   Total Number of Shares
    
    Maximum Amount ofAverage Price
    
    Purchased as Part of
    
    Value that may yetPaid Per Share
    
    Publicly Announced
    
    beTotal Number of
    
    (including
    
    Plans
    
    Purchased under theShares Purchased
    
    commissions)
    
    or Programs
    
    Plans or ProgramsJanuary
    
    
    15,147
    *
    
    $
    44.17
    
    
    
    
    
    
    
    37,711,048February
    
    
    9,095
    *
    
    $
    50.84
    
    
    
    
    
    
    
    37,711,048March
    
    
    9,753
    *
    
    $
    53.75
    
    
    
    
    
    
    
    37,711,048
 
 *
    
    Shares purchased represent shares surrendered to the Company for federal withholding
obligations related to employees vesting on previously restricted stock. 28




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##### Table of Contents



29




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##### Table of Contents



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.
 30




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##### Table of Contents



SIGNATURES
  FLORIDA EAST COAST
INDUSTRIES, INC.(Registrant)Dated: April 28, 2006
    
    /s/ Mark A. LeiningerMark A. LeiningerVice President and ControllerDated: April 28, 2006
    
    /s/ Daniel H. PopkyDaniel H. Popky, Executive Vice Presidentand Chief Financial Officer
 31




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##### Table of Contents



INDEX TO EXHIBITS
 S-K ITEM 601
    
    DOCUMENTS
    
    PAGE NOS.2 (i)
    
    Codina acquisition documents
    
    #####3 (i)
    
    Amended and Restated Articles of Incorporation
    
    *3 (ii)
    
    Amended and Restated By-Laws
    
    *4
    
    Amended and Restated Rights Agreement
    
    *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
    
    **10 (b)
    
    Distribution and Recapitalization Agreement
    
    ##10 (c)
    
    Shareholders Agreement dated as of October 26, 1999 among Alfred I.
duPont Testamentary Trust, Nemours Foundation and Florida East Coast
Industries, Inc.
    
    ###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
    
    ***10 (e)
    
    Representative Change in Control Agreement between FECI and certain
FECI Executive Officers
    
    ****10 (f)
    
    2002 Stock Incentive Plan, as amended
    
    ~~~~10 (g)
    
    FECI 2002 Employee Stock Purchase Plan
    
    @@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
    
    ~10 (i)
    
    Mortgage Notes dated as of August 10, 2004 between Flagler Development
Company and Metropolitan Life Insurance Company
    
    ~~10 (j)
    
    Representative Restricted Stock Agreement dated August 25, 2004 between
FECI and certain Executive Officers
    
    ~~~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
    
    ####10 (l)
    
    Supplemental Employee Retirement Plan (SERP) dated as of March 28, 2005.
    
    ####10 (m)
    
    Codina acquisition documents
    
    #####31.1  31.2
    
    Section 302 Certifications32.1
    
    Section 906 Certification
 32




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##### Table of Contents



*
    
    Amended and Restated Articles of Incorporation of the
Registrant, 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
commission on April 28, 2006 (File No. 001-32866)**
    
    This document dated February 22, 2005, is filed as an exhibit to Form 8-K with the
Securities and Exchange Commission on February 24, 2005.***
    
    These documents filed on Form 10-Q with the Securities and Exchange Commission on
August 14, 2001 and November 8, 2001.****
    
    This document filed on Form 10-Q with the Securities and Exchange Commission on
November 8, 2001.##
    
    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).###
    
    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).####
    
    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.#####
    
    These documents dated January 5, 2006 are filed as an Exhibit to Form 8-K with the Securities and Exchange Commission on January 6, 2006@@
    
    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).~
    
    These documents, dated August 4, 2004, are filed as exhibits to Form 10-Q with the Securities and Exchange Commission on August 9, 2004~~
    
    These documents, dated August 10, 2004, are filed on Form 8-K with the Securities and Exchange Commission on August 17, 2004.~~~
    
    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.~~~~
    
    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. 33