Florida East Coast Industries, Inc.

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Florida East Coast Industries, Inc.

One Malaga Street
P.O. Box 1048
St. Augustine, Florida 32085-1048
U.S.A.
Telephone: (904) 829-3421
Fax: (904) 826-2338
Web site: http://www.feci.com

Public Company
Incorporated: 1984
Employees: 834
Sales: $301.52 million (2002)
Stock Exchanges: New York
Ticker Symbol: FLA
NAIC: 482111 Line-Haul Railroads; 531210 Offices of Real Estate Agents and Brokers; 531312 Nonresidential Property Managers; 233110 Land Subdivision and Land Development

Florida East Coast Industries, Inc. (FECI) is the holding company for the similarly named railroad as well as a major land development company. Florida East Coast Railway, L.L.C. (FECR) operates a rail service on 351 miles of track between Jacksonville and Miami. Observers have called FECR one of the best-run railroads in North America. Flagler Development Company owns and manages more than seven million square feet of commercial and industrial space, and about 5,000 acres of other Florida real estate. Formerly called Gran Central Corp., its name was changed in 2000 to reflect the legacy of company founder Henry Flagler.

Origins

The name of Henry Morrison Flagler looms large in the history of the commercial development of the state of Florida. Flagler was a cofounder of the Standard Oil Co. with John D. Rockefeller. He sold his 50 percent interest in Standard Oil for $50 million and headed to undeveloped Florida to start his next venture. He was able to buy land very cheap with the purpose of building resorts for his fellow millionaires.

On December 31, 1886, Flagler bought the Jacksonville, St. Augustine and Halifax River Railroad. This small operation was incorporated in 1892 and renamed the Florida East Coast Railway Company in September 1895.

Flagler acquired the railway in order to carry affluent tourists to the luxury vacation destinations he was developing along Florida's east coast, beginning with St. Augustine, which had only 4,000 permanent residents at the time. The railroad marketed these destinations under the slogan "Paradise Regained."

The railway ran to Palm Beach, site of Flagler's Poinciana Hotel, by 1894. A wealthy Miami landowner, Julia Tuttle, encouraged Flagler to continue laying rails further south. Passenger service from Jacksonville to Miami officially started on April 22, 1896, according to Seth Bramson's Speedway to Sunshine: The Story of the Florida East Coast Railway.

The railway grew along with the developments as far as Key West, requiring the spanning of 150 miles of open ocean. Historian Dan Gallagher called the building of the Key West Extension the second largest construction project in the world during the first decade of the 20th century. Contemporary critics called it "Flagler's Folly"; of 4,000 workers employed in building it, 160 died.

The extension officially opened on January 22, 1912, after five years of work and a year before Flagler died. Of the $41 million he had invested in Florida, Flagler had put $10 million into the Key West Extension and $18 million into the railroads, according to Fort Lauderdale journalist David Leon Chandler.

FECR's fortunes soared during the local real estate market boom in the 1920s. The railroad was used to transport building materials as well as passengers. Return trips provided transportation for Florida's abundant year-round produce.

The 1929 stock market crash dealt FECR a blow it would spend decades trying to overcome. The railway declared bankruptcy in 1931 and would spend the next 30 years in receivership. A hurricane on Labor Day, 1935, wiped out the Key West Extension. Rail all along the Atlantic Coast faced new competition from U.S. Highway 1, completed in 1938, which stretched from Maine to the Florida Keys.

FECR Exiting Receivership in 1961

FECR emerged from bankruptcy in 1961, controlled by the Alfred I. duPont estate, represented by eminent Florida businessman Ed Ball. However, it faced a number of serious problems. Ball found the railway overstaffed and encumbered by union regulations. Under Ball's leadership, the railway withdrew from labor negotiations in 1963 and replaced all striking workers. It would continue to operate that way for many years, at the same time increasing its frequencies from three trains a day each way between Jacksonville and Miami, to a dozen, while reducing the number of crew members on each train from 15 to two. The violent strike was called off in the early 1970s, and few original employees were rehired. The strike shut down passenger service on January 22, 1963. This resumed on August 2, 1965, though a lack of business killed the service on July 30, 1968. In the 1960s, the railway lost a significant amount of cargo business to the embargo on Cuba, at the same time as competition from a parallel railway (the origins of CSX Transportation), two new interstate highways, and a more efficient Intracoastal Waterway, reported the Journal of Commerce.

Other cost-cutting measures included truncating cabooses from trains and using longer-lasting concrete railway ties instead of wood ones. FECR began to show consistent profits in the mid-1970s. The Arab oil embargo of 1973 had prompted many truckers to have FECR carry their trailers south on flatbed cars. A local labor organization called the Florida Federation of Railroad Employees began representing FECR workers in 1977.

Reorganizing in 1984

FECR President Winfred L. Thornton was named chairman and CEO after the death of Ed Ball in 1981. The company underwent a restructuring three years later. Florida East Coast Industries, Inc. was formed as a holding company effective May 31, 1984. A new subsidiary, Commercial Realty & Development Co., was created to manage its 21,000 acres of property. The real estate arm was soon renamed Gran Central Corporation. It concentrated on developing commercial buildings. Operating revenues were $131.4 million in 1984; net income was $29 million.

The number of owner-operators plying their trade as truckers multiplied in the 1980s, and FECI itself owned two trucking subsidiaries: Florida East Coast Highway Dispatch, its delivery unit, and Florida Express Carriers, which operated to neighboring states.

FECI had estimated sales of $196 million in 1989. By this time, the real estate unit had built a million square feet of warehouse and office space, reported Forbes.

Transitions in the 1990s

In August 1992, Hurricane Andrew washed away the historic FECR depot building that had been a part of Homestead's Florida Pioneer Museum. FECR posted a profit of $24 million on sales of $184 million in 1992. It had 936 employees and 442 miles of track.

FECI acquired trucking company International Transit, Inc. (ITI) in 1995. Based in Cincinnati, Ohio, ITI had revenues of more than $21 million a year.

Norfolk Southern Corp., the fourth largest railway in the country, considered acquiring FECR after it was offered for sale in February 1996. The two already cooperated on some shipments; a buy would have extended Norfolk Southern's line past Jacksonville to Miami. This deal did not materialize, though, and FECR was taken off the market a few years later.

St. Joe Corp., a Jacksonville industrial conglomerate with interests in paper, real estate, transportation, and telecommunications owned 54 percent of FECR. A bid to acquire the remaining shares fell through over the issue of valuation. St. Joe then began to sell off its diversified holdings to concentrate on real estate development. It spun off its 54 percent interest in FECI in October 2000.

Forming a Telecom Unit in 1999

In May 1999, FECI created the Orlando-based telecommunications venture, FEC Telecom Inc., which was soon renamed EPIK Communications Incorporated. Telecom companies often looked to railways for rights-of-way to run their fiber-optic lines. FECI installed a 780-mile fiber-optic line connecting a handful of major cities in Florida, and had been leasing access to other telecoms since the early 1980s.

FECI got a new CEO in 2000, 20-year industry veteran Robert W. Anestis, who succeeded Carl Zellers, Jr. Anestis, from Connecticut, had been a financial consultant to the railroad industry.

In July 2000, FECI's commercial real estate unit, Gran Central Corporation, was renamed Flagler Development Company to reflect its connection with pioneering developer Henry Flagler. It then owned 55 buildings and about 19,000 acres of land, mostly in Jacksonville, Orlando, Fort Lauderdale, and Miami. Flagler, which employed fewer than two dozen people at the time, was moving into a new headquarters and opening offices in Fort Lauderdale and Orlando as its staff expanded. In September 2000, the company announced plans to borrow money for the first time in its history to fund the development of its 16 million square feet of space in Jacksonville, Orlando, Fort Lauderdale, and Miami, reported the Business Journal of Jacksonville. Flagler also was buying property for development in Tampa.

Company Perspectives:

At FECI we are deploying our unique transportation and real estate assets to capture Florida's growth opportunities, consistently outperforming our competitors.

On October 10, 2000, Flagler Development was spun off from the St. Joe Corp., which had owned a 54 percent interest in it since 1961 and held contracts to manage Flagler's real estate; the last of these expired three years later. This brought Flagler into competition with the Codina Group, half owned by St. Joe, which was building an industrial park to rival Flagler's main development in Miami-Dade County. The Alfred I. duPont Testamentary Trust remained the major shareholder in both FECI and St. Joe.

In 2000, Amtrak reached an agreement to use FECR's coastal tracks to begin a passenger service. Amtrak already operated on CSX's inland tracks, but there had been no passenger service down the coast since the late 1960s.

Exiting Telecom and Trucking in 2002

EPIK Communications Inc. proved a substantial drain on FECI's income, even as it extended its fiber-optic network throughout Florida and as far as Atlanta, Georgia. FECI sold EPIK to Palo Alto, California-based Odyssey Telecorp Inc. in December 2002. It also shut down its trucking operation.

FECI reported a net loss of $61 million on revenues of $247 million in 2001. Revenues rose to $301.5 million in 2002. The railroad accounted for $162 million of it. Land sales brought in $71 million.

Key Dates:

1886:: On December 31, Henry Morrison Flagler, a cofounder of Standard Oil Co., buys the Jacksonville, St. Augustine and Halifax River Railroad.
1892:: Company incorporates, adopting the name Florida East Coast Railway Company (FECR) three years later.
1931:: FECR enters receivership.
1961:: The duPont estate acquires a controlling interest in FECR.
1984:: FECI is formed as a holding company for FECR and the real estate unit.
1999:: A telecom unit is formed.
2002:: The trucking and telecom units are divested.