##### 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, 2007
 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. LOGO)FLORIDA EAST COAST INDUSTRIES, INC.
  Florida
    
    20-4427296(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)10151 Deerwood Park Blvd, Bldg. 100, Suite 360Jacksonville, Florida
    
    32256(Address of principal executive offices)
    
    (Zip Code)
 (904) 996-2810
 þ o
 þ o o
 o þ
  Class
    
    Outstanding at March 31, 2007Common Stock-no par value
    
    35,939,132 shares




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##### 



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

Financial
StatementsConsolidated
Balance Sheets 
March 31, 2007 and December 31, 2006
    
    
    2Consolidated Statements of Income 
Three Months Ended March 31, 2007 and 2006
    
    
    3Consolidated Statements of Cash Flows 
Three Months Ended March 31, 2007 and 2006
    
    
    4Notes to Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of the Consolidated
Financial Condition and Results of Operations
    
    
    19Comparison of First Quarter 2007 versus First Quarter 2006
    
    
    20Changes in Financial Condition, Liquidity and Capital Resources
    
    
    29Other Matters
    
    
    31Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 4.
    
    Controls and Procedures
    
    
    34PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    35Item 1A.
    
    Risk Factors
    
    
    35Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 6.
    
    Exhibits
    
    
    37Exhibit 31.1Exhibit 31.2Exhibit 32.1




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##### Table of Contents



PART I
 
 Item 1. Financial Statements
 
 FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS  (dollars in thousands)
 March 31
    
    December 312007
    
    2006AssetsCurrent Assets:Cash and cash equivalents (Note 15)
    
    
    4,002
    
    
    
    5,096Restricted cash (Note 15)
    
    
    284
    
    
    
    424Accounts receivable (net)
    
    
    42,530
    
    
    
    41,501Accounts receivable from related parties (Note 13)
    
    
    3,062
    
    
    
    5,381Materials and supplies
    
    
    6,024
    
    
    
    5,145Assets held for sale (Note 11)
    
    
    2,820
    
    
    
    2,820Deferred income taxes
    
    
    1,348
    
    
    
    2,166Prepaid expenses
    
    
    11,068
    
    
    
    11,578Straight line rent
    
    
    5,124
    
    
    
    4,929Total Current Assets
    
    
    76,262
    
    
    
    79,040Long Term Assets:Properties, less accumulated depreciation and amortization (Note 12)
    
    
    1,199,205
    
    
    
    1,179,641Investment in unconsolidated real estate joint ventures (Note 3)
    
    
    43,939
    
    
    
    42,262Goodwill (Note 2)
    
    
    36,635
    
    
    
    37,003Intangible assets, less amortization (Note 2)
    
    
    17,767
    
    
    
    18,448Prepaid commissions
    
    
    14,022
    
    
    
    14,033Straight line rent
    
    
    20,494
    
    
    
    19,715Other assets
    
    
    4,699
    
    
    
    4,684Total Long Term Assets
    
    
    1,336,761
    
    
    
    1,315,786Total Assets
    
    
    1,413,023
    
    
    
    1,394,826Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable and accrued expenses
    
    
    51,377
    
    
    
    73,794Taxes payable (Note 14)
    
    
    9,742
    
    
    
    2,037Deferred revenue
    
    
    10,338
    
    
    
    10,215Short-term debt (Note 8)
    
    
    5,603
    
    
    
    5,519Other accrued liabilities
    
    
    12,501
    
    
    
    14,586Total Current Liabilities
    
    
    89,561
    
    
    
    106,151Deferred Income Taxes(Note 14)
    
    
    206,667
    
    
    
    205,365Long-Term
Debt (net of current portion)(Notes 8 and 18)
    
    
    350,751
    
    
    
    328,638Other Long-Term Liabilities
    
    
    35,973
    
    
    
    35,865Minority Interest in Joint Ventures(Note 3)
    
    
    6,000
    
    
    
    5,571Shareholders EquityCommon
Stock: (Notes 10 and 18)
    
    
    179,747
    
    
    
    175,433Common stock, no par value; 150,000,000 shares authorized,
40,166,180 shares issued and 35,939,132 shares outstanding at
March 31, 2007 and 39,944,902 shares issued and 35,717,854 shares
outstanding at December 31, 2006.Amounts shown net of un-amortized (expected weighted-average
amortization period of 2.3 years) restricted stock deferred
compensation of $31,257 and $21,355, respectively.Retained earnings
    
    
    679,347
    
    
    
    672,826Treasury stock at cost (4,227,048 shares at March 31, 2007 and at
December 31, 2006. March 31, 2007 and December 31, 2006 treasury
stock includes 1,012,766 contingent shares)
    
    
    (135,023
    )
    
    
    (135,023
    )Total Shareholders Equity
    
    
    724,071
    
    
    
    713,236Total Liabilities and Shareholders Equity
    
    
    1,413,023
    
    
    
    1,394,826
  2




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FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME  (dollars in thousands, except per share amounts)
 Three MonthsEnded March 312007
    
    2006Operating revenues:Railway operations
    
    
    59,824
    
    
    
    67,068Realty rental and services
    
    
    47,575
    
    
    
    24,423Flagler CAM recoveries associated with hurricane costs (Note 4)
    
    
    
    
    
    
    137Total realty rental and services
    
    
    47,575
    
    
    
    24,560Realty sales (Note 11)
    
    
    460
    
    
    
    44,422Total revenues (segment)
    
    
    107,859
    
    
    
    136,050Intersegment revenues
    
    
    (134
    )
    
    
    Total revenues (consolidated)
    
    
    107,725
    
    
    
    136,050Operating expenses:Railway operations
    
    
    45,456
    
    
    
    47,872Hurricane costs (net of recoveries) (Note 4)
    
    
    
    
    
    
    355Total railway operations
    
    
    45,456
    
    
    
    48,227Realty rental and services
    
    
    41,907
    
    
    
    21,231Hurricane costs (net of recoveries) (Note 4)
    
    
    
    
    
    
    373Total realty rental and services
    
    
    41,907
    
    
    
    21,604Realty sales (Note 11)
    
    
    85
    
    
    
    30,628Corporate general & administrative
    
    
    4,579
    
    
    
    3,408Total expenses (segment)
    
    
    92,027
    
    
    
    103,867Intersegment expenses
    
    
    (134
    )
    
    
    Total expenses (consolidated)
    
    
    91,893
    
    
    
    103,867Operating profit
    
    
    15,832
    
    
    
    32,183Interest income
    
    
    47
    
    
    
    615Interest expense
    
    
    (4,915
    )
    
    
    (5,126
    )Other income (Note 7)
    
    
    3,290
    
    
    
    2,193Income from investment in unconsolidated joint ventures
    
    
    189
    
    
    
    Minority interest in loss of consolidated joint ventures
    
    
    57
    
    
    
    (1,332
    )
    
    
    (2,318
    )Income before income taxes
    
    
    14,500
    
    
    
    29,865Provision for income taxes (Note 14)
    
    
    (5,463
    )
    
    
    (11,140
    )Net income
    
    
    9,037
    
    
    
    18,725Earnings Per ShareNet income  basic
    
    $
    0.26
    
    
    $
    0.57Net income  diluted
    
    $
    0.26
    
    
    $
    0.57Average shares outstanding  basic
    
    
    35,127,651
    
    
    
    32,796,096Average shares outstanding  diluted
    
    
    35,256,576
    
    
    
    32,998,557
  3




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FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS  (dollars in thousands)
 Three Months EndedMarch 312007
    
    2006Cash Flows from Operating ActivitiesNet income
    
    
    9,037
    
    
    
    18,725Adjustments to reconcile net income to cash generated by
operating activities:Depreciation and amortization
    
    
    15,669
    
    
    
    14,337Non-cash compensation
    
    
    36
    
    
    
    15Gain on disposition of properties, including those discontinued
    
    
    
    
    
    
    (13,794
    )Deferred taxes
    
    
    1,888
    
    
    
    (1,428
    )Stock compensation expense (Note 9)
    
    
    4,013
    
    
    
    2,389Changes in operating assets and liabilities:Accounts receivable
    
    
    1,290
    
    
    
    (2,766
    )Prepaid expenses
    
    
    259
    
    
    
    (921
    )Materials and supplies
    
    
    (879
    )
    
    
    (311
    )Straight line rent
    
    
    (974
    )
    
    
    (995
    )Prepaid commissions
    
    
    (1,308
    )
    
    
    (1,674
    )Other assets and deferred charges
    
    
    814
    
    
    
    518Accounts payable
    
    
    (10,802
    )
    
    
    (12,000
    )Taxes payable
    
    
    7,705
    
    
    
    17,184Deferred revenue
    
    
    123
    
    
    
    7,856Other current liabilities
    
    
    (2,085
    )
    
    
    (1,415
    )Other long-term liabilities
    
    
    108
    
    
    
    (374
    )Net cash generated by operating activities
    
    
    24,894
    
    
    
    25,346Cash Flows from Investing ActivitiesPurchases of properties and equipment
    
    
    (45,116
    )
    
    
    (41,907
    )Investment in unconsolidated real estate joint ventures
    
    
    (1,677
    )
    
    
    Decrease in restricted cash
    
    
    140
    
    
    
    Proceeds from disposition of assets
    
    
    481
    
    
    
    45,110Net cash (used in) provided by investing activities
    
    
    (46,172
    )
    
    
    3,203Cash Flows from Financing ActivitiesBorrowings from long-term debt
    
    
    3,345
    
    
    
    Borrowings from five-year revolving credit facility (Note 8)
    
    
    20,200
    
    
    
    Payment of mortgage debt
    
    
    (1,348
    )
    
    
    (1,271
    )Payment of dividends
    
    
    (2,516
    )
    
    
    (1,994
    )Proceeds from exercise of options
    
    
    510
    
    
    
    6,722Tax benefit associated with equity-based compensation
    
    
    774
    
    
    
    1,581Purchase of common stock
    
    
    (1,210
    )
    
    
    (1,684
    )Investment by minority interest
    
    
    429
    
    
    
    Net cash provided by financing activities
    
    
    20,184
    
    
    
    3,354Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (1,094
    )
    
    
    31,903Cash and Cash Equivalents at Beginning of Period
    
    
    5,096
    
    
    
    75,990Cash and Cash Equivalents at End of Period
    
    
    4,002
    
    
    
    107,893Supplemental Disclosure of Cash Flow InformationCash paid for income taxes
    
    
    1,900
    
    
    
    300Cash paid for interest
    
    
    5,726
    
    
    
    5,664
 (Prior year results have been reclassified to conform to current year presentation)
  4




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FLORIDA EAST COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. General
   Note 2 Acquisition of Codina Group and Related Interests
    100% Owned
 
    
    Beacon Countyline, 497 acres in Hialeah; future plans are for the creation of a large industrial and office park.
    
    Beacon Commons, 92 acres in Doral: future site of a retail, office and residential development.
    
    Sevilla Office Building, a 45,000 sq. ft. office building in Coral Gables, Florida.
 5




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##### Table of Contents



Joint Ventures
 
    
    Beacon Lakes, a 480-acre industrial park, including five industrial buildings and
entitlements for an additional 6.0 million sq. ft. in West Dade. The Company owns a 21.2%
interest in a venture with an affiliate of AMB Properties that owns the Beacon Lakes
development, except for the 57 acres described herein. Within the Beacon Lakes development
is included a 120-unit warehouse condominium project on 57 acres known as Beacon Village.
Beacon Village is owned by Beacon Village, LLC, which is owned 50% by the Company and 50% by
an affiliate of AMB Properties.
    
    Red Road Commons, a proposed 50% interest in a venture with an affiliate of Fairfield
Properties, Inc. to build 407-unit residential apartments on land to be leased in South
Miami.
    
    Downtown Doral (formerly Beacon City Center), a venture with an affiliate of JPMorgan that
holds an exclusive option to acquire and redevelop a 77-acre property in Doral for
residential and commercial uses. In January 2007, the venture exercised the option and
purchased the Denver Office Building and associated land. The venture will convert this
building to office condominiums for sale.
    
    2701 LeJeune Road, a 30% interest in a venture with an affiliate of JPMorgan to acquire
land and construct a 15-story, 246,800 sq. ft. building for a major
corporate headquarters.
JPMorgan and the Company entered into the venture agreement in January 2007. The venture has
an agreement to sell the building upon completion. (See Note 18).
 Purchase Price Allocations
 (dollars in thousands)
    
    April 27, 2006Cash
    
    
    4,125Other current assets
    
    
    16,576Property and equipment, net
    
    
    161,116Goodwill
    
    
    21,784Intangible assets
    
    
    11,600Investments in joint ventures
    
    
    30,699Other assets
    
    
    293Assets acquired
    
    
    246,193Current liabilities
    
    
    25,731Acquired debt
    
    
    30,117Other long-term debt
    
    
    1,009Deferred tax liabilities
    
    
    18,663Other liabilities
    
    
    24,200Minority interest in joint ventures
    
    
    4,216Liabilities assumed
    
    
    103,936Net assets acquired
    
    
    142,257
   6




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Pro Forma Financial Information
 Three Months(dollars in thousands, except per share amounts)
    
    Ended March 312007
    
    2006(Pro Forma)Revenue
    
    
    107,725
    
    
    
    157,589Net income
    
    
    9,037
    
    
    
    19,099Earnings per share:Basic
    
    $
    0.26
    
    
    $
    0.55Diluted
    
    $
    0.26
    
    
    $
    0.55
  Note 3. Investments in Joint Ventures
  Investments in Consolidated Joint Ventures
 
    
    Downtown Doral (CM Doral Development Company, LLC)  A venture with an affiliate of
JPMorgan that holds an exclusive option to acquire and redevelop a 77-acre property in Doral
for residential and commercial uses. The Company has an interest in a partnership (Codina
Doral Ltd) with Armando Codina and his children, which holds a 50.1% interest in this
venture. In January 2007, the Downtown Doral joint venture issued $3.3 million of debt to an
affiliate of JPMorgan and purchased the Denver Office Building and associated land from a
separate affiliate of JPMorgan. The venture will convert this building to office
condominiums for sale.
  Investments in Unconsolidated Joint Ventures
 
    
    Beacon Lakes, a 480-acre industrial park, including five industrial buildings of which one
is under construction and one office building under construction. The venture holds
entitlements for an additional 5.8 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. During the first quarter of 2007, the first three units were sold. Beacon Village
is owned by Beacon Village, LLC, which is owned 50% by the Company and 50% by an affiliate of
AMB Properties. During 2006, Beacon Lakes sold 2.5 acres of land. Additionally, during
2006, both partners sold their interest in Building 10, a 192,476 sq. ft.
building, to an affiliate of AMB Properties. The Companys investment in this joint venture
at March 31, 2007 was $33.0 million.
 7




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##### Table of Contents



Portions of the infrastructure within the project are owned by Beacon Lakes Community
Development District (CDD). The CDD, a local government district operating in accordance with
Chapter 190 of the Florida Statutes, purchased these infrastructure assets by issuing
tax-exempt bonds. The bonds are serviced by special assessment taxes levied on property
within the park. The infrastructure is collateral for the obligations and such assessments,
with AMB Codina Beacon Lakes LLC paying the assessments on the parcels owned by the
partnership until such parcels are sold. At such point, the liability for the assessments
related to parcels sold becomes the responsibility of the purchasers through a tax assessment
on their property. The bond liability of the CDD at March 31, 2007 is $53.0 million.
    
    Boca 54 Land Associates, LLC  On May 31, 2006, the Company entered into and owns a 20%
interest in a venture with an affiliate of TIAA  CREF that owns a 55-acre land parcel with
entitlements for 941,000 sq. ft. of office space located in the City of Boca Raton. On
November 20, 2006, Flagler announced a build-to-suit transaction to develop Office Depots
approximately 624,000 sq. ft. global headquarters. The headquarters complex will be on
29 acres. The Companys investment in this joint venture at March 31, 2007 was $10.4
million.
    
    CM LeJeune, LLLP  On January 9, 2007, the Company entered into and owns a 30% interest
in a venture with an affiliate of JP Morgan. Assets associated with this project, including
the land purchase option, the lease agreement with a major corporation and all project assets
were removed from the Companys Consolidated Financial Statements during the quarter. The
Company accounts for its investment in this venture using the equity method. During the
quarter, the venture acquired land from City National Bank in Coral Gables, Florida on which
it is constructing a 15-story, 246,800 sq. ft. building for a major
corporate headquarters.
The venture has an agreement to sell the building upon completion. The Companys investment
in this joint venture at March 31, 2007 was $0.5 million.
(See Note 18).
 Note 4. Impact from Hurricanes
   Note 5. Commitments and Contingencies
     8




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Note 6. Dividends and Stock Repurchase
    Note 7. Other Income
 Three Months Ended(dollars in thousands)
    
    March 312007
    
    2006Pipe & wire-crossings/signboards
    
    
    1,274
    
    
    
    674Fiber lease income
    
    
    1,761
    
    
    
    1,759Air rights income
    
    
    470
    
    
    
    Other (net)
    
    
    (215
    )
    
    
    (240
    )3,290
    
    
    
    2,193
  9




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Note 8. Debt
         10




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##### Table of Contents



Note 9. Stock-Based Compensation
     Three Months Ended(dollars in thousands)
    
    March 312007
    
    2006Stock compensation cost for share-based payment plans:Stock options
    
    
    1
    
    
    
    19Restricted stock
    
    
    3,979
    
    
    
    2,359
    (1)Employee Stock Purchase Plan
    
    
    33
    
    
    
    114,013
    
    
    
    2,389Amount of related income tax benefit recognized
    
    
    1,545
    
    
    
    919
 
 (1)
    
    Included in this amount is $1.1 million of accelerated vesting related to the former President of Flagler Development Group. 11




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Stock Options
 WeightedAverage
    
    AggregateRemaining
    
    Intrinsic ValueNumber of
    
    Weighted
    
    Contractual
    
    (dollars inShares
    
    Average Price
    
    Term
    
    thousands)Outstanding balance at December 31, 2006
    
    
    271,993
    
    
    $
    32.84
    
    
    
    2.9
    
    
    
    Changes during the quarter:Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (19,550
    )
    
    $
    26.36
    
    
    
    
    
    
    
    Forfeited
    
    
    (858
    )
    
    $
    22.22
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding balance at March 31, 2007
    
    
    251,585
    
    
    $
    33.40
    
    
    
    2.8
    
    
    $
    7,368Exercisable at March 31, 2007
    
    
    251,585
    
    
    $
    33.40
    
    
    
    2.8
    
    
    $
    7,368
  Non-Vested Restricted Stock
 Weighted AverageGrant Date FairNumber of Shares
    
    ValueOutstanding balance at December 31, 2006
    
    
    636,286
    
    
    $
    49.24Changes during the quarter:Granted
    
    
    218,102
    
    
    $
    64.03Vested
    
    
    (82,923
    )
    
    $
    45.04Forfeited
    
    
    (2,083
    )
    
    $
    45.66Outstanding balance at March 31, 2007
    
    
    769,382
    
    
    $
    54.16
  Note 10. Earnings Per Share
    12




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Note 11. Realty Acquisitions, Land Sales and Associated Costs
      Note 12. Segment Information
        13




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##### Table of Contents



(dollars in thousands)
    
    March 31
    
    December 312007
    
    2006FECR Properties(1)Road equipment and structures
    
    
    477,209
    
    
    
    472,279Buildings
    
    
    2,680
    
    
    
    2,680Equipment
    
    
    199,635
    
    
    
    201,066Land and land improvements
    
    
    22,279
    
    
    
    22,279Fiber
    
    
    3,200
    
    
    
    3,200Construction in progress
    
    
    4,785
    
    
    
    3,268709,788
    
    
    
    704,772Less accumulated depreciation
    
    
    278,615
    
    
    
    276,731431,173
    
    
    
    428,041Flagler(1)Land and land improvements
    
    
    371,693
    
    
    
    371,523Buildings
    
    
    525,087
    
    
    
    506,335Equipment
    
    
    7,612
    
    
    
    7,322Construction in progress
    
    
    71,494
    
    
    
    66,648975,886
    
    
    
    951,828Less accumulated depreciation
    
    
    207,466
    
    
    
    199,797768,420
    
    
    
    752,031CorporateEquipment
    
    
    15,408
    
    
    
    15,399Construction in progress
    
    
    330
    
    
    
    13615,738
    
    
    
    15,535Less accumulated depreciation
    
    
    13,306
    
    
    
    13,1462,432
    
    
    
    2,389
 
 (1)
    
    Included in the March 31, 2007 and December
31, 2006 amounts are $0.1 million of FECR properties and $2.7
million of Flagler properties for land that is held for sale. 14




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##### Table of Contents



Information by Industry Segment
 Three Months Ended(dollars in thousands)
    
    March 312007
    
    2006Operating RevenuesRailway operations
    
    
    59,824
    
    
    
    67,068Flagler:Realty rental revenues
    
    
    26,956
    
    
    
    22,782CAM recoveries associated with hurricane costs
    
    
    
    
    
    
    137Total realty rental revenues
    
    
    26,956
    
    
    
    22,919Realty services revenues
    
    
    19,489
    
    
    
    420Land use revenues
    
    
    179
    
    
    
    173Total Flagler realty rental and services revenues
    
    
    46,624
    
    
    
    23,512Flagler realty sales
    
    
    
    
    
    
    41,038Railway realty rental revenues
    
    
    951
    
    
    
    1,048Railway realty sales
    
    
    460
    
    
    
    3,384Total realty
    
    
    48,035
    
    
    
    68,982Total Revenues (segment)
    
    
    107,859
    
    
    
    136,050Intersegment revenues
    
    
    (134
    )
    
    
    Total Revenues (consolidated)
    
    
    107,725
    
    
    
    136,050Operating ExpensesRailway operations:Railway operations
    
    
    45,456
    
    
    
    47,872Hurricane costs (net of recoveries)
    
    
    
    
    
    
    355Total Railway
    
    
    45,456
    
    
    
    48,227Flagler:Realty rental expenses
    
    
    18,496
    
    
    
    15,565Hurricane costs (net of recoveries)
    
    
    
    
    
    
    188Total realty rental expenses
    
    
    18,496
    
    
    
    15,753Realty services expenses
    
    
    14,756
    
    
    
    249Land & overhead expenses
    
    
    8,232
    
    
    
    5,068Total Flagler realty rental and services expenses
    
    
    41,484
    
    
    
    21,070Flagler realty sales
    
    
    
    
    
    
    30,412Railway realty rental expenses
    
    
    423
    
    
    
    349Hurricane costs (net of recoveries)
    
    
    
    
    
    
    185Total Railway realty rental expenses
    
    
    423
    
    
    
    534Railway realty sales
    
    
    85
    
    
    
    216Total realty
    
    
    41,992
    
    
    
    52,232Corporate general & administrative
    
    
    4,579
    
    
    
    3,408Total Expenses (segment)
    
    
    92,027
    
    
    
    103,867Intersegment expenses
    
    
    (134
    )
    
    
    Total Expenses (consolidated)
    
    
    91,893
    
    
    
    103,867Operating Profit (Loss)Railway operations
    
    
    14,368
    
    
    
    18,841Realty
    
    
    6,043
    
    
    
    16,750Corporate general & administrative
    
    
    (4,579
    )
    
    
    (3,408
    )Segment & consolidated operating profit
    
    
    15,832
    
    
    
    32,183Interest income
    
    
    47
    
    
    
    615Interest expense
    
    
    (4,915
    )
    
    
    (5,126
    )Other income
    
    
    3,290
    
    
    
    2,193Income from investment in unconsolidated joint ventures
    
    
    189
    
    
    
    Minority interest in loss of consolidated joint ventures
    
    
    57
    
    
    
    (1,332
    )
    
    
    (2,318
    )Income before income taxes
    
    
    14,500
    
    
    
    29,865Provision for income taxes
    
    
    (5,463
    )
    
    
    (11,140
    )Net Income
    
    
    9,037
    
    
    
    18,725
 (Prior year results have been reclassified to conform to current year presentation)
 15




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Note 13. Related Party Transactions
   Note 14. Taxes
   Unrecognized Tax Benefit
 March 31(dollars in thousands)
    
    2007Balance at January 1, 2007
    
    
    2,535Additions
    
    
    Reductions
    
    
    Settlements
    
    
    Balance at March 31, 2007
    
    
    2,535
  Taxes Payable
 March 31
    
    December 31(dollars in thousands)
    
    2007
    
    2006Federal income tax
    
    
    2,307
    
    
    
    1,443State income tax
    
    
    
    
    
    
    Property taxes
    
    
    6,421
    
    
    
    59Other
    
    
    1,014
    
    
    
    535Taxes payable
    
    
    9,742
    
    
    
    2,037
   16




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##### Table of Contents



Note 15. Investments and Cash and Cash Equivalents
    Note 16 Supplemental Employee Retirement Plan
   Note 17. Recently Issued Accounting Standards
    Note 18. Subsequent Event
   17




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18




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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
  19




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##### Table of Contents



RECENT DEVELOPMENTS
       
 COMPARISON OF FIRST QUARTER 2007 VERSUS FIRST QUARTER 2006  Results of Operations
 Consolidated Results  First Quarter
  20




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##### Table of Contents



Railway  First Quarter
  TRAFFIC  Three Months Ended March 31  (dollars and units in thousands)
 2007
    
    2006
    
    Percent
    
    2007
    
    2006
    
    PercentCommodity
    
    Units
    
    Units
    
    Variance
    
    Revenues
    
    Revenues
    
    VarianceRail CarloadsCrushed stone (aggregate)
    
    
    29.9
    
    
    
    39.1
    
    
    
    (23.5
    )
    
    
    15,598
    
    
    
    20,086
    
    
    
    (22.3
    )Construction materials
    
    
    1.5
    
    
    
    1.9
    
    
    
    (21.1
    )
    
    
    1,206
    
    
    
    1,505
    
    
    
    (19.9
    )Vehicles
    
    
    5.8
    
    
    
    7.1
    
    
    
    (18.3
    )
    
    
    5,172
    
    
    
    5,959
    
    
    
    (13.2
    )Foodstuffs & kindred
    
    
    3.1
    
    
    
    3.4
    
    
    
    (8.8
    )
    
    
    3,193
    
    
    
    3,066
    
    
    
    4.1Chemicals & distillants
    
    
    0.9
    
    
    
    0.8
    
    
    
    12.5
    
    
    
    1,357
    
    
    
    1,150
    
    
    
    18.0Paper & lumber
    
    
    1.4
    
    
    
    1.9
    
    
    
    (26.3
    )
    
    
    1,652
    
    
    
    2,269
    
    
    
    (27.2
    )Other
    
    
    3.7
    
    
    
    4.5
    
    
    
    (17.8
    )
    
    
    2,912
    
    
    
    3,103
    
    
    
    (6.2
    )Total carload
    
    
    46.3
    
    
    
    58.7
    
    
    
    (21.1
    )
    
    
    31,090
    
    
    
    37,138
    
    
    
    (16.3
    )Intermodal
    
    
    77.5
    
    
    
    78.9
    
    
    
    (1.8
    )
    
    
    27,757
    
    
    
    28,099
    
    
    
    (1.2
    )Total freight units/revenues
    
    
    123.8
    
    
    
    137.6
    
    
    
    (10.0
    )
    
    
    58,847
    
    
    
    65,237
    
    
    
    (9.8
    )Ancillary revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    977
    
    
    
    1,831
    
    
    
    (46.6
    )Railway segment revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,824
    
    
    
    67,068
    
    
    
    (10.8
    )
 RAILWAY OPERATING EXPENSES  (dollars in thousands)
 Three Months EndedMarch 312007
    
    2006Compensation & benefits
    
    
    15,215
    
    
    
    16,505Fuel
    
    
    7,020
    
    
    
    7,850Equipment rents (net)
    
    
    1,192
    
    
    
    1,148Car hire (net)
    
    
    287
    
    
    
    25Depreciation
    
    
    5,683
    
    
    
    5,484Purchased services
    
    
    2,965
    
    
    
    2,745Repairs to/by others (net)
    
    
    (1,353
    )
    
    
    (1,080
    )Load/unload
    
    
    2,345
    
    
    
    2,395Casualty & insurance
    
    
    1,268
    
    
    
    1,106Property taxes
    
    
    1,667
    
    
    
    1,541Materials
    
    
    3,043
    
    
    
    3,354General & administrative expenses
    
    
    2,266
    
    
    
    2,251Outside contractor delivery costs
    
    
    3,747
    
    
    
    3,926Other (1)
    
    
    111
    
    
    
    977Total operating expenses
    
    
    45,456
    
    
    
    48,227
 
 (1)
    
    First quarter 2006 includes $0.4 million of hurricane costs (net of
recoveries). First quarter 2007 contains no hurricane costs or recoveries.


21



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22




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Realty  First Quarter
  FLAGLER DEVELOPMENT CONSOLIDATED
 Three Months EndedMarch 31(dollars in thousands)
    
    2007
    
    2006Revenues:Rental income
    
    
    21,388
    
    
    
    19,190Rental income  straight-line rent adjustments
    
    
    1,004
    
    
    
    1,009Operating expense recoveries
    
    
    4,530
    
    
    
    2,528Operating expense recoveries  hurricane related
    
    
    
    
    
    
    137Rental revenues  undeveloped land
    
    
    6
    
    
    
    7Other rental revenues
    
    
    28
    
    
    
    48Total Realty Rental Revenues
    
    
    26,956
    
    
    
    22,919Construction revenues
    
    
    10,574
    
    
    
    Brokerage revenues
    
    
    2,326
    
    
    
    420Property management
    
    
    1,471
    
    
    
    Development & other services
    
    
    5,118
    
    
    
    Total Realty Services Revenues
    
    
    19,489
    
    
    
    420Land use revenues
    
    
    179
    
    
    
    173Total Realty Rental & Services Revenues
    
    
    46,624
    
    
    
    23,512Realty sales
    
    
    
    
    
    
    41,038Total Flagler Revenues
    
    
    46,624
    
    
    
    64,550Expenses:Real estate taxes
    
    
    3,177
    
    
    
    2,852Repairs & maintenance
    
    
    1,053
    
    
    
    794Services, utilities, management costs
    
    
    6,147
    
    
    
    4,516Recoverable expenses  hurricane related
    
    
    
    
    
    
    305Total recoverable expenses
    
    
    10,377
    
    
    
    8,467Repairs & maintenance
    
    
    57
    
    
    
    45Depreciation & amortization
    
    
    8,018
    
    
    
    7,260Salaries, general & administrative
    
    
    44
    
    
    
    98Non-recoverable expenses  hurricane related
    
    
    
    
    
    
    (117
    )Total non-recoverable expenses
    
    
    8,119
    
    
    
    7,286Total Realty Rental Expenses
    
    
    18,496
    
    
    
    15,753Construction expenses
    
    
    10,401
    
    
    
    Brokerage expenses
    
    
    2,099
    
    
    
    249Property management
    
    
    947
    
    
    
    Development & other services
    
    
    1,309
    
    
    
    Total Realty Services Expenses
    
    
    14,756
    
    
    
    249Land and overhead expenses
    
    
    8,232
    
    
    
    5,068Total Realty Rental & Services Expenses
    
    
    41,484
    
    
    
    21,070Realty sales expenses
    
    
    
    
    
    
    30,412Total Flagler Expenses
    
    
    41,484
    
    
    
    51,482Operating Profit
    
    
    5,140
    
    
    
    13,068Interest income
    
    
    1
    
    
    
    78Interest expense
    
    
    (4,814
    )
    
    
    (5,044
    )Other expense
    
    
    (169
    )
    
    
    (175
    )Income from investment in unconsolidated joint ventures
    
    
    189
    
    
    
    Minority interest in loss of consolidated joint ventures
    
    
    57
    
    
    
    Income Before Income Taxes
    
    
    404
    
    
    
    7,927
 (Prior year results have been reclassified to conform to current year presentation)
  23




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FLAGLER DEVELOPMENT  SAME STORE  For the Three Months Ended March 31
 Same Store(dollars in thousands)
    
    2007
    
    2006Revenues:Rental income
    
    
    19,110
    
    
    
    18,581Rental income  straight-line rent adjustments
    
    
    541
    
    
    
    839Operating expense recoveries
    
    
    4,037
    
    
    
    2,457Operating expense recoveries  hurricane related
    
    
    
    
    
    
    137Rental revenues  undeveloped land
    
    
    6
    
    
    
    7Other rental revenues
    
    
    27
    
    
    
    48Total Realty Rental Revenues
    
    
    23,721
    
    
    
    22,069Construction revenues
    
    
    
    
    
    
    Brokerage revenues
    
    
    
    
    
    
    Property management
    
    
    
    
    
    
    Development & other services
    
    
    
    
    
    
    Total Realty Services Revenues
    
    
    
    
    
    
    Land use revenues
    
    
    
    
    
    
    Total Realty Rental and Services Revenues
    
    
    23,721
    
    
    
    22,069Realty sales
    
    
    
    
    
    
    Total Flagler Revenues
    
    
    23,721
    
    
    
    22,069Expenses:Real estate taxes
    
    
    2,839
    
    
    
    2,751Repairs & maintenance
    
    
    958
    
    
    
    785Services, utilities, management costs
    
    
    5,439
    
    
    
    4,351Recoverable expenses  hurricane related
    
    
    
    
    
    
    305Total recoverable expenses
    
    
    9,236
    
    
    
    8,192Repairs & maintenance
    
    
    56
    
    
    
    53Depreciation & amortization
    
    
    6,833
    
    
    
    6,803Salaries, general & administrative
    
    
    43
    
    
    
    12Non-recoverable expenses  hurricane related
    
    
    
    
    
    
    (117
    )Total non-recoverable expenses
    
    
    6,932
    
    
    
    6,751Total Realty Rental Expenses
    
    
    16,168
    
    
    
    14,943Construction expenses
    
    
    
    
    
    
    Brokerage expenses
    
    
    
    
    
    
    Property management
    
    
    
    
    
    
    Development & other services
    
    
    
    
    
    
    Total Realty Services Expenses
    
    
    
    
    
    
    Land and overhead expenses
    
    
    
    
    
    
    Total Realty Rental and Services Expenses
    
    
    16,168
    
    
    
    14,943Realty sales expenses
    
    
    
    
    
    
    Total Flagler Expenses
    
    
    16,168
    
    
    
    14,943Operating Profit
    
    
    7,553
    
    
    
    7,126
 (Prior year results have been reclassified to conform to current year presentation)
 Same Store
 24




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##### Table of Contents



FLAGLER DEVELOPMENT  NEW IN 2007, NEW IN 2006 and NEW IN 2005  For the Three Months Ended March 31
 New in 2007
    
    New in 2006
    
    New in 2005(dollars in thousands)
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006Revenues:Rental income
    
    
    99
    
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    1,915
    
    
    
    609Rental income  straight-line rent adjustments
    
    
    107
    
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    265
    
    
    
    170Operating expense recoveries
    
    
    2
    
    
    
    
    
    
    
    214
    
    
    
    
    
    
    
    277
    
    
    
    71Operating expense recoveries  hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rental revenues    undeveloped land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other rental revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Total Realty Rental Revenues
    
    
    208
    
    
    
    
    
    
    
    569
    
    
    
    
    
    
    
    2,458
    
    
    
    850Construction revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brokerage revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Land use revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental and Services Revenues
    
    
    208
    
    
    
    
    
    
    
    569
    
    
    
    
    
    
    
    2,458
    
    
    
    850Realty sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Flagler Revenues
    
    
    208
    
    
    
    
    
    
    
    569
    
    
    
    
    
    
    
    2,458
    
    
    
    850Expenses:Real estate taxes
    
    
    21
    
    
    
    (1
    )
    
    
    55
    
    
    
    
    
    
    
    262
    
    
    
    102Repairs & maintenance
    
    
    (2
    )
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    88
    
    
    
    9Services, utilities, management costs
    
    
    30
    
    
    
    
    
    
    
    121
    
    
    
    
    
    
    
    557
    
    
    
    165Recoverable expenses  hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total recoverable expenses
    
    
    49
    
    
    
    (1
    )
    
    
    185
    
    
    
    
    
    
    
    907
    
    
    
    276Repairs & maintenance
    
    
    1
    
    
    
    9
    
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    Depreciation & amortization
    
    
    146
    
    
    
    3
    
    
    
    213
    
    
    
    
    
    
    
    826
    
    
    
    454Salaries, general & administrative
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86Non-recoverable expenses  hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-recoverable expenses
    
    
    148
    
    
    
    12
    
    
    
    213
    
    
    
    (17
    )
    
    
    826
    
    
    
    540Total Realty Rental Expenses
    
    
    197
    
    
    
    11
    
    
    
    398
    
    
    
    (17
    )
    
    
    1,733
    
    
    
    816Construction expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brokerage expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Land and overhead expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental and Services Expenses
    
    
    197
    
    
    
    11
    
    
    
    398
    
    
    
    (17
    )
    
    
    1,733
    
    
    
    816Realty sales expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Flagler Expenses
    
    
    197
    
    
    
    11
    
    
    
    398
    
    
    
    (17
    )
    
    
    1,733
    
    
    
    816Operating Profit (Loss)
    
    
    11
    
    
    
    (11
    )
    
    
    171
    
    
    
    17
    
    
    
    725
    
    
    
    34
 (Prior year results have been reclassified to conform to current year presentation)
 New in 2007
 New in 2006
 New in 2005
 25




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##### Table of Contents



FLAGLER DEVELOPMENT  REALTY SERVICES and LAND & OVERHEAD  For the Three Months Ended March 31
 Realty Services
    
    Land & Overhead(dollars in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Revenues: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
    
    
    10,574
    
    
    
    
    
    
    
    
    
    
    
    Brokerage revenues
    
    
    2,326
    
    
    
    420
    
    
    
    
    
    
    
    Property management
    
    
    1,471
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    5,118
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Revenues
    
    
    19,489
    
    
    
    420
    
    
    
    
    
    
    
    Land use revenues
    
    
    
    
    
    
    
    
    
    
    179
    
    
    
    173Total Realty Rental and Services Revenues
    
    
    19,489
    
    
    
    420
    
    
    
    179
    
    
    
    173Realty sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,038Total Flagler Revenues
    
    
    19,489
    
    
    
    420
    
    
    
    179
    
    
    
    41,211Expenses:Real estate taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repairs & maintenance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Services, utilities, management costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recoverable expenses  hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total recoverable expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repairs & maintenance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation & amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Salaries, general & administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-recoverable expenses  hurricane related
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-recoverable expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Rental Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction expenses
    
    
    10,401
    
    
    
    
    
    
    
    
    
    
    
    Brokerage expenses
    
    
    2,099
    
    
    
    249
    
    
    
    
    
    
    
    Property management
    
    
    947
    
    
    
    
    
    
    
    
    
    
    
    Development & other services
    
    
    1,309
    
    
    
    
    
    
    
    
    
    
    
    Total Realty Services Expenses
    
    
    14,756
    
    
    
    249
    
    
    
    
    
    
    
    Land and overhead expenses
    
    
    
    
    
    
    
    
    
    
    8,232
    
    
    
    5,068Total Realty Rental and Services Expenses
    
    
    14,756
    
    
    
    249
    
    
    
    8,232
    
    
    
    5,068Realty sales expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,412Total Flagler Expenses
    
    
    14,756
    
    
    
    249
    
    
    
    8,232
    
    
    
    35,480Operating Profit (Loss)
    
    
    4,733
    
    
    
    171
    
    
    
    (8,053
    )
    
    
    5,731
 (Prior year results have been reclassified to conform to current year presentation)
  Realty Services
  26




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27




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Railway Realty Rental and Realty Sales
  Corporate Expenses
  Interest Expense
  Other Income
  Income Tax
  28




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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
  Three Months EndedMarch 31(dollars in thousands) (unaudited)
    
    2007
    
    2006Cash Flows from Operating ActivitiesNet income
    
    
    9,037
    
    
    
    18,725Adjustments to reconcile net income to cash generated by
operating activities:Depreciation and amortization
    
    
    15,669
    
    
    
    14,337Non-cash compensation
    
    
    36
    
    
    
    15Gain on disposition of properties, including those discontinued
    
    
    
    
    
    
    (13,794
    )Deferred taxes
    
    
    1,888
    
    
    
    (1,428
    )Stock compensation expense
    
    
    4,013
    
    
    
    2,389Changes in operating assets and liabilities:Accounts receivable
    
    
    1,290
    
    
    
    (2,766
    )Prepaid expenses
    
    
    259
    
    
    
    (921
    )Materials and supplies
    
    
    (879
    )
    
    
    (311
    )Straight line rent
    
    
    (974
    )
    
    
    (995
    )Prepaid commissions
    
    
    (1,308
    )
    
    
    (1,674
    )Other assets and deferred charges
    
    
    814
    
    
    
    518Accounts payable
    
    
    (10,802
    )
    
    
    (12,000
    )Taxes payable
    
    
    7,705
    
    
    
    17,184Deferred revenue
    
    
    123
    
    
    
    7,856Other current liabilities
    
    
    (2,085
    )
    
    
    (1,415
    )Other long-term liabilities
    
    
    108
    
    
    
    (374
    )Net cash generated by operating activities
    
    
    24,894
    
    
    
    25,346Cash Flows from Investing ActivitiesPurchases of properties and equipment
    
    
    (45,116
    )
    
    
    (41,907
    )Investment in unconsolidated real estate joint ventures
    
    
    (1,677
    )
    
    
    Decrease in restricted cash
    
    
    140
    
    
    
    Proceeds from disposition of assets
    
    
    481
    
    
    
    45,110Net cash (used in) provided by investing activities
    
    
    (46,172
    )
    
    
    3,203Cash Flows from Financing ActivitiesBorrowings from long-term debt
    
    
    3,345
    
    
    
    Borrowings from five-year revolving credit facility
    
    
    20,200
    
    
    
    Payment of mortgage debt
    
    
    (1,348
    )
    
    
    (1,271
    )Payment of dividends
    
    
    (2,516
    )
    
    
    (1,994
    )Proceeds from exercise of options
    
    
    510
    
    
    
    6,722Tax benefit associated with equity-based compensation
    
    
    774
    
    
    
    1,581Purchase of common stock
    
    
    (1,210
    )
    
    
    (1,684
    )Investment by minority interest
    
    
    429
    
    
    
    Net cash provided by financing activities
    
    
    20,184
    
    
    
    3,354Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (1,094
    )
    
    
    31,903Cash and Cash Equivalents at Beginning of Period
    
    
    5,096
    
    
    
    75,990Cash and Cash Equivalents at End of Period
    
    
    4,002
    
    
    
    107,893Supplemental Disclosure of Cash Flow InformationCash paid for income taxes
    
    
    1,900
    
    
    
    300Cash paid for interest
    
    
    5,726
    
    
    
    5,664
   29




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30




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OTHER MATTERS
 Critical Accounting Policies
  Allocation of Acquisition Costs
  Principles of Consolidation
  31




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Impairment of Long-lived Assets
  Income Tax Provisions
 Revenue Recognition
 Realty Rental Revenues
 Realty Sales
 Construction Contracts
  32




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Railway Revenues
 Real Estate Infrastructure Costs
   Cost Capitalization
  Contingencies
 33




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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
  34




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##### Table of Contents



PART II
 
 Item 1.
 LEGAL PROCEEDINGS
  
 Item 1A.
 RISK FACTORS
  Risks Related to the Merger
    
    
    the Company would remain liable for significant costs relating to the
proposed Merger, including, among others, legal, accounting, financial advisory,
and financial printing expenses;
 
    
    the Company may face various disruptions to the operation of the
business as a result of the substantial time and effort invested by management in
connection with the Merger;
 
    
    the decision to enter into the Merger may cause substantial harm to
relationships with our employees and/or may divert employee attention away from
day-to-day operations of the business;
 
    
    an announcement that we have abandoned the Merger could trigger a
decline in our stock price to the extent that our stock price reflects a market
assumption that we will complete the Merger;
 
    
    the Company will incur significant additional indebtedness to fund
the special dividend. If the Merger were not completed, such incremental
borrowing would leave the Company with substantial additional debt;
 
    
    the Company may forego alternative business opportunities or fail to
respond effectively to competitive pressures.
   
    
    declare, set aside, make or pay any dividends or other distributions
other than the Companys regular quarterly dividend of $0.07 per share and the
$21.50 per share special dividend;
 
    
    other than scheduled potential real property acquisitions, purchase an equity interest in, or the substantial portion of the
assets of an entity in which the amount paid together with all investments in the
three years subsequent to the acquisition would exceed $50 million;
 
    
    sell, lease or otherwise dispose of any properties or assets, other
than a) sales or other dispositions of inventory and other assets in the ordinary
course of business, b) leases and subleases of owned real property and real
property leased by the Company, c) sales or other dispositions of real estate for
fair market value with a sale price
 35




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##### Table of Contents



that does not exceed $50 million individually
or $100 million in the aggregate, d) sales or other dispositions of assets
utilized in the operations of the Company and its subsidiaries the total value of
which does not exceed $50 million in the aggregate; or as disclosed to Fortress;
 
    
    incur any indebtedness or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible for the
obligations of any person for indebtedness, other than a) borrowings under the
Companys existing credit facilities and any trade letters of credit and
construction loans, performance and completion guarantees and surety obligations
incurred in connection with existing development projects, and b) any amount
necessary to pay the special dividend;
 
    
    make any capital expenditure or commitment for any capital
expenditure except, a) capital expenditures consistent with the Companys 2007
capital budget, and b) in amounts not more than $5 million for each existing
capital project and for each new capital expenditure project, in either case over
and above the budget, subject to a maximum of $50 million in the aggregate.
    
 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 Publicly
    
    Value that may yet beTotal Number of
    
    (including
    
    Announced Plans or
    
    Purchased under theShares Purchased
    
    commissions)
    
    Programs
    
    Plans or ProgramsJanuary
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    37,711,048February
    
    
    18,945
    (1)
    
    $
    63.26
    
    
    
    
    
    
    $
    37,711,048March
    
    
    128
    (1)
    
    $
    60.42
    
    
    
    
    
    
    $
    37,711,048
 
 (1)
    
    Shares purchased represent shares surrendered to the Company for federal withholding
obligations related to employees vesting on previously restricted stock.
  36




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Item 6.
 EXHIBITS
 (a)
    
    Exhibits
  37




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##### Table of Contents



SIGNATURES
  FLORIDA EAST COAST INDUSTRIES, INC.
                              (Registrant)Dated: May 10, 2007
    /s/ Daniel H. PopkyDaniel H. Popky, Executive Vice Presidentand Chief Financial OfficerDated: May 10, 2007
    /s/ Amy BramlittAmy BramlittVice President and Controller 38




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##### Table of Contents



INDEX TO EXHIBITS
 S-K ITEM601
    
    DOCUMENTS2 (i)
    
    Codina acquisition documents.
    
    (7)3 (i)
    
    Second Amended and Restated Articles of Incorporation.
    
    (1)3 (ii)
    
    Amended and Restated By-Laws.
    
    (1)4
    
    Amended and Restated Rights Agreement.
    
    (1)10 (a)
    
    $150 million Unsecured Revolving Credit Agreement with a 5-year term between FECI and a
syndication of financial institutions with Bank of America, N.A. as Lead Arranger.
    
    (2)10 (b)
    
    Distribution and Recapitalization Agreement.
    
    (5)10 (c)
    
    Various Promissory Notes and Mortgage Security Agreements dated June 28, 2001 and September
27, 2001, covering certain Flagler buildings at various office parks.
    
    (3)10 (d)
    
    Representative Change in Control Agreement between FECI and certain FECI Executive Officers
applicable to Messrs. Popky, McPherson, Ms Eddins, and others.
    
    (4)10 (e)
    
    2002 Stock Incentive Plan, as amended.
    
    (12)10 (f)
    
    FECI 2002 Employee Stock Purchase Plan.
    
    (9)10 (g)
    
    Mortgage Notes dated as of August 10, 2004 between Flagler Development Group and Metropolitan
Life Insurance Company.
    
    (10)10 (h)
    
    Representative Restricted Stock Agreement dated August 25, 2004 between FECI and certain
Executive Officers.
    
    (11)10 (i) .1 - .4
    
    Employment Agreement and Change in Control Agreement; dated February 10, 2005, effective March
28, 2005, and
Restricted Stock Agreement and Supplemental Employee Retirement Plan (SERP) Participant
Agreement dated March 28, 2005 between FECI and Adolfo Henriques.
    
    (6)10 (j)
    
    Employment and Change in Control Agreements dated April 27, 2006, effective April 27, 2006,
between FECI and Armando Codina.
    
    (8)10 (k)
    
    Revised annual salaries and target incentive compensation for certain named executive officers.
    
    (20)10 (l)
    
    Supplemental Employee Retirement Plan (SERP) dated as of March 28, 2005.
    
    (6)10 (m)
    
    Codina acquisition documents.
    
    (7)10 (n)
    
    First Amendment to Credit Agreement dated April 27, 2006, amending $150 million Unsecured
Revolving Credit Agreement with a 5-year term between FECI and a syndication of financial
institutions with Bank of America, N.A. as Lead Arranger.
    
    (13)10 (o)
    
    Restricted stock agreement dated May 3, 2006 between FECI and Jorgé San Miguel.
    
    (14)10 (p)
    
    Representative restricted stock agreement between FECI and certain employees of Codina Group.
    
    (15)10 (q)
    
    Second Amendment to Credit Agreement dated, October 16, 2006, amending $150 million Unsecured
Revolving Credit Agreement with a 5-year term between FECI and a syndication of financial
institutions with Bank of America, N.A. as Lead Arranger.
    
    (16)10 (r)
    
    Third Amendment to Credit Agreement dated, January 26, 2007, amending $150 million Unsecured
Revolving Credit Agreement with a 5-year term between FECI and a syndication of financial
institutions with Bank of America, N.A. as Lead Arranger.
    
    (17)
 39




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##### Table of Contents



INDEX TO EXHIBITS
 S-K ITEM601
    
    DOCUMENTS10 (s)
    
    Terms and Provisions relating to Restricted Stock Awards under the Florida East Coast
Industries, Inc. 2002 Stock Incentive Plan (as amended and restated effective June 5, 2005).
    
    (18)10 (t)
    
    Representative Restricted Stock
Award.
    
    (19)10 (u)
    
    Agreement and Plan of Merger, dated
as of May 8, 2007, by and among Iron Horse Acquisition Holding, LLC,
Iron Horse Acquisition Sub, Inc. and Florida East Coast Industries,
Inc.
    

(21)31.1 - 31.2
    
    Section 302 Certifications.32.1
    
    Section 906 Certification.
 
 (1)
    
    Amended and Restated Articles of Incorporation of the Registrants, Amended
and Restated By-Laws of the Registrant and Amended and Restated Shareholder Rights
Agreement, dated April 27, 2006, as were filed on Form 8-K (all incorporated by reference
as an Exhibit to the Form 8-K) with the Securities and Exchange Commission on April 28,
2006 (File No. 001-32866).(2)
    
    This document, dated February 22, 2005, is filed as exhibit 10 to Form 8-K with
the Securities and Exchange Commission on February 24, 2005.(3)
    
    These documents are filed as exhibits 10.1  10.8 on Form 10-Q with the
Securities and Exchange Commission on August 14, 2001 and exhibits 10.1  10.6 on November
8, 2001.(4)
    
    This document is filed as exhibit 10.7 on Form 10-Q with the Securities and
Exchange Commission on November 8, 2001.(5)
    
    Distribution and Recapitalization Agreement, incorporated by reference to
Appendix A to the definitive Proxy Statement on Schedule 14A, filed with the Securities and
Exchange Commission on February 4, 2000 (Registration No. 001-08728).(6)
    
    These documents, dated February 10, 2005 and March 28, 2005, are filed as
exhibits 10(c.1)  10(c.4) to Form 10-Q with the Securities and Exchange Commission on
April 22, 2005.(7)
    
    These documents, dated January 5, 2006, are filed as exhibits to Form 8-K with
the Securities and Exchange Commission on January 11, 2006 and exhibits to Form 8-K with
the Securities and Exchange Commission filed on April 28, 2006.(8)
    
    These documents, dated April 27, 2006, are filed as exhibits 99.1 and 99.2 to
Form 8-K with the Securities and Exchange Commission on May 2, 2006.(9)
    
    FECIs Employee Stock Purchase Plan was filed on Form S-8 with the Securities and
Exchange Commission on June 21, 2002 (Registration No. 333-90896).(10)
    
    These documents, dated August 10, 2004, are filed as exhibits 10.1  10.7 on
Form 8-K with the Securities and Exchange Commission on August 17, 2004.(11)
    
    This document, dated August 25, 2004, is filed as exhibit 10(c) to Form 10-Q
with the Securities and Exchange Commission on November 3, 2004.(12)
    
    This document, dated June 2, 2005, is filed as exhibit 10(g) to Form 10-K with
the Securities and Exchange Commission on March 1, 2006 (Registration No 333-90894).(13)
    
    This document, dated April 27, 2006, is filed as exhibit 10(n) to Form 10-Q with
the Securities and Exchange Commission on August 8, 2006. 40




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##### Table of Contents



(14)
    
    This document, dated May 3, 2006, is filed as exhibit 10(p) to Form 10-Q with
the Securities and Exchange Commission on August 8, 2006.(15)
    
    This document is filed as exhibit 10(q) to Form 10-Q with the Securities and
Exchange Commission on August 8, 2006.(16)
    
    This document, dated October 16, 2006, is filed as exhibit 10(p) to Form 10-Q
with the Securities and Exchange Commission on November 3, 2006.(17)
    
    This document, dated January 26, 2007, is filed as exhibit 10(q) to Form 10-K
with the Securities and Exchange Commission on February 26, 2007.(18)
    
    This document is filed as exhibit 10(r) to Form 10-K with the Securities and
Exchange Commission on February 26, 2007.(19)
    
    This document is filed as exhibit 10(s) to Form 10-K with the Securities and
Exchange Commission on February 26, 2007.(20)
    
    This document, incorporated in Form 8-K, was filed with the Securities and
Exchange Commission dated February 26, 2007.(21)
    
    This document, dated May 8, 2007, is filed as exhibit 2.1 to
Form 8-K with the Securities and
Exchange Commission on May 9, 2007. 41