UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2012, 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 333-174112

Florida East Coast Holdings Corp.

(Exact name of registrant as specified in its charter)

Florida		27-4591805
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

7411 Fullerton Street, Suite 100, Jacksonville, Florida 32256

(Address of Principal Executive Offices) (Zip Code)

(800) 342-1131

(Registrant’s Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report)

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x

As of November 8, 2012 there were 252,106 shares of the Registrant’s common stock outstanding.

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EXPLANATORY NOTE

Unless the context indicates otherwise, the words (i) “Company,” “we,” “our,” and “us” refer collectively to Florida East Coast Holdings Corp. and its consolidated subsidiaries (including FECR Corp.), (ii) “FECR Corp.” refers to Florida East Coast Railway Corp. and its consolidated subsidiaries and predecessor entity, (iii) “Holdings Corp.” refers to Florida East Coast Holdings Corp. on a stand-alone basis.

Holdings Corp. was incorporated on January 10, 2011. In January 2011, all of the equity interests in FECR Corp. were transferred from FECR Rail LLC to Holdings Corp., whereby Holdings Corp. became the direct parent of FECR Corp. Holdings Corp. is a holding company and has no direct operations or material assets other than its wholly owned interest in FECR Corp. All of Holdings Corp.’s operations are conducted through its subsidiaries. The only material differences between Holdings Corp. and FECR Corp. are the Senior PIK Toggle Notes issued by Holdings Corp. and its related accounts, including deferred financing costs, amortization, payment of interest and payment of taxes. Where information or an explanation is provided that is substantially the same for each company, such information or explanation has been combined. Where information or an explanation is not substantially the same for each company, we have provided separate information and explanation. Pursuant to the indenture governing FECR Corp.’s outstanding notes, FECR Corp. is permitted to satisfy its reporting obligations under the indenture with respect to financial information relating to FECR Corp. by furnishing financial information relating to any direct or indirect parent company of FECR Corp. which becomes a guarantor of the notes on the terms and conditions set forth in the indenture. Holdings Corp. became a guarantor of FECR Corp.’s outstanding notes on March 14, 2012.

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FLORIDA EAST COAST HOLDINGS CORP.

INDEX TO FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2012

			Page
Part I.	Financial Information
	Item 1.	Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34
	Item 4.	Controls and Procedures	35

Part II.	Other Information
	Item 1.	Legal Proceedings	36
	Item 1A.	Risk Factors	37
	Item 5	Other Information	44
	Item 6.	Exhibits	45
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FLORIDA EAST COAST HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands except for share amounts)

	September 30, 2012			December 31, 2011
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	24,786		$	30,905
Restricted cash	126			125
Accounts receivable, net	35,610			31,085
Materials and supplies	4,446			3,143
Deferred income taxes	2,651			2,683
Prepaid and other current assets	2,304			2,138
Assets held for sale	189			219
Total current assets	70,112			70,298
Noncurrent assets:
Property, plant and equipment, less accumulated depreciation	778,139			782,612
Investments in nonaffiliates	74			96
Intangible assets, less accumulated amortization	234			276
Other assets	16,022			18,548
Total noncurrent assets	794,469			801,532
Total assets	$	864,581		$	871,830
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	30,229		$	41,100
Taxes payable	5,326			6,936
Deferred revenue	1,818			3,855
Other current liabilities	1,231			1,107
Total current liabilities	38,604			52,998
Deferred income taxes	23,695			17,542
Long-term debt	625,896			609,854
Other long-term liabilities	8,964			12,675
Total liabilities	697,159			693,069
Stockholders’ equity:
Series A Perpetual Preferred Stock, $0.01 par value, 1,000,000 shares authorized, 24,151 shares issued and outstanding as of September 30, 2012 and as of December 31, 2011	—			—
Series B Perpetual Preferred Stock, $0.01 par value, 150,000 shares authorized and none outstanding as of September 30, 2012 and December 31, 2011	—			—
Common stock, $0.01 par value, 1,000,000 shares authorized; 252,106 shares issued and outstanding as of September 30, 2012 and 250,943 shares issued and outstanding as of December 31, 2011	3			3
Additional paid-in capital	286,423			284,642
Accumulated deficit	(118,190		)	(105,032		)
Accumulated other comprehensive loss	(814		)	(852		)
Total stockholders’ equity	167,422			178,761
Total liabilities and stockholders’ equity	$	864,581		$	871,830

The accompanying notes are an integral part of the Consolidated Financial Statements.

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FLORIDA EAST COAST HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Operating revenue	$	62,962		$	52,194		$	178,806		$	156,690
Operating expenses:
Labor and benefits	11,677			10,814			35,829			34,582
Equipment rents	3,435			2,780			9,770			8,410
Fuel	7,361			6,981			22,430			21,131
Purchased services	11,933			8,981			32,371			25,899
Depreciation and amortization	6,946			6,747			20,310			20,408
Net (gain) loss on sale and impairment of assets	(26		)	13			(120		)	1,773
Other	6,698			5,861			19,425			19,217
Total operating expenses	48,024			42,177			140,015			131,420
Operating income	14,938			10,017			38,791			25,270
Interest expense, net of interest income	(14,877		)	(14,454		)	(43,863		)	(43,014		)
Other income (expense)	3			(8		)	82			(5		)
Income (Loss) before income taxes	64			(4,445		)	(4,990		)	(17,749		)
Provision for income taxes	2,641			4,357			6,177			10,601
Net loss	$	(2,577	)	$	(8,802	)	$	(11,167	)	$	(28,350	)

Comprehensive loss	$	(2,565	)	$	(8,815	)	$	(11,129	)	$	(28,337	)

The accompanying notes are an integral part of the Consolidated Financial Statements.

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FLORIDA EAST COAST HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Nine Months Ended September 30,
	2012			2011
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss	$	(11,167	)	$	(28,350	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	20,310			20,408
Amortization of debt financing fees	2,657			2,597
Share based compensation costs	1,460			1,248
Deferred taxes	6,185			10,601
Net (gain) loss on sale and impairment of assets	(120		)	1,773
Other				15
Changes in operating assets and liabilities:
Restricted cash	(1		)	—
Accounts receivable	(4,525		)	(4,076		)
Prepaids and other current assets	(166		)	665
Materials and supplies	(1,303		)	(899		)
Other assets and deferred charges	236			362
Accounts payable and accrued expenses	(10,871		)	3,275
Taxes payable	(1,610		)	(1,507		)
Deferred revenue	(2,037		)	402
Other current liabilities	442			(72		)
Other long-term liabilities	12,166			6,396
Net cash provided by operating activities	11,656			12,838
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of properties and equipment	(16,219		)	(16,286		)
Release of interest reserve account	—			4,008
Proceeds from disposition of assets	596			8,547
Net cash used in investing activities	(15,623		)	(3,731		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from FECR Rail LLC	—			16,000
Payment on long-term debt	—			(601,185		)
Proceeds from issuance of long-term debt	—			602,725
Purchase of common shares outstanding	(1,991		)	(236		)
Proceeds from issuance of preferred shares	—			125,000
Redemption of preferred share units (including interest paid)	—			(126,111		)
Financing costs	(161		)	(17,765		)
Net cash used in financing activities	(2,152		)	(1,572		)
Net increase (decrease) in cash and cash equivalents	(6,119		)	7,535
Cash and cash equivalents at beginning of period	30,905			9,306
Cash and cash equivalents at end of period	$	24,786		$	16,841

Supplemental cash flow information:
Cash paid for interest	$	38,574		$	23,955

The accompanying notes are an integral part of the Consolidated Financial Statements.

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FLORIDA EAST COAST HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of the Business and Basis of Presentation

The accompanying Consolidated Financial Statements of the Company are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting and, in the opinion of the Company’s management, reflect all adjustments, including normal recurring items, which are necessary to present fairly the results for interim periods. All significant intercompany transactions and accounts have been eliminated in consolidation. Certain information and footnote disclosures normally included in Consolidated Financial Statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been omitted in accordance with the rules and regulations of the SEC; however, management believes that the disclosures are adequate to make information presented not misleading. The results of operations for interim periods are not necessarily indicative of results of operations for the full year. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Consolidated Financial Statements for the year ended December 31, 2011 included in the Company’s annual report on Form 10-K filed with the SEC on March 15, 2012. The Company’s rail transportation operations are conducted through its direct wholly owned subsidiary Florida East Coast Railway Corp. (“FECR”), and its indirect wholly owned subsidiaries (“FECR Corp.”), Florida East Coast Railway, L.L.C. and FEC Highway Services, L.L.C. (collectively, the “Railway”). The Railway operates a Class II railroad along 351 miles of mainline track between Jacksonville and Miami, Florida, serving some of the most densely populated areas of Florida. Additionally, the Railway owns and operates approximately 270 miles of branch, switching and other secondary track and 115 miles of yard track, all within Florida. The Railway has the only private coastal right-of-way between Jacksonville and Miami and is the exclusive rail-service provider to the Port of Palm Beach, Port Everglades (Fort Lauderdale), and the Port of Miami.

Fortress Acquisition

On July 26, 2007, private equity funds managed by affiliates of Fortress Investment Group LLC (collectively, “Fortress”) acquired all of the outstanding stock of Florida East Coast Industries, Inc. (“FECI”), a then publicly held company. As part of the acquisition of FECI (herein referred to as the “Fortress Acquisition”), Fortress assumed a portion of FECI’s long-term debt and repaid the remaining outstanding debt and took FECI private.

Rail Separation

On December 31, 2007, FECI’s rail transportation segment was transferred to private equity funds managed by affiliates of Fortress (the “Rail Separation”). Concurrent with the Rail Separation, FECR Rail LLC and FECR Corp. were formed to carry on the activities of FECI’s rail transportation segment. As a result of the Rail Separation, FECR Rail LLC became the immediate parent of FECR Corp., which in turn became the immediate parent of the Railway.

Formation of Florida East Coast Holdings Corp.

Holdings Corp. was incorporated in Florida on January 10, 2011 to hold the investments of the Company.

On January 25, 2011, FECR Rail LLC contributed all of its holdings of FECR Corp.’s common and preferred shares in exchange for 250,555 newly issued common shares of Holdings Corp. As a result, FECR Rail LLC became the immediate parent of Holdings Corp., and Holdings Corp. became the immediate parent of FECR Corp.

The following is a summary of entities included in the Consolidated Financial Statements:

· Florida East Coast Holdings Corp. (a wholly owned subsidiary of FECR Rail LLC)

· Florida East Coast Railway Corp. (a wholly owned subsidiary of Florida East Coast Holdings Corp.)

· Railway (wholly owned subsidiaries of Florida East Coast Railway Corp.):

· Florida East Coast Railway, L.L.C., and its subsidiary;

· FEC Highway Services, L.L.C.

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FEC PEVT L.L.C. and FEC PEVT Corporation

On September 26, 2012, the Company, through its wholly owned subsidiaries, FEC PEVT, L.L.C., as borrower, and Florida East Coast Railway, L.L.C., as guarantor, entered into a State Infrastructure Bank loan (the “SIB Loan”) with the Florida Department of Transportation (“FDOT”), as lender, (see additional information in Footnotes 6 and 11). In conjunction with the SIB Loan, the Company formed FEC PEVT Corporation and FEC PEVT L.L.C. FEC PEVT L.L.C. is owned by Florida East Coast Railway, L.L.C. (99%) and FEC PEVT Corporation (1%). FEC PEVT Corporation is a wholly owned subsidiary of Florida East Coast Railway Corp. The newly formed entities are included in the Consolidated Financial Statements as discussed above.

2. Summary of Significant Accounting Policies

Principles of Consolidated Financial Statements

The accompanying Consolidated Financial Statements of the Company include all wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Consolidated Financial Statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

Change in Depreciable Lives

For track and related assets, the Company uses the group method of depreciation under which a single depreciation rate is applied to the gross investment of each asset type. Under the group method, the service lives and salvage values for each group of assets are determined by completing periodic life studies and applying management’s assumptions regarding the service lives of its properties. A life study is the periodic review of asset lives for group assets conducted and analyzed by the Company’s management with the assistance of a third-party expert. The results of the life study process determine the service lives for each asset group under the group method.

There are several factors taken into account during the life study and they include statistical analysis of historical life, retirements and salvage data for each group of property, evaluation of current operations, review of the previous assessment of the condition of the assets and the outlook for their continued use, consideration of technological advances and maintenance schedules and comparison of asset groups to peer companies.

The Company’s policy is to perform life studies approximately every eight years. During the third quarter of 2012, the Company performed a life study over its rolling stock. The life study indicated that the actual lives of certain rolling stock assets were different than the estimated useful lives used for depreciation purposes in the Company’s financial statements. As a result, the Company changed its estimates of the useful lives of certain rolling stock assets to better reflect the estimated periods during which these assets will remain in service. The effect of this change in estimate during the three months ended September 30, 2012 was to reduce depreciation expense by $0.1 million. The effect of this change in estimate during the nine months ended September 30, 2012 was to reduce depreciation expense by $0.1 million. Changes in asset lives due to the results of the life studies are applied on a prospective basis and will impact future periods’ depreciation expense, and thus, the Company’s results of operations. The Company estimates the annual impact on depreciation will be a reduction to depreciation expense by approximately $1.7 million.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Disclosures about Fair Value of Financial Instruments

ASC 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. Various inputs are considered when determining the fair values of financial instruments. These inputs are summarized below:

· Level 1 — observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.

· Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.).

· Level 3 — significant unobservable inputs (including the Company’s own assumptions in determining the fair value of financial instruments.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments held by the Company:

· Current assets and current liabilities: cash and cash equivalents, accounts receivable, as well as accounts payable and accrued expenses, as reflected in the consolidated balance sheets, approximate fair value because of the short-term nature of these instruments (Level 1 inputs).

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· Long-term debt: the fair value of the Company’s Senior Secured Notes and Senior PIK Toggle Notes is based on secondary market indicators (quoted market prices of these instruments) at the date of measurement (Level 2 inputs).

The carrying amounts and estimated fair values of the Company’s financial instruments were as follows (in thousands):

	September 30, 2012
	Carrying Amount		Fair Value
Cash and cash equivalents	$	24,786	$	24,786
Senior Secured Notes	475,000		502,313
Senior PIK Toggle Notes	150,896		135,806

The Company had no Level 3 inputs as of September 30, 2012.

3. Recent Accounting Pronouncements

In 2011, the FASB issued Accounting Standards Update 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income (“ASU 2011-05”) and Accounting Standards Update No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation and Reclassifications of Items Out of Accumulated Other Comprehensive Income (“ASU 2011-12”). ASU 2011-5 improves the comparability, consistency and transparency of financial reporting and increases the prominence of items reported in other comprehensive income. ASU 2011-5 is effective for interim and annual periods beginning after December 31, 2011. As ASU 2011-5 relates specifically to presentation and disclosures the adoption of these provisions did not have any other impact on our consolidated financial statements. The main purpose of ASU 2011-12 was to defer the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in ASU 2011-5; therefore it did not have an impact on the Company’s consolidated financial statements. In accordance with the new guidance, the Company has selected the single continuous statement presentation.

4. Related-Party Transactions

Management and facility and equipment rents

The Company incurred net charges of $0.5 million and $0.6 million for facility rents to affiliates of FECI for the three months ended September 30, 2012 and 2011, respectively. During the nine months ended September 30, 2012 and 2011, the Company incurred net charges of $1.3 million and $1.4 million, respectively, for facility rents to affiliates of FECI. In addition, the Company allocated net proceeds of $0.3 million and $0.1 million for management services related to our right-of-way and for FECI’s passenger rail program for the three months ended September 30, 2012 and 2011, respectively. The Company allocated net proceeds of $1.0 million and $0.2 million for management services related to our right-of-way and for FECI’s passenger rail program for the nine months ended September 30, 2012 and 2011, respectively. As of September 30, 2012 and December 31, 2011, the Company did not have an outstanding payable or receivable.

In addition, the Company allocated net proceeds of $0.4 million and $0.6 million for management services, and facility and equipment rents to affiliates of RailAmerica, Inc. (“RailAmerica”), an entity indirectly owned by funds managed by affiliates of Fortress, for the three months ended September 30, 2012, and 2011, respectively. During the nine months ended September 30, 2012 and 2011, the Company allocated net proceeds of $1.0 million and $2.3 million, respectively, for management services and facility and equipment rents to affiliates RailAmerica. The net charges include expenses for (1) services provided from time to time for certain reciprocal administrative services, including finance, accounting, human resources, information technology, purchasing and legal, (2) for fees received related to leased locomotives rented to RailAmerica’s affiliated companies and (3) for office space sub-leased to RailAmerica. The Company had a net receivable from RailAmerica of $0.1 million and $0.1 million as of September 30, 2012 and December 31, 2011, respectively. In addition, during the three months ended September 30, 2011, the Company received proceeds of $4.5 million from the sale of locomotives that had previously been under lease to RailAmerica (see Note 12). Subsequent to October 1, 2012, RailAmerica is no longer considered a related party, due to a change in ownership.

Effective June 1, 2011, the Company entered into an agreement with RailAmerica’s wholly-owned subsidiary, Atlas Road Construction, L.L.C., to provide engineering and construction services for the Port Miami project. The Company incurred net charges of zero and $1.5 million for the three months ended September 30, 2012 and 2011, respectively. During the nine months ended September 30, 2012 and 2011, the Company incurred net charges of $2.2 million and $1.5 million, respectively, for engineering and construction services for the Port Miami project. As of September 30, 2012 and December 31, 2011, the Company had an outstanding payable of $0.4 million and $6.0 million, respectively.

The Company rents chassis equipment for ordinary business operations from TRAC Intermodal, an entity indirectly owned by funds managed by affiliates of Fortress. These rents are based on current market rates for similar assets. During the three months ended September 30, 2012 and 2011, the Company incurred net charges in the amounts of $0.2 million and $0.2 million, respectively. For the nine months ended September 30, 2012 and 2011, the Company incurred net charges in the amounts of $0.5 million and $0.4 million, respectively. As of September 30, 2012 and December 31, 2011, the Company had an outstanding payable of $0.1 million and $0.1 million, respectively.

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Lease of FECI’s rail yard

On January 24, 2011, the Company entered into an amended and restated rail yard lease, which, among other things: extends the date to vacate to December 31, 2035 (unless the Company elects not to renew the lease); commencing on January 1, 2011, provides for an annual rental fee of $4.5 million a year (subject to a 2.5% annual increase); provides the Company the right to purchase certain land from FECI at a mutually determined fair market value; provides FECI with the right to relocate the Company (at its expense) from such land to comparable property with competitive rental rates. The lease is cancellable after five years with a two year notice requirement. The Railway paid $1.3 million and $1.3 million for the rail yard base rent for the three months ended September 30, 2012 and 2011, respectively and $3.8 million and $4.7 million for the nine months ended September 30, 2012 and 2011, respectively.

5. Income Taxes

It is more likely than not that the net operating losses expected to be generated by the Company in 2012 will expire unused. Accordingly, the Company has recognized tax expense in 2012 to reflect an increase in the Company’s deferred tax valuation allowance. As such, the Company recorded an income tax expense of $2.6 million and $4.4 million, for the three months ended September 30, 2012 and 2011, respectively. For the nine months ended September 30, 2012 and 2011, the Company recorded income tax expense of $6.2 million and $10.6 million, respectively.

A valuation allowance against deferred tax assets is required if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company established a valuation allowance of $50.6 million and $42.6 million as of September 30, 2012 and December 31, 2011, respectively, to reduce deferred tax assets to their expected realizable value.

The Company has net operating loss carryforwards as of September 30, 2012, as follows:

· U. S.—$274.9 million (expiration periods: 2028—2032)

· Florida—$284.7 million (expiration periods: 2028—2032)

The Company recognizes interest and penalties related to uncertain tax positions in its provision for income taxes. As of December 31, 2011, the Company did not believe that it had any uncertain tax positions. As of December 31, 2011, the U.S. and Florida taxing jurisdiction remains open to examination for the years 2010, 2009, and 2008.

6. Long-Term Debt

Debt consisted of the following:

	September 30, 2012		December 31, 2011
	(in thousands)
Senior Secured Credit Facility:
Senior Secured Notes	475,000		475,000
Senior PIK Toggle Notes (net of original discount of $1,849)	150,896		134,854
ABL Credit Facility	—		—
SIB Loan	—		—
Total debt	625,896		609,854
Less: Current maturities	—		—
Long-term debt, less current maturities	$	625,896	$	609,854

Interest expense was $10.5 million on the Senior Secured Notes and $4.4 million on the PIK Toggle Notes for the three months ended September 30, 2012. Interest expense was $10.5 million on the Senior Secured Notes and the Old Facility and $4.0 million on the PIK Toggle Notes for the three months ended September 30, 2011. Interest expense was $31.1 million on the Senior Secured Notes and $12.8 million on the PIK Toggle Notes for the nine months ended September 30, 2012. Interest expense was $33.2 million on the Senior Secured Notes and the Old Facility and $9.8 million on the PIK Toggle Notes for the nine months ended September 30, 2011.

On January 25, 2011, FECR Corp. sold $475.0 million of 8 1 / 8 % Senior Secured Notes due 2017 (“Senior Secured Notes” or “8 1 / 8 % Notes”) in a private offering, for gross proceeds of $475.0 million. In connection with the issuance of the Senior Secured Notes, FECR Corp. and certain of its subsidiaries also entered into the Asset-Based Lending (“ABL”) Facility that matures on January 25, 2015. Availability on the ABL Facility as of September 30, 2012 was $30.0 million and was undrawn; provided that the Company anticipates accessing the letter of credit facility under the ABL Facility in connection with obtaining the $3.0 million letter of credit required as additional collateral under the SIB Loan, as discussed below.

On September 26, 2012, FEC PEVT, L.L.C., as borrower, and Florida East Coast Railway, L.L.C., as guarantor, each a wholly owned subsidiary of the Company, entered into the SIB Loan with FDOT. The SIB Loan provides for a loan of $30 million to fund, in part, the costs associated with the construction of a new Florida East Coast Intermodal Container Transfer Facility (the “ICTF”) in Port Everglades, Florida, which will serve the Company’s domestic and international business segments. Proceeds from the SIB

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Loan will be advanced by FDOT as construction proceeds on ICTF. The total construction cost of the ICTF construction project is approximately $53 million, $30 million of which will be funded through the SIB Loan, $18 million of which will be from a FDOT grant (the “FDOT Grant”) and the balance of $5 million from the Company’s capital budget. The Company has been awarded $6 million of the $18 million FDOT Grant as of September 30, 2012 and the remaining funding is expected by November 30, 2012.

Sale and Issuance of Series B Perpetual Preferred Stock

On January 25, 2011, the Company completed the sale and issuance of its Series B Perpetual Preferred Stock, par value $0.01 per share (“Series B Perpetual Preferred Stock”) for an aggregate consideration of $125.0 million to an affiliate of FECI commonly owned by affiliates of Fortress. The Series B Perpetual Preferred Stock carried interest cumulatively at the amount of 20% per annum.

Shareholder Contribution of FECR Rail LLC

In January and February 2011, FECR Rail LLC contributed an aggregate $16.0 million to the Company.

Senior Secured and Senior PIK Toggle Notes

On February 11, 2011, Holdings Corp. sold $130.0 million of 10 1 / 2 / 11 1 / 4 % Senior Payment in Kind Toggle Notes due 2017 (the “Senior PIK Toggle Notes”) in a private offering, for net proceeds of $127.7 million. The Senior PIK Toggle Notes are senior unsecured obligations that are not guaranteed by any of Holdings Corp.’s subsidiaries.

Holdings Corp. may redeem the notes in whole or in part at a redemption price of 107.5%, 105%, 102.5%, and 100%, plus accrued and unpaid interest thereon for the subsequent periods after August 1, 2012 as follows: August 1, 2012 through January 31, 2013; February 1, 2013 through January 31, 2014; February 1, 2014 through January 31, 2015; and February 1, 2015 and thereafter, respectively.

The Senior PIK Toggle Notes will pay interest semi-annually in arrears on each February 1 and August 1, commencing on August 1, 2011. Thereafter and up to February 1, 2016, Holdings Corp. may elect to pay interest on the Senior PIK Toggle Notes (1) entirely in cash at a rate of 10.5% , (2) entirely by increasing the principal amount of the note or by issuing new notes for the entire amount of the interest payment, at a rate per annum equal to the cash interest rate of 10.5% plus 75 basis points (in each case, PIK interest), or (3) 50% as cash interest and 50% as PIK interest. After February 1, 2016, interest will be payable entirely in cash. The semi-annual interest payments on the Senior PIK Toggle Notes were paid in kind on August 1, 2011, February 1, 2012, and August 1, 2012, respectively. In addition, the Company has elected to pay in kind the interest payments due on February 1, 2013.

The Company could be subject to certain interest deduction limitations if the Senior PIK Toggle Notes were treated as “applicable high yield discount obligations” within the meaning of Section 163(i)(1) of the Internal Revenue Code, as amended. In order to avoid such treatment, the Company would be required to redeem for cash a portion of each Senior PIK Toggle Note then outstanding at the end of the accrual period ending August 1, 2016. The portion of a Senior PIK Toggle Note required to be redeemed is an amount equal to the excess of the accrued original issue discount as of the end of such accrual period, less the amount of interest paid in cash on or before such date, less the first-year yield (the issue price of the debt instrument multiplied by its yield to maturity). The redemption price for the portion of each Senior PIK Toggle Note so redeemed would be 100% of the principal amount of such portion plus any accrued interest on the date of redemption.

The net proceeds of the issuance of the Senior PIK Toggle Notes were used to redeem the Company’s Series B Perpetual Preferred Stock for the carrying value of $125.0 million and accrued interest of $1.1 million. As a result, none of the Series B Perpetual Preferred Stock were further issued and outstanding.

As of September 30, 2012, the Senior Secured Notes and Senior PIK Toggle Notes will mature as follows (in thousands):

	Senior Secured Notes		Senior PIK Toggle Notes		Total
2012	$	—	$	—	$	—
2013	—		—		—
2014	—		—		—
2015	—		—		—
2016	—		—		—
Thereafter	$	475,000	$	150,896	$	625,896

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7 . Preferred Stock

On January 19, 2011, FECR Corp. amended the articles of its certificate of incorporation related to all of its outstanding Series A Redeemable Preferred Stock (the “preferred shares”) whereby the preferred shares were no longer subject to redemption. Upon the execution of the amendment, FECR Corp. reclassified all of its outstanding 19,809 preferred shares, including its accumulated preferred yield of 15%, or $4.3 million, from liability to stockholders’ equity. Dividends continue to be cumulative at the rate of 15% per annum.

Dividends on the preferred shares were cumulative at the rate of 15% per annum, subject to limitations on distributions by the Company imposed by the terms of any financing, swap, or other agreement. The Company was able to redeem in whole or in part the preferred share units at any time. Subject to limitations on distributions, on December 31, 2012, the Company would have been required to redeem for cash the preferred shares outstanding together with the unpaid preferred yield.

As of September 30, 2012, and December 31, 2011, the total unpaid preferred yield was $6.5 million, and $3.4 million, respectively, on the then 19,809 preferred share units, plus the accumulated preferred yield of $4.3 million, or 4,343 preferred share units, with a carrying value of $24.2 million for both years.

8. Share-Based Compensation

In February and March 2012, the Company granted 539 restricted share units (“RSUs”) with respect to shares of common stock, par value $0.01 to certain executives. The fair value at grant date was $0.7 million and the shares vest over a three-year term. The grant date fair value of the restricted shares is based upon the market value of the Company’s common stock as of the most recent quarterly evaluation performed.

Share-based compensation expenses for the three months ended September 30, 2012 and 2011 were $0.4 million and $0.4 million, respectively. Share-based compensation expenses for the nine months ended September 30, 2012 and 2011 were $1.5 million and $1.2 million, respectively.

Effective September 15, 2012, we terminated all consulting agreements. In accordance with a termination without cause under the terms of their consulting agreements, each consultant was entitled to accelerated vesting of the tranche of his restricted stock units next scheduled to vest under the terms of his restricted stock unit award agreement. As part of the termination, 575 shares were accelerated and vested. All remaining shares under the agreements were forfeited.

Effective August 31, 2012, we accepted voluntary resignations from employment without “good reason” (as defined in their employment agreements) from Hussein Cumber and another executive as they began employment with another affiliate managed by funds owned by Fortress. Due to their resignations without “good reason,” neither executive was entitled to severance payments or equity acceleration upon termination of their employment agreements. Any unvested shares were forfeited.

9. Commitments and Contingencies

The Company is the defendant and plaintiff in various lawsuits resulting from its operations. In the opinion of management, appropriate provisions have been made in the Consolidated Financial Statements for the estimated liability that is probable of resulting from disposition of such matters. The Company maintains comprehensive liability insurance for bodily injury and property claims, but has maintained self-insured retention under the insurance program for some of the cost for these exposures.

In September 2006, the Florida Department of Environmental Protection (“FDEP”) notified the Company and an adjacent property owner that they had been identified as potentially responsible parties (“PRPs”) as a result of an investigation into contaminated groundwater in Fort Pierce, Florida. Based upon site assessments performed in 2010 and 2009, the Company estimated the potential remediation and cleanup costs could be material even if the source of the contamination did not reside on its property. As of September 30, 2012 and December 31, 2011, the Company had accrued $1.5 million and $1.5 million, respectively, related to the alleged contamination of which $1.1 million is expected to be paid over the next 5 to 10 years. In February 2012, FDEP requested the Company conduct additional testing before beginning remediation of the site. The parties met on April 27, 2012. It was agreed during this meeting that the Company’s scope of testing is complete and the Company can initiate a pilot remediation of the property. The Company will initiate the pilot remediation in the first quarter of 2013.

In addition to the above site, the Company monitors a small number of other sites leased to others, or acquired by the Company or its subsidiaries. Based on management’s ongoing review and monitoring of these sites, and the ability to seek contribution or indemnification from the PRPs, the Company does not expect to incur material additional costs.

In addition, the Company had accrued approximately $0.5 million related to various other environmental incidents as of September 30, 2012. As of December 31, 2011, the Company had accrued approximately $0.2 million related to various other environmental incidents.

It is difficult to quantify future environmental costs as many issues relate to actions by third parties or changes in environmental regulations. However, based on information presently available, management believes that the ultimate disposition of currently known matters will not have a material effect on the financial position, liquidity, or results of operations of the Company.

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10. Track Maintenance Agreement

In the first quarter of 2011, the Company entered into a Track Maintenance Agreement with an unrelated third-party customer (the “Shipper”). Under the agreement, the Shipper paid for qualified railroad track maintenance expenditures during 2011 in exchange for the assignment of railroad track miles, which permits the Shipper to claim certain tax credits pursuant to Section 45G of the Internal Revenue Code. The Shipper paid $0.7 million and $2.1 million for the three and nine months ended September 30, 2011, respectively, of maintenance expenditures. This amount is included in other expenses as a reduction to expense in the Consolidated Statement of Operations. The track maintenance tax credit has not yet been renewed by Congress for 2012. There can be no assurances that legislation renewing the availability of the Section 45G tax credit will be enacted and, if enacted, will be retroactive to the beginning of the 2012 calendar year.

11. Port Activity

In October 2010, Miami-Dade County, owner of the Port of Miami, was awarded a $22.8 million federal grant under the U.S. Department of Transportation’s Transportation Investment Generating Economic Recovery II (“TIGER”) program to rehabilitate the port’s rail bridge and construct new rail facilities on port property (“on-port project”). These projects will enable cargo to be moved directly from the port’s facility to an inland distribution center and alleviate traffic congestion in and around the port. The Company plans to establish intermodal container rail service on its own rail line leading into the port at an estimated total cost of $18.3 million (“off-port project”). The Company signed an agreement with FDOT on January 24, 2011, in which FDOT will participate in funding of the “off-port project” and will reimburse the Company an estimated $9.1 million of the total cost. As of September 30, 2012, the Company had incurred approximately $18.3 million of capital expenditures project to date related to the Port Miami off-port project. Of this amount, the Company has reduced this capital expenditure by $9.1 million of grant proceeds. The Company had incurred substantially all of the costs related to the project by June 30, 2012. For the three months ended September 30, 2011, the Company had incurred $4.1 million of capital expenditures related to the Port Miami project. Of this amount, the Company has reduced this capital expenditure by $2.0 million. For the nine months ended September 30, 2012, and 2011, the Company had incurred approximately $3.6 million and $5.4 million, of capital expenditures related to the Port Miami project. Of this amount, the Company has reduced this capital expenditure by $1.8 million and $2.7 million, respectively.

On September 20, 2011, Miami-Dade County entered into a Rail Bridge Construction Agreement with the Company. Under this agreement, the Company is responsible for the administration of the construction work for the Bascule Bridge over Biscayne Bay which connects the Company’s Port Lead to the Port of Miami with spending not to exceed $6.6 million. The Company is reimbursed for all of the costs incurred. For the three months ended September 30, 2012 and 2011, the Company incurred costs of $1.5 million and zero, respectively. For the nine months ended September 30, 2012 and 2011, the Company incurred costs of $3.1 million and zero, respectively. As of September 30, 2012, the Company had an outstanding receivable of $1.7 million.

On January 31, 2012, the Company entered into a Port Everglades Intermodal Container Transfer Facility Lease and Operating Agreement with Broward County. The agreement was ratified by Broward County on March 20, 2012. The term of the agreement is 30 years with two 10-year options. The Agreement was subject to the closing of the SIB Loan with FDOT. The SIB Loan closed on September 26, 2012. The Agreement provides the Company the land needed for the Company to construct an intermodal facility to serve its domestic and international business segments. The total construction cost is approximately $53 million, $30 million of which will be funded through the SIB Loan, $18 million of which will be from a FDOT grant and the balance of $5 million from the Company’s capital budget. The Company has been awarded $6 million of the $18 million FDOT grant as of September 30, 2012. The balance of the FDOT grant is expected to be funded by November 30, 2012. As of September 30, 2012, the Company has not incurred any costs related to this project. Upon project commencement, the Company will be reimbursed for half of the corresponding expenditures, not to exceed the $18 million FDOT grant.

12. Impairment of Assets

During the second quarter of 2011, the Company entered into a plan to dispose of certain locomotives that are currently under lease. The Company classified these locomotives as held for sale, and recorded a charge of $2.8 million to adjust their carrying value to their fair value. The sale was executed during the third quarter of 2011 and the Company received proceeds of $4.5 million.

13. Guarantor Condensed Consolidated Financial Statements

The Consolidating Financial Statements herein present consolidating financial data for Holdings Corp. (on a parent only basis), FECR Corp. (on an issuer only basis), an elimination column for adjustments to arrive at the information for the parent company and subsidiaries on a consolidated basis as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011.

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Consolidating balance sheets as of September 30, 2012.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)		Eliminations for Consolidation			Consolidation
Current assets:
Cash and cash equivalents	$	35		$	24,751	$	—		$	24,786
Restricted cash	—			126		—			126
Accounts receivable, net	—			35,610		—			35,610
Materials and supplies	—			4,446		—			4,446
Deferred income taxes	(189		)	2,840		—			2,651
Prepaid and other current assets	2			2,302		—			2,304
Assets held for sale	—			189		—			189

Total current assets	(152		)	70,264		—			70,112
Noncurrent assets:
Property, plant and equipment, less accumulated depreciation	—			778,139		—			778,139
Investments in affiliates	415,597			—		(415,597		)	—
Investments in non-affiliates	—			74		—			74
Intangible assets, less accumulated amortization	—			234		—			234
Other assets	1,693			16,970		(2,641		)	16,022

Total noncurrent assets	417,290			795,417		(418,238		)	794,469

Total assets	$	417,138		$	865,681	$	(418,238	)	$	864,581
Current liabilities:
Accounts payable and accrued expenses	$	—		$	30,229	$	—		$	30,229
Taxes payable	—			5,326		—			5,326
Deferred revenue	—			1,818		—			1,818
Other current liabilities	—			1,231		—			1,231

Total current liabilities	—			38,604		—			38,604
Deferred income taxes	(189		)	23,884		—			23,695
Long-term debt	150,896			475,000		—			625,896
Other long-term liabilities	5,505			6,100		(2,641		)	8,964

Total liabilities	156,212			543,588		(2,641		)	697,159

Total stockholders’ (deficit) equity	260,926			322,093		(415,597		)	167,422

Total liabilities and stockholders’ equity	$	417,138		$	865,681	$	(418,238	)	$	864,581

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Consolidating balance sheets as of December 31, 2011.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)		Eliminations for Consolidation			Consolidation
Current assets:
Cash and cash equivalents	$	44		$	30,861	$	—		$	30,905
Restricted cash	—			125		—			125
Accounts receivable, net	—			31,085		—			31,085
Materials and supplies	—			3,143		—			3,143
Deferred income taxes	(145		)	2,828		—			2,683
Prepaid and other current assets	—			2,138		—			2,138
Assets held for sale	—			219		—			219

Total current assets	(101		)	70,399		—			70,298
Noncurrent assets:
Property, plant and equipment, less accumulated depreciation	—			782,612		—			782,612
Investments in affiliates	415,598			—		(415,598		)	—
Investments in non-affiliates	—			96		—			96
Intangible assets, less accumulated amortization	—			276		—			276
Other assets	1,956			17,242		(650		)	18,548

Total noncurrent assets	417,554			800,226		(416,248		)	801,532

Total assets	$	417,453		$	870,625	$	(416,248	)	$	871,830

Current liabilities:
Accounts payable and accrued expenses	$	6		$	41,094	$	—		$	41,100
Taxes payable	—			6,936		—			6,936
Deferred revenue	—			3,855		—			3,855
Other current liabilities	—			1,107		—			1,107

Total current liabilities	6			52,992		—			52,998
Deferred income taxes	(145		)	17,687		—			17,542
Long-term debt	134,854			475,000		—			609,854
Other long-term liabilities	7,068			6,257		(650		)	12,675

Total liabilities	141,783			551,936		(650		)	693,069

Total stockholders’ (deficit) equity	275,670			318,689		(415,598		)	178,761

Total liabilities and stockholders’ equity	$	417,453		$	870,625	$	(416,248	)	$	871,830

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Consolidating statement of operations for the three months ended September 30, 2012.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)			Eliminations for Consolidation		Consolidation
Operating revenue	$	—		$	62,962		$	—	$	62,962
Operating expenses:
Labor and benefits	—			11,677			—		11,677
Equipment rents	—			3,435			—		3,435
Fuel	—			7,361			—		7,361
Purchased services	—			11,933			—		11,933
Depreciation and amortization	—			6,946			—		6,946
Net (gain) on sale and impairment of assets	—			(26		)	—		(26		)
Other	—			6,698			—		6,698

Total operating expenses	—			48,024			—		48,024

Operating income	—			14,938			—		14,938

Interest expense, net of interest income	(4,380		)	(10,497		)	—		(14,877		)
Other expense	—			3			—		3

Income (Loss) before income taxes	(4,380		)	4,444			—		64
Provision for income taxes	—			2,641			—		2,641

Net gain (loss)	$	(4,380	)	$	1,803		$	—	$	(2,577	)

Comprehensive loss	$	(4,380	)	$	1,815		$	—	$	(2,565	)

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Consolidating statement of operations for the three months ended September 30, 2011.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)			Eliminations for Consolidation		Consolidation
Operating revenue	$	—		$	52,194		$	—	$	52,194
Operating expenses:
Labor and benefits	—			10,814			—		10,814
Equipment rents	—			2,780			—		2,780
Fuel	—			6,981			—		6,981
Purchased services	12			8,969			—		8,981
Depreciation and amortization	—			6,747			—		6,747
Net loss on sale and impairment of assets	—			13			—		13
Other	—			5,861			—		5,861

Total operating expenses	12			42,165			—		42,177

Operating income (loss)	(12		)	10,029			—		10,017

Interest expense, net of interest income	(3,951		)	(10,503		)	—		(14,454		)
Other expense	—			(8		)	—		(8		)

Loss before income taxes	(3,963		)	(482		)	—		(4,445		)
Provision for income taxes	—			4,357			—		4,357

Net loss	$	(3,963	)	$	(4,839	)	$	—	$	(8,802	)

Comprehensive loss	$	(3,963	)	$	(4,852	)	$	—	$	(8,815	)

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Consolidating statement of operations for the nine months ended September 30, 2012.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)			Eliminations for Consolidation		Consolidation
Operating revenue	$	—		$	178,806		$	—	$	178,806
Operating expenses:
Labor and benefits	—			35,829			—		35,829
Equipment rents	—			9,770			—		9,770
Fuel	—			22,430			—		22,430
Purchased services	—			32,371			—		32,371
Depreciation and amortization	—			20,310			—		20,310
Net (gain) on sale and impairment of assets	—			(120		)	—		(120		)
Other	—			19,425			—		19,425

Total operating expenses	—			140,015			—		140,015

Operating income	—			38,791			—		38,791

Interest expense, net of interest income	(12,754		)	(31,109		)	—		(43,863		)
Other expense	—			82			—		82

Income (Loss) before income taxes	(12,754		)	7,764			—		(4,990		)
Provision for income taxes	—			6,177			—		6,177

Net income (loss)	$	(12,754	)	$	1,587		$	—	$	(11,167	)

Comprehensive loss	$	(12,754	)	$	1,625		$	—	$	(11,129	)

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Consolidating statement of operations for the nine months ended September 30, 2011.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)			Eliminations for Consolidation		Consolidation
Operating revenue	$	—		$	156,690		$	—	$	156,690
Operating expenses:
Labor and benefits	—			34,582			—		34,582
Equipment rents	—			8,410			—		8,410
Fuel	—			21,131			—		21,131
Purchased services	12			25,887			—		25,899
Depreciation and amortization	—			20,408			—		20,408
Net loss on sale and impairment of assets	—			1,773			—		1,773
Other	—			19,217			—		19,217

Total operating expenses	12			131,408			—		131,420

Operating income (loss)	(12		)	25,282			—		25,270

Interest expense, net of interest income	(9,800		)	(33,214		)	—		(43,014		)
Other expense	—			(5		)	—		(5		)

Loss before income taxes	(9,812		)	(7,937		)	—		(17,749		)
Provision for income taxes	—			10,601			—		10,601

Net loss	$	(9,812	)	$	(18,538	)	$	—	$	(28,350	)

Comprehensive loss	$	(9,812	)	$	(18,525	)	$	—	$	(28,337	)

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Consolidating statement of cash flows for the nine months ended September 30, 2012.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)			Eliminations for Consolidation			Consolidation
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)	$	(12,754	)	$	1,587		$	—		$	(11,167	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	—			20,310			—			20,310
Amortization of debt financing fees	473			2,184			—			2,657
Share-based compensation costs	—			1,460			—			1,460
Deferred taxes	—			6,185			—			6,185
Gain on sale and impairment of assets	—			(120		)	—			(120		)
Changes in operating assets and liabilities:
Restricted cash	—			(1		)	—			(1		)
Accounts receivable	1			(4,526		)	—			(4,525		)
Prepaid and other current assets	(2		)	(164		)	—			(166		)
Materials and supplies	—			(1,303		)	—			(1,303		)
Other assets and deferred charges	(4		)	(1,751		)	1,991			236
Accounts payable and accrued expenses	(6		)	(10,865		)	—			(10,871		)
Taxes payable	—			(1,610		)	—			(1,610		)
Deferred revenue	—			(2,037		)	—			(2,037		)
Other current liabilities	—			442			—			442
Other long-term liabilities	14,274			(117		)	(1,991		)	12,166

Net cash provided by operating activities	1,982			9,674			—			11,656

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of properties and equipment	—			(16,219		)	—			(16,219		)
Proceeds from disposition of assets	—			596			—			596

Net cash used in investing activities	—			(15,623		)	—			(15,623		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of common stock outstanding	(1,991		)	—			—			(1,991		)
Purchase of common stock outstanding	—			(161		)	—			(161		)

Net cash used in financing activities	(1,991		)	(161		)	—			(2,152		)

Net decrease in cash and cash equivalents	(9		)	(6,110		)	—			(6,119		)
Cash and cash equivalents at beginning of period	44			30,861			—			30,905

Cash and cash equivalents at end of period	$	35		$	24,751		$	—		$	24,786

Supplemental cash flow information:
Cash paid for interest	$	—		$	38,574		$	—		$	38,574

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Consolidating statement of cash flows for the nine months ended September 30, 2011.

	Holdings Corp. (Parent)			FECR Corp. (Issuer)			Eliminations for Consolidation		Consolidation
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss	$	(9,812	)	$	(18,538	)	$	—	$	(28,350	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization	—			20,408			—		20,408
Amortization of debt financing fees	262			2,335			—		2,597
Gain on sale and impairment of assets	—			1,773					1,773
Share-based compensation costs	—			1,248			—		1,248
Deferred taxes	—			10,601			—		10,601
Other	—			15			—		15
Changes in operating assets and liabilities:
Accounts receivable	—			(4,076		)	—		(4,076		)
Prepaid and other current assets	—			665			—		665
Materials and supplies	—			(899		)	—		(899		)
Other assets and deferred charges	—			362			—		362
Accounts payable and accrued expenses	86			3,189			—		3,275
Taxes payable	—			(1,507		)	—		(1,507		)
Deferred revenue	—			402			—		402
Other current liabilities	—			(72		)	—		(72		)
Other long-term liabilities	9,537			(3,141		)	—		6,396

Net cash provided by operating activities	73			12,765			—		12,838

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of properties and equipment	—			(16,286		)	—		(16,286		)
Release of interest reserve account	—			4,008			—		4,008
Proceeds from disposition of assets	—			8,547			—		8,547

Net cash used in investing activities	—			(3,731		)	—		(3,731		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution to subsidiary from parent	(140,000		)	140,000			—		—
Contribution from FECR Rail LLC	16,000			—			—		16,000
Proceeds from issuance of long-term debt	127,725			475,000			—		602,725
Payment on long-term debt	—			(601,185		)	—		(601,185		)
Purchase of common stock outstanding	—			(236		)	—		(236		)
Proceeds from issuance of preferred shares	125,000			—			—		125,000
Redemption of preferred share units	(126,111		)	—			—		(126,111		)
Financing costs	(2,208		)	(15,557		)	—		(17,765		)

Net cash (used in) provided by financing activities	406			(1,978		)	—		(1,572		)

Net increase in cash and cash equivalents	479			7,056			—		7,535
Cash and cash equivalents at beginning of period	—			9,306			—		9,306

Cash and cash equivalents at end of period	$	479		$	16,362		$	—	$	16,841

Supplemental cash flow information:
Cash paid for interest	$	—		$	23,955		$	—	$	23,955

14. Subsequent Events

Florida East Coast Railway, LLC adopted the Florida East Coast Railway Deferred Compensation Plan, effective as of October 15, 2012, by executing the Executive Nonqualified “Excess” Plan Adoption Agreement (the plan document and adoption agreement collectively, the “Plan”). The Plan provides an opportunity for a select group of the Company’s management and independent contractors to voluntarily defer receipt of a portion of their compensation (including base salary, performance-based compensation and commissions). Under the Plan, the Company also has the discretion to make contributions to the Plan on behalf of participants. Deferred compensation under the Plan is payable in cash in a lump sum payment or, in certain circumstances, in annual installments over a term equal to or less than 15 years, as determined by each participant at the time of enrollment. The Plan is an unfunded, nonqualified deferred compensation plan intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. You should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and our annual audited consolidated financial statements and the notes thereto included in our annual report on Form 10-K filed with the SEC on March 15, 2012. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those listed under “Risk Factors.”

Certain statements in this Quarterly Report on Form 10-Q and other information we provide from time to time may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not necessarily limited to, statements relating to future events and financial performance. Words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “appears,” “may,” “will,” “would,” “could,” “should,” “seeks,” “estimates” and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements. We can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this report. Factors that could have a material adverse effect on our operations and future prospects or that could cause actual results to differ materially from our expectations include, but are not limited to, number of external variables over which management has little or no control, including: domestic and international economic conditions; the business environment in industries that produce and consume rail freight; rising fuel costs; competition and consolidation within the transportation industry; the operations of carriers with which the Company interchanges traffic; our transportation of hazardous materials by rail; fluctuation in prices or availability of key materials, in particular diesel fuel; labor difficulties, including strikes and work stoppages; legislative and regulatory developments including rulings by the Surface Transportation Board or the Railroad Retirement Board; disruptions to our technology infrastructure, including computer systems; natural events such as severe weather, hurricanes and floods; and other risks detailed in our filings with the SEC. In addition, new risks and uncertainties emerge from time to time, and it is not possible for us to predict or assess the impact of every factor that may cause actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

Overview

We own and operate a 351-mile freight railroad along the east coast of Florida from Jacksonville to Miami. Our railroad is one of only two major freight railroads serving Florida. We operate at a high level of density, which means that we carry a high number of units per track mile. In 2011, we carried approximately 1,219 units per mainline track mile, which we believe is more than any of the Class I railroads in the United States.

In 2011, we transported over 428,000 units on our railroad comprising various types of freight for over 500 customers. We transport products such as intermodal containers and trailers, crushed rock (aggregate), automobiles, food, and other industrial products. We are a major hauler of aggregate in the State of Florida and a key conduit for the transportation of automobiles into South Florida.

We provide a direct route through some of the most highly congested regions of the State of Florida, and we believe that we are able to haul freight often more quickly and more cost effectively than other modes of transportation, such as trucking, as one train can haul the equivalent of up to 280 trucks.

We have direct access to the major south Florida ports of Miami, Everglades (Fort Lauderdale) and Palm Beach through which we transport intermodal containers. We believe that our unique positioning to these ports will help us continue our volume growth of intermodal containers.

Our Business

We generate rail-operating revenues primarily from both the movement of freight in conventional freight cars and intermodal shipments of containers and trailers on flatcars. We count each move of a freight car, container or trailer on our line as one unit. We also generate revenue from dray moves (drayage is the movement of containers or trailers by truck to and from the rail yard). Non-freight operating revenues are derived from car hire and demurrage (allowing our customers and other railroads to use our railcars for storage or transportation in exchange for a daily fee), real estate and equipment lease income, ancillary dray charges, switching (managing and positioning railcars within a customer’s facility), and other transportation services.

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Our rail expenses consist of salaries (approximately 70% of our work force is covered by collective bargaining agreements), related payroll taxes and employee benefits, depreciation (primarily reflecting our capital requirements for maintaining current operations), insurance and casualty claim expenses, diesel fuel, repairs billed to/from others (generally, a net credit received from repairs of foreign cars on our line less repairs paid by us for our cars on a foreign line), property taxes, material and supplies, purchased services, and other expenses. Our operating expenses include labor, equipment rents (locomotives and railcars), purchased services (contract labor, professional services and rail transportation), materials, and other expenses.

Managing Business Performance

We manage our business performance by attempting to (i) grow our freight and non-freight revenue, (ii) drive financial improvements through a variety of cost-savings initiatives, and (iii) continued focus on safety to lower the costs and risks associated with operating our business.

Changes in units and revenue per unit (“RPU”) have a direct impact on freight revenue. We continue to implement more effective pricing by carefully analyzing pricing decisions to improve our freight revenue per unit. As a consequence, our operating ratio, which we define as total operating expenses divided by total operating revenues, continues to be a key metric which we evaluate. We deem operating ratio as an important metric to measure our operational performance, however, operating ratio is not a measure as defined under U.S. GAAP.

Highlights for the three months ended September 30, 2012 and 2011

· Operating revenue for the three months ended September 30, 2012 was $63.0 million, compared with $52.2 million for the three months ended September 30, 2011. The primary driver of this $10.8 million increase was increases in intermodal and carload freight revenues, partially offset by decreased non-freight revenues.

· Freight revenues increased $11.3 million, or 23.9%, for the three months ended September 30, 2012, compared with the three months ended September 30, 2011, primarily due to increases in both carload and intermodal revenues, driven by negotiated intermodal rate increases, fuel surcharge recovery, and new business development.

· Net loss for the three months ended September 30, 2012 was $2.6 million, compared with a net loss of $8.8 million for the three months ended September 30, 2011. The primary driver of the improvement in net loss for the comparable periods was due to improvements in operating income and a decrease in income tax expense. Operating income for the three months ended September 30, 2012 was $15.0 million, compared with $10.0 million for the three months ended September 30, 2011.

· Our operating ratio was 76.3% for the three months ended September 30, 2012, compared with an operating ratio of 80.8% for the three months ended September 30, 2011. This improvement was primarily due to higher revenue driven by increased intermodal rate per unit, increased intermodal and carload volumes, as well as productivity improvements.

· Our income tax expense, which was a non-cash item, was $2.6 million for the three months ended September 30, 2012, compared to income tax expense of $4.4 million for the three months ended September 30, 2011. We believe that it is more likely than not that our net operating losses, generated in fiscal 2012, will expire unused.

Highlights for the nine months ended September 30, 2012 and 2011

· Operating revenue for the nine months ended September 30, 2012 was $178.8 million, compared with $156.7 million for the nine months ended September 30, 2011. The primary driver of this $22.1 million increase was increases in intermodal and carload freight revenues, partially offset by decreased non-freight revenues.

· Freight revenues increased $23.5 million, or 16.5%, for the nine months ended September 30, 2012, compared with the nine months ended September 30, 2011, primarily due to increases in both carload and intermodal revenues, driven by negotiated intermodal rate increases, increased fuel surcharge recovery, and new business development.

· Net loss for the nine months ended September 30, 2012 was $11.2 million, compared with a net loss of $28.4 million for the nine months ended September 30, 2011. The primary driver of the improvement in net loss for the comparable periods was due to improvements in operating income and a decrease in income tax expense. Operating income for the nine months ended September 30, 2012 was $38.8 million, compared with $25.3 million for the nine months ended September 30, 2011.

· Our operating ratio was 78.3% for the nine months ended September 30, 2012, compared with an operating ratio of 83.9% for the nine months ended September 30, 2011. This improvement was primarily due to higher revenue driven by increased intermodal rate per unit, as well as an increase in carload volume and productivity improvements.

· During the nine months ended September 30, 2012, we provided $11.7 million in cash from our operating activities, which includes cash payment of interest of $38.6 million. In addition, we purchased $16.2 million in property and equipment.

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· Our income tax expense, which was a non-cash item, was $6.2 million for the nine months ended September 30, 2012, compared to income tax expense of $10.6 million for the nine months ended September 30, 2011. We believe that it is more likely than not that our net operating losses, generated in fiscal 2012, will expire unused.

Results of Operations

Comparison of Operating Results for the Three Months Ended September 30, 2012 and 2011

Operating Revenue

Operating revenues increased $10.8 million, or 20.6%, to $63.0 million for the three months ended September 30, 2012 from $52.2 million for the three months ended September 30, 2011. This increase was due to higher intermodal and carload freight revenues, partially offset by decreased non-freight revenues.

Freight revenues increased $11.3 million, or 23.9%, to $58.8 million for the three months ended September 30, 2012 from $47.5 million for the three months ended September 30, 2011. The increase was primarily due to increased carload and intermodal revenues, driven by negotiated intermodal rate increases, increased carload volumes, and increased fuel surcharge recovery. Total units increased 15.1% to 119,585 for the three months ended September 30, 2012, from 103,928 for the three months ended September 30, 2011.

The increase in average revenue per unit to $492 for the three months ended September 30, 2012 from $457 for the three months ended September 30, 2011 was primarily due to an increase in intermodal price and fuel surcharge recovery, partially offset by a decrease in mix.

The following table compares freight revenues, units, and average freight revenue per unit for the three months ended September 30, 2012 and 2011:

	Three Months ended September 30,
	2012					2011
	Freight Revenues		Units*	Average Revenue per unit		Freight Revenues		Units*	Average Revenue per unit
	(in thousands, except unit and average revenue per unit)

Intermodal	$	38,044	91,048	$	418	$	31,792	85,435	$	372
Crushed Stone (Aggregate)	10,223		18,821	543		6,567		10,680	615
Food Products	3,180		2,966	1,072		2,514		2,159	1,164
Motor Vehicles & Equipment	2,375		1,720	1,381		1,765		1,300	1,358
Chemicals	1,711		969	1,766		1,571		864	1,818
Other	3,245		4,061	799		3,243		3,490	929
Carload Subtotal	20,734		28,537	727		15,660		18,493	847
Total	$	58,778	119,585	$	492	$	47,452	103,928	$	457

*The units for 2011 have been restated to conform with the 2012 presentation. In June 2012, the Company made a policy change and began charging for certain Intermodal revenue empties; for the three months ended September 30, 2012 includes 2,954 units related to this change. Excluding the volumes, Intermodal revenue per unit would have been $432.

Intermodal revenues increased $6.3 million (Rate/Mix increase—$4.2 million; Volume increase—$2.1 million) for the three months ended September 30, 2012, compared to the three months ended September 30, 2011. Rate/Mix represents the change in price per unit charged to the customer as well as the change in price per unit due to the mix in traffic as the rate per unit may vary per the commodity handled and the length of the haul. Our Rate/Mix increase was driven by an increase in actual price coupled with positive increase in mix. Overall, Intermodal shipments increased 6.6% or 5,613 units for the three months ended September 30, 2012, compared to the three months ended September 30, 2011, primarily due to an increase in our local LTL and Retail traffic, partially offset by a decrease in our Interline business traffic, as well as increased units related to the Intermodal revenue empties.

Carload revenues for the three months ended September 30, 2012 increased $5.1 million (Rate/Mix decrease—$3.4 million; Volume increase—$8.5 million) compared to the three months ended September 30, 2011. Overall, carload shipments increased 54.3%, or 10,044 units, for the three months ended September 30, 2012 compared to the three months ended September 30, 2011. This increase in carload revenue was primarily due to the net effect of the following:

· Crushed Stone (Aggregate) revenues increased $3.7 million, or 55.7%, primarily due to an increase in infrastructure projects in Florida and the expansion of the Fort Lauderdale airport.

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· Food Products revenues increased $0.7 million, or 26.5%. This increase was driven by a customer’s manufacturing facility coming back online at the beginning of 2012.

· Motor Vehicles & Equipment revenues increased $0.6 million, or 34.6%. This increase was due to continued volume recovery from the earthquakes in Japan during 2011, and increased volumes for other car manufacturers, as well as price improvements.

· Chemicals revenues increased $0.1 million, or 8.9%. This increase was due to increases in volume.

· Other revenues remained relatively consistent for the comparable periods.

Non-freight revenues decreased $0.5 million, or 11.8%, to $4.2 million for the three months ended September 30, 2012 from $4.7 million for the three months ended September 30, 2011. The primary decrease in non-freight revenues was due to the sale of locomotives in August 2011 that were previously under lease.

Operating Expenses

The following table sets forth the operating revenue and expenses for our consolidated operations for the periods indicated (dollars in thousands):

	Three Months ended September 30,
	2012					2011
	Amount			% of Operating Revenue		Amount		% of Operating Revenue
Operating revenue	$	62,962		100.0	%	$	52,194	100.0	%
Operating expenses:
Labor and benefits	11,677			18.5	%	10,814		20.7	%
Equipment rents	3,435			5.5	%	2,780		5.3	%
Diesel fuel	7,361			11.7	%	6,981		13.4	%
Purchased services	11,933			19.0	%	8,981		17.2	%
Depreciation and amortization	6,946			11.0	%	6,747		12.9	%
Net loss (gain) on sale and impairment of assets	(26		)	(0.0	)%	13		0.0	%
Other expenses	6,698			10.6	%	5,861		11.3	%
Total operating expenses	$	48,024		76.3	%	$	42,177	80.8	%
Operating income	$	14,938		23.7	%	$	10,017	19.2	%

Operating expenses increased to $48.0 million for the three months ended September 30, 2012, from $42.2 million for the three months ended September 30, 2011, an increase of $5.8 million, or 13.7%. The operating ratio was 76.3% for the three months ended September 30, 2012 compared to 80.8% for the three months ended September 30, 2011. Set forth below is additional detail regarding changes in our operating expenses:

· Labor and benefits increased $0.9 million, or 8.0%, to $11.7 million, due to general wage inflation and higher health and welfare costs.

· Equipment rents increased $0.7 million, or 23.6%, to $3.4 million. This increase was due to increased car hire expense related to increased volumes. In March 2012, we had a contract change where certain volumes were no longer subject to a haulage agreement and therefore the units were not subject to car hire expense.

· Diesel fuel increased $0.4 million, or 5.4%, to $7.4 million. As a percentage of revenue, diesel fuel decreased to 11.7% for the three months ended September 30, 2012, as compared to 13.4% for the three months ended September 30, 2011. The increase in diesel fuel was primarily due to increased volumes partially offset by efficiencies in fuel usage for the comparable periods.

· Purchased services increased $3.0 million, or 32.9%, to $11.9 million. This increase was mainly due to purchased rail services.

· Depreciation and amortization remained relatively consistent for the comparable periods.

· Net loss (gain) on sale of and impairment of assets remained relatively consistent for the comparable periods.

· Other expenses increased $0.8 million, or 14.3%, to $6.7 million primarily due to the expiration of the track maintenance agreement reimbursements of $0.7 million in 2011.

Other Income (Expense)

Interest Expense (net of interest income). Interest expense remained relatively consistent for the comparable periods.

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Other Income (Loss). Other income (loss) remained relatively consistent for the comparable periods.

Provision for Income Taxes. For the three months ended September 30, 2012 and 2011, we believe that it is more likely than not that our net operating losses expected to be generated by the Company in the respective periods will expire unused. Accordingly, we recognized tax expense in the amount of $2.6 million for the three months ended September 30, 2012 and $4.4 million for the three months ended September 30, 2011.

Comparison of Operating Results for the Nine Months Ended September 30, 2012 and 2011

Operating Revenue

Operating revenues increased $22.1 million, or 14.1%, to $178.8 million for the nine months ended September 30, 2012 from $156.7 million for the nine months ended September 30, 2011. This increase was due to higher intermodal and carload freight revenues, partially offset by decreased non-freight revenues.

Freight revenues increased $23.5 million, or 16.5%, to $166.0 million for the nine months ended September 30, 2012 from $142.5 million for the nine months ended September 30, 2011. The increase was primarily due to increased carload and intermodal revenues, driven by negotiated intermodal rate increases, increased fuel surcharge recovery, and increased carload volumes. Total units increased 4.1% to 330,115 for the nine months ended September 30, 2012, from 317,197 for the nine months ended September 30, 2011.

The increase in average revenue per unit to $503 for the nine months ended September 30, 2012 from $449 for the nine months ended September 30, 2011 was primarily due to an increase in Intermodal price and fuel surcharge recovery.

The following table compares freight revenues, units, and average freight revenue per unit for the nine months ended September 30, 2012 and 2011:

	Nine Months ended September 30,
	2012					2011
	Freight Revenues		Units*	Average Revenue per unit		Freight Revenues		Units*	Average Revenue per unit
	(in thousands, except unit and average revenue per unit)

Intermodal	$	107,863	258,359	$	417	$	94,414	259,904	$	363
Crushed Stone (Aggregate)	25,526		42,431	602		19,446		32,154	605
Food Products	9,185		8,203	1,120		7,586		6,376	1,190
Motor Vehicles & Equipment	8,177		6,024	1,357		5,314		4,117	1,291
Chemicals	5,312		3,122	1,701		5,060		2,940	1,721
Other	9,891		11,976	826		10,643		11,706	909
Carload Subtotal	58,091		71,756	810		48,049		57,293	839
Total	$	165,954	330,115	$	503	$	142,463	317,197	$	449

*The units for 2011 have been restated to conform with the 2012 presentation. In June 2012, the Company made a policy change and began charging for certain Intermodal revenue empties; for the nine months ended September 30, 2012 includes 3,795 units related to this change. Excluding the volumes, Intermodal revenue per unit would have been $424.

Intermodal revenues increased $13.4 million (Rate/Mix increase—$14.0 million; Volume decrease—$0.6 million) for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011. Rate/Mix represents the change in price per unit charged to the customer as well as the change in price per unit due to the mix in traffic as the rate per unit may vary per the commodity handled and the length of the haul. Our Rate/Mix increase was driven by an increase in actual price and fuel surcharge recovery, and a positive mix variance. Overall, Intermodal shipments decreased 0.1% or 1,545 units for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011.

Carload revenues for the nine months ended September 30, 2012 increased $10.0 million (Rate/Mix decrease—$2.1 million; Volume increase—$12.1 million) compared to the nine months ended September 30, 2011. Overall, carload shipments increased 25.2%, or 14,463 units, for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. This increase in carload revenue was primarily due to the net effect of the following:

· Crushed Stone (Aggregate) revenues increased $6.1 million, or 31.3%, primarily due to increases in infrastructure projects in Florida and the expansion of the Fort Lauderdale airport.

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· Food Products revenues increased $1.6 million, or 21.1%. This increase was driven by a customer’s manufacturing facility coming back online at the beginning of 2012.

· Motor Vehicles & Equipment revenues increased $2.9 million, or 53.9%. This increase was due to continued volume recovery from the earthquakes in Japan during 2011, and increased volumes for other car manufacturers, as well as price improvements.

· Chemicals revenues remained consistent for the comparable periods.

· Other revenues decreased $0.8 million, or 7.1%. This decrease was primarily due to a reduction in rate / mix, partially offset by a favorable volume impact.

Non-freight revenues decreased $1.4 million, or 9.7%, to $12.8 million for the nine months ended September 30, 2012 from $14.2 million for the nine months ended September 30, 2011. The primary decrease in non-freight revenues was due to the sale of locomotives in August 2011 that were previously under lease.

Operating Expenses

The following table sets forth the operating revenue and expenses for our consolidated operations for the periods indicated (dollars in thousands):

	Nine Months ended September 30,
	2012					2011
	Amount			% of Operating Revenue		Amount		% of Operating Revenue
Operating revenue	$	178,806		100.0	%	$	156,690	100.0	%
Operating expenses:
Labor and benefits	35,829			20.0	%	34,582		22.1	%
Equipment rents	9,770			5.5	%	8,410		5.4	%
Diesel fuel	22,430			12.5	%	21,131		13.5	%
Purchased services	32,371			18.1	%	25,899		16.5	%
Depreciation and amortization	20,310			11.4	%	20,408		13.0	%
Net loss (gain) on sale and impairment of assets	(120		)	(0.1	)%	1,773		1.1	%
Other expenses	19,425			10.9	%	19,217		12.3	%
Total operating expenses	$	140,015		78.3	%	$	131,420	83.9	%
Operating income	$	38,791		21.7	%	$	25,270	16.1	%

Operating expenses increased to $140.0 million for the nine months ended September 30, 2012, from $131.4 million for the nine months ended September 30, 2011, an increase of $8.6 million, or 6.5%. The operating ratio was 78.3% for the nine months ended September 30, 2012 compared to 83.9% for the nine months ended September 30, 2011. Set forth below is additional detail regarding changes in our operating expenses:

· Labor and benefits increased $1.2 million, or 3.6%, to $35.8 million, due to general wage inflation and higher health and welfare costs.

· Equipment rents increased $1.4 million, or 16.2%, to $9.8 million. This increase was due to increased car hire expense related to increased volumes. In March 2012, we had a contract change where certain volumes were no longer subject to a haulage agreement and therefore the units were not subject to car hire expense.

· Diesel fuel increased $1.3 million, or 6.1%, to $22.4 million. The increase in diesel fuel was primarily due to an increase in volumes and an increase in the average price of fuel. The average price of fuel was $3.39 per gallon for the nine months ended September 30, 2012 compared to the average price per gallon of $3.26 for the nine months ended September 30, 2011. The increase in diesel fuel was partially offset by efficiencies in fuel usage for the comparable periods.

· Purchased services increased $6.5 million, or 25.0%, to $32.4 million. This increase was mainly due to purchased rail services.

· Depreciation and amortization remained relatively consistent for the comparable periods.

· Net loss (gain) on sale of and impairment of assets went from a net loss of $1.8 million for the nine months ended September 30, 2011, related to the impairment of locomotives in 2011 to a minimal gain on sale of assets for the nine months ended September 30, 2012.

· Other expenses remained relatively consistent for the comparable periods.

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Other Income (Expense)

Interest Expense (net of interest income). Interest expense increased $0.8 million, or 2.0%, to $43.9 million for the nine months ended September 30, 2012 from $43.1 million for the nine months ended September 30, 2011. The increase in interest expense is due to increased debt related to the interest payments on the Senior PIK Toggle Notes which were paid in kind, and the timing of the issuance of the Senior PIK Toggle Notes. For the nine months ended September 30, 2012, interest expense is captured for a full nine months, whereas for the nine months ended September 30, 2011, interest expense had only been captured from the issuance of the Senior PIK Toggle Notes on February 11, 2011.

Other Income (Loss). Other income (loss) remained relatively consistent for the comparable periods.

Provision for Income Taxes. For the nine months ended September 30, 2012 and 2011, we believe that it is more likely than not that our net operating losses expected to be generated by the Company in the respective periods will expire unused. Accordingly, we recognized tax expense in the amount of $6.2 million for the nine months ended September 30, 2012 and $10.6 million for the nine months ended September 30, 2011.

Liquidity and Capital Resources

The discussion of liquidity and capital resources that follows reflects our consolidated results and includes all of our subsidiaries. We have historically met our liquidity requirements primarily from cash generated from operations and borrowings under our credit agreements which are used to fund capital expenditures and debt service requirements. For the nine months ended September 30, 2012 and 2011, there was a net cash inflow from operations of $11.7 million and $12.8 million, respectively, primarily related to cash flow generated by operations.

We meet our liquidity requirements primarily from the following sources:

· Operating revenues generated from freight and non-freight revenues. Freight revenues include revenues derived from intermodal transports and carload shipments of a variety of goods such as aggregates (crushed stones), motor vehicles and food products. Non-freight revenues include car hire and demurrage, real estate and equipment lease income, ancillary dray charges, switching, administration fees and other transportation services.

· Secured borrowings and lines of credits as of September 30, 2012 consisted of $475.0 million outstanding on the 8 1 / 8 % Notes, $30.0 million available for borrowing under the ABL Facility, and $150.9 million outstanding for the Senior PIK Toggle Notes. As of December 31, 2011, $609.8 million was outstanding and there were no funds drawn on the ABL for both periods.

We expect that our cash flows from operations and existing credit facilities will be sufficient to meet our ongoing operating requirements, to fund capital expenditures for property, plant and equipment, and to satisfy our debt requirements. In addition, we closed the $30 million State Infrastructure Bank loan (the “SIB Loan”) on September 26, 2012. The purpose of the SIB Loan is to fund, in part, the costs associated with our construction of a new Florida East Coast Intermodal Transfer Facility (the “ICTF”) at Port Everglades which will serve the Company’s domestic and international segments. The ICTF is expected to cost $53 million to complete. Proceeds of the SIB Loan will be advanced by FDOT as construction proceeds on the ICTF. The total construction costs of the ICTF are expected to be $53 million, $30 million of which will be funded by the SIB Loan, $18 million of which will be funded by a grant from FDOT, and the balance of $5 million from the Company’s capital budget. Our current projections of cash flows from operations and the availability of funds under our ABL Facility (as further described below) are expected to be sufficient to fund our maturing debt and contractual obligations in the next several years. No assurance can be made that we will be able to meet our financing and liquidity needs as currently contemplated. See “Risk Factors—Risks Related to Our Indebtedness.”

Holdings Corp. is a holding company and, therefore, depends upon the performance of and distributions from our subsidiaries to meet its debt service obligations (including interest payments) under the Senior PIK Toggle Notes. Legal and contractual restrictions in agreements governing current and future indebtedness, as well as the financial condition and operating requirements of our direct subsidiary, FECR Corp., may limit Holdings Corp.’s ability to obtain cash from FECR Corp. The indenture governing the 8 1 / 8 % Notes and the ABL Facility contain covenants that restrict FECR Corp.’s ability to pay cash dividends and make other distributions or loans to Holdings Corp. The earnings from, or other available assets of, FECR Corp. may not be sufficient to pay dividends or make distributions or loans to enable Holdings Corp. to make payments in respect of the notes when such payments are due. In addition, even if such earnings were sufficient, we cannot assure you that the agreements governing the current and future indebtedness of FECR Corp. will permit FECR Corp. to provide us with sufficient dividends, distributions or loans to fund interest and principal payments on the notes when due. Holdings Corp. will be forced to accrue interest on a “paid-in-kind” basis, to the extent that distributions from FECR Corp. are not sufficient to fulfill the interest obligations under the notes. Any interest accrued on a “paid-in-kind” basis will increase the overall cost of Holdings Corp.’s borrowings, as well as the cash ultimately required to fully satisfy Holdings Corp.’s obligations, under the Senior PIK Toggle Notes.

We have implemented capital spending programs designed to assure the ability to provide safe, efficient and reliable transportation services. For the remainder of 2012, we anticipate that 79.8% of the remaining estimated capital spend will be used to sustain core infrastructure. We funded these capital investments through cash generated from operations.

The remaining capital expenditures are for locomotives, freight cars, and technology. For the nine months ended September 30, 2012, we contributed $1.8 million related to the port Miami project, whereas in 2011, we contributed $7.2 million, to the port Miami project.

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We are continually evaluating market and regulatory conditions that could affect our ability to generate sufficient returns on capital investments. We may revise our future estimates for capital spending as a result of changes in business conditions, tax legislation or the enactment of new laws or regulations. Although new legislation or regulations could have a material adverse effect on our operations and financial performance in the future, we cannot predict the manner or severity of such impact. However, we continue to take steps and explore opportunities to reduce the impact of our operations on the environment, including investments in new technologies, reducing fuel consumption and increasing fuel efficiency and lowering emissions.

Cash Flow Information for the Nine Months ended September 30, 2012 and 2011

Operating Activities

Cash provided by operating activities was $11.7 million for the nine months ended September 30, 2012 compared to cash provided by operating activities of $12.8 million for the nine months ended September 30, 2011. The decrease in cash provided by operating activities of $1.1 million was due to the timing of interest payments, as previously interest payments were on a calendar quarter, however, interest on the 8 1 / 8 % Notes is due in February, as well as an increase in long-term debt to the interest payments on the Senior PIK Toggle Notes that were paid in kind in February and August, 2012. These increases in cash were offset by a decrease in operating cash related to expenses incurred in 2011 for the Port Miami project which were subsequently paid in 2012.

Investing Activities

Cash used in investing activities was $15.6 million for the nine months ended September 30, 2012 compared to cash used in investing activities of $3.7 million for the nine months ended September 30, 2011. The increase in cash used in investing activities of $11.9 million was primarily related to the release of the interest reserve account of $4.0 million related to the 2011 Refinancing as well as a reduction in proceeds from the sale of assets of $8.0 million related to the reduction in our trailer and hopper fleets, as well as the sale of the locomotives, for the nine months ended September 30, 2012, compared to September 30, 2011.

Financing Activities

Cash used in financing activities was $2.2 million for the nine months ended September 30, 2012 compared to cash used in financing activities of $1.6 million for the nine months ended September 30, 2011. The increase in cash used in financing activities was primarily due to the repurchase of common shares outstanding for the nine months ended September 30, 2012.

Long-term Debt

In connection with the Fortress Acquisition, FECR Corp., along with FECI, entered into the $1.656 billion Facility referred to as the “Old Facility”.

The Old Facility consisted of:

· $992.8 million Property Term Loan;

· $600.0 million Rail Term Loan;

· $13.2 million Delayed Draw Property Term Loan; and

· $50.0 million Revolving Credit Facility.

As a result of the Rail Separation, the $600.0 million Rail Term Loan was assumed by FECR Corp. and FECR Rail LLC. The $50 million Revolving Credit Facility remained in place for FECI and FECR Corp. after the Rail Separation. Prior to December 31, 2007, all amounts outstanding under the Revolving Credit Facility were drawn by and were the obligation of FECI. All obligations outstanding under the Old Facility were cross-guaranteed by FECI and FECR Corp.’s respective subsidiaries.

The Old Facility was subject to various amendments and required FECI and FECR Corp. to comply with, affirmative and negative covenants, the most significant of which were: (1) minimum net worth, as defined, of FECI and us as a combined group of $1.65 billion, (2) limitations on the aggregate amount of capital expenditures incurred from July 26, 2009, until the expiration of the third extension period, and (3) the interest reserve account balance to be maintained at $15.0 million for FECI and us combined.

In conjunction with the July 2009 amendment under the Old Facility, the Company incurred $10.3 million of transaction fees (of which $7.5 million were amortized over an 18-month extension period, and $2.8 million of third-party fees were included in other expense in the consolidated statement of operations) and accrued interest.

The Old Facility and its amendments were secured by a first-priority, perfected security interest in substantially all of our tangible and intangible assets, including, but not limited to, intellectual property, owned and material leased real property and all of the capital stock of FECR and FECI and each of its direct and indirect subsidiaries. We were the borrower under the Rail Term Loan,

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whereas FECI was the borrower under the remaining portions of the Old Facility, though FECI and our respective subsidiaries jointly and severally cross-guaranteed the loans.

The amended Old Facility bore interest based on an alternative base rate or LIBOR at the Company’s option. Interest under the alternative base rate method had a base rate for any day, a rate per annum equal to the greater of (a) the base rate in effect on such a day or (b) the federal funds effective rate in effect on such day plus 1 / 2 of 1.0% subject to a floor of 3.0%, plus an applicable margin of 6.5% per annum through the 18-month extension periods. The margin increased to 8.0%, 9.5% and 11.0% for the first, second, and third extension period, respectively. Interest under the LIBOR method had a base rate of LIBOR, subject to a floor of 3.0%, plus an applicable margin of 7.5% per annum through the 18-month extension periods. The margin increased to 9.0%, 10.5% and 12.0% for the first, second, and third extension period, respectively.

In July 2009, a letter of credit was drawn upon at the amount of $1.6 million, which was included in the outstanding balance of the Rail Term Loan as of December 31, 2010, respectively.

The Company’s outstanding balances of the amended Old Facility were $601.2 million as of December 31, 2010. The weighted-average interest rate on the amended Old Facility was 9.66% for the year ended December 31, 2010. The aggregate outstanding balance on the amended Old Facility, which included the Company’s outstanding balance of $601.2 million, was $799.1 million as of December 31, 2010.

All outstanding amounts under the amended Old Facility were paid in January 2011 (as described in “Refinancing” below).

Refinancing

In connection with the issuance of the Senior Secured Notes, FECR Corp. and certain of its subsidiaries also entered into the Asset-Based Lending (“ABL”) Facility. The ABL Facility matures on January 25, 2015 and bears interest at FECR Corp.’s option of: (a) a base rate determined in the greater of (1) the prime rate of the administrative agent, (2) federal funds effective rate plus 1 / 2 of 1%, or (b) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits in London interbank market for the interest period relevant to such borrowing. The applicable margin with respect to (a) base rate borrowings will be 2.25%, and (b) LIBOR borrowings will be 3.25%. Obligations under the ABL Facility are secured by a first-priority lien on the ABL Collateral.

The Senior Secured Notes are secured by first-priority liens on substantially all of the tangible and intangible assets of FECR Corp. and its subsidiary guarantors’ (other than the ABL collateral securing the ABL Facility) and a second-priority lien on ABL collateral. The guarantors are defined primarily as existing and future wholly owned domestic restricted subsidiaries. FECR Corp. may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes issued during any 12-month period commencing on the issue date and ending on the third anniversary thereof at a price equal to 103% of the principal amount thereof plus accrued and unpaid interest, if any. FECR Corp. may also redeem some or all of the Senior Secured Notes at any time before February 2014 at a price equal to 100% of the aggregate principal amount thereof plus a make-whole premium. In addition, prior to February 1, 2014, FECR Corp. may redeem up to 35% of the Senior Secured Notes at a redemption price of 108.125% of the aggregate principal amount thereof with the proceeds from an equity offering. Subsequent to February 1, 2014, FECR Corp. may redeem the Senior Secured Notes at 104.063% of their principal amount. The premium then reduces to 102.031% commencing on February 1, 2015 and then 100% on February 1, 2016 and thereafter.

The ABL Facility and indenture governing the Senior Secured Notes contain various covenants and restrictions that limits FECR Corp. and its restricted subsidiaries’ ability to incur additional indebtedness, pay dividends, make certain investments, sell or transfer certain assets, create liens, designate subsidiaries as unrestricted subsidiaries, consolidate, merge or sell substantially all the assets, and enter into certain transactions with affiliates. It is anticipated that proceeds from any future borrowings will be used for general corporate purposes.

State Infrastructure Bank Loan

On September 26, 2012, FEC PEVT, L.L.C., as borrower, and Florida East Coast Railway, L.L.C., as guarantor, each a wholly owned subsidiary of the Company, entered into a SIB Loan with the Florida Department of Transportation (“FDOT”). The SIB Loan provides for a loan of $30 million to fund, in part, the costs associated with the construction of a new Florida East Coast Intermodal Container Transfer Facility (the “ICTF”) in Port Everglades which will serve the Company’s domestic and international business segments. Proceeds of the SIB Loan will be advanced by FDOT as construction proceeds on the ICTF. The total cost of the ICTF construction project is approximately $53 million, $30 million of which will be funded through the SIB Loan, $18 million of which will be from a FDOT grant (the “FDOT Grant”) and the balance of $5 million from the Company’s capital budget. The Company has been awarded $6 million of the $18 million FDOT Grant as of September 30, 2012.

Interest will accrue on the advanced principal amount of the SIB Loan at the rate of 3.50% per annum, compounded annually, using an actual-days-elapsed/365 day counting convention. Both principal and interest payments are payable in annual installments as follows: interest payments commence on the SIB Loan on October 1, 2013, and principal repayments commence on the SIB Loan on October 1, 2015. The SIB Loan will be amortized over 20 years.

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The SIB Loan is fully and unconditionally guaranteed by the Florida East Coast Railway, L.L.C. In addition, as a condition to making the SIB Loan, FDOT required a first priority lien on certain fixtures (including rail trackage) and equipment included in the collateral securing the Senior Secured Notes. The SIB Loan specifically excludes rail equipment and motor vehicles from its lien. As a condition to FDOT making the first loan disbursement under the SIB Loan, FEC PEVT, L.L.C. will be required to post as additional collateral through July 1, 2017, a standby letter of credit in the amount of $3.0 million payable to FDOT, as beneficiary (the “Standby Letter of Credit Collateral”). The SIB Loan permits FEC PEVT, L.L.C, in lieu of posting the Standby Letter of Credit Collateral, at any time upon prior notice, to either pay down the principal of the SIB Loan by $3 million or substitute cash collateral. The Company anticipates utilizing its letter of credit facility created under the ABL Facility, to obtain the Standby Letter of Credit Collateral.

Sale and Issuance of Series B Perpetual Preferred Stock

Shareholder Contribution of FECR Rail LLC

In January and February 2011, FECR Rail LLC contributed an aggregate $16.0 million to the Company.

The proceeds of the sale of the Series B Perpetual Preferred Stock and $15.0 million of the FECR Rail LLC contribution to the Company were further contributed to FECR Corp. This contribution of $140.0 million together with the proceeds of the issuance of the Senior Secured Notes were used to repay an amount outstanding of approximately $601.2 million under the Old Facility owned by FECR Corp., to pay certain fees and expenses incurred in connection with the offering of the 8 1 / 8 % Notes, and for general corporate purposes. FECI entered into a separate financing transaction whereby it paid down its outstanding balance of approximately $197.9 million under the Facility. As a result, the Facility is no longer outstanding and none of its obligations are further jointly and severally cross-guaranteed by the subsidiaries of FECI and the Company. None of the Company’s subsidiaries continue to guarantee the outstanding obligations of FECI.

Senior PIK Toggle Notes

Covenants

The indentures governing the Senior PIK Toggle Notes, the 8 1 / 8 % Notes and our ABL Facility contain certain covenants that put limitations and restrictions on us and our restricted subsidiaries’ ability to, among other things, incur additional indebtedness; issue preferred and disqualified stock; purchase or redeem capital stock; make certain investments; pay dividends or make other payments on loans or transfer property; sell assets; enter into certain types of transactions with affiliates involving consideration in excess of $5.0 million; create liens on certain assets; and sell all, or substantially all, of our assets or merge with or into another company. In addition, if availability under the ABL Facility is below $7.5 million during any future period, FECR Corp. will be subject to a

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minimum fixed charge coverage ratio (as defined in the ABL Facility) of 1.1 to 1.0. As of September 30, 2012, the Company was in compliance with all debt covenants.

The SIB Loan contains conditions to disbursements customarily contained in construction loans and loans from governmental entities, including as a condition to each disbursement, obtaining all material permits, real property interests, and approvals necessary for the phase of construction of the ICTF or use of the ICTF for which such disbursement relates and requirements that that the SIB Loan and FEC PEVT, L.L.C. shall be subject to annual audits as required by Florida law. In addition, FDOT has the right to annul the SIB Loan if FEC PEVT, L.L.C. does not make a request for disbursement within six months of the first scheduled disbursement (October 1, 2012) or, at anytime, suspend or terminate FDOT’s remaining obligations under the SIB Loan if FEC PEVT, L.L.C. abandons the construction of the ICTF project or if the ICTF project is rendered improbable, infeasible, impossible, or illegal. FDOT also has the right to unilaterally cancel the SIB Loan in the event the Company refuses to allow public access to all documents, papers, letters or other materials subject to the provisions of Chapter 119, Florida Statutes, and made or received in conjunction with the SIB Loan. In addition, FDOT’s obligation to make advances under the SIB Loan to FEC PEVT, L.L.C. is contingent upon the annual appropriation of the Florida legislature.

Critical Accounting Policies

Our Consolidated Financial Statements have been prepared in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experiences and assumptions believed to be reasonable under the circumstances and re-evaluate them on an ongoing basis. Those estimates form the basis for our judgments that affect the amounts reported in the Consolidated Financial Statements. Actual results could differ from our estimates under different assumptions or conditions. Our significant accounting policies, which may be affected by our estimates and assumptions, are more fully described in Note 2 “Summary of Significant Accounting Policies” in our Consolidated Financial Statements.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Although we believe the policies summarized below to be the most critical, other accounting policies also have significant effect on our financial statements and certain of these policies also require the use of estimates and assumptions.

The critical financial statement accounts that are subject to significant estimation are reserves for litigation, casualty and environmental matters, deferred income taxes and property, plant and equipment depreciation methods.

In accordance with FASB Contingencies Topic, an accrual for a loss contingency is established if information available prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred or an asset has been impaired and can be reasonably estimated. These estimates have been developed in consultation with outside counsel handling our defense in these matters and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies.

Subsequent to changes to those estimates are reflected in our statements of operations in the period of change.

Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, future taxable income, and the expected timing of the reversals of existing temporary differences. If we are unable to generate sufficient future taxable income, or there is a material change in the statutory tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to establish an additional valuation allowance against a portion of our deferred tax asset, resulting in an increase in our effective tax rate and adverse effect on earnings. Additionally, changes in our estimates regarding the statutory tax rates to be applied to the reversal of deferred tax assets and liabilities could materially affect our effective tax rate.

Property, plant and equipment comprised 89.8% of our total assets as of December 31, 2011. These assets are stated at cost, less accumulated depreciation. We utilize the group-life method to classify, depreciate and retire the majority of our assets. Under the group-life method, assets with similar characteristics and intended use are assigned an asset class with a specific life. Assets are either recorded individually (locomotives, freight cars, vehicles, etc.) or as a “mass” asset (rail, ties, ballast, etc.) at the time of capitalization. All depreciable assets use the straight line method for depreciation based on an average life of the asset class.

We determine the estimated service lives of depreciable railroad property by means of depreciation studies. Our depreciation studies take into account the following factors:

· Statistical analysis of historical patterns of use and retirements of each of our asset classes;

· Evaluation of any expected changes in current operations and the outlook for the continued use of the assets;

· Evaluation of technological advances and changes to maintenance practices; and

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· Comparison of asset groups to the same asset groups with peer companies.

Our policy is to perform life studies approximately every eight years. Estimated service lives of depreciable railroad property may vary over time due to changes in physical use, technology, asset strategies, and other factors that will have an impact on the retirement profiles of our assets. Historically, depreciation expense has not materially changed based on the results of our life studies. If recent changes in the mix of our traffic from heavier cargo (stone, gravel and aggregates) to lighter cargo (intermodal containers) are sustained, future life studies may result in an increase in the life of our track assets. Changes in asset lives due to the results of the life studies are applied on a prospective basis and could significantly impact future periods’ depreciation expense, and thus, the results of operations.

We completed life studies for our rolling stock assets during the three months ended September 30, 2012. The life study indicated that the actual lives of certain rolling stock assets were different than the estimated useful lives used for depreciation purposes in our financial statements. As such, we changed our estimates of the useful lives of certain rolling stock assets to better reflect the estimated periods during which these assets will remain in service. The effect of this change in estimate during the three and nine months ended was to reduce depreciation expense by $0.1 million and $0.1 million, respectively. Changes in asset lives due to the results of the life studies are applied on a prospective basis and could significantly impact future periods’ depreciation expense, and thus, our results of operations. Annually, depreciation expense is expected to be reduced by approximately $1.7 million.

Under normal retirements or sale of assets, no gain or loss is recorded. The net asset value (cost less accumulated depreciation minus any proceeds) for a retirement or sale of asset is charged back to accumulated depreciation, and the net asset value is amortized over the remaining life of its assigned asset class. Expenditures that increase asset value or extend the useful life are capitalized. Repair and maintenance expenditures (track inspections, locomotive running repairs, repair of broken rail, rail grinding, etc.) are charged to expense when the work is performed. For the year ended December 31, 2011, repairs and maintenance expenditures charged to operating expenses represented approximately 26.8% of our total spend (including capitalized expenditures) for track and related assets. We review the carrying value of our property for impairment whenever an event or changes in circumstances indicate the carrying value of an asset or asset grouping may not be recoverable from the undiscounted cash flows expected to be generated over its remaining useful life.

For a complete description of our accounting policies, see Note 2 “Summary of Significant Accounting Policies” to our Consolidated Financial Statements.

Recent Accounting Pronouncements

The adoption of recently issued accounting standards did not have any material impact on the consolidated financial statements, nor do we expect the pending adoption of recently issued accounting standards to have a material impact on the consolidated financial statements.

In 2011, the FASB issued Accounting Standards Update 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income (“ASU 2011-05”) and Accounting Standards Update No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation and Reclassifications of Items Out of Accumulated Other Comprehensive Income (“ASU 2011-12”). ASU 2011-5 improves the comparability, consistency and transparency of financial reporting and increases the prominence of items reported in other comprehensive income. ASU 2011-5 is effective for interim and annual periods beginning after December 31, 2011. As ASU 2011-5 relates specifically to presentation and disclosures the adoption of these provisions did not have any other impact on our consolidated financial statements. The main purpose of ASU 2011-12 was to defer the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in ASU 2011-5, therefore it did not have an impact on the Company’s consolidated financial statements.

Off Balance Sheet Arrangements

We currently have no off balance sheet arrangements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks from changing interest rates and diesel fuel prices. Changes in these factors could cause fluctuations in earnings and cash flows.

Interest Rates. The 8 1 / 8 % Notes issued on January 25, 2011 are fixed rate instruments, and therefore, would not be impacted by changes in interest rates. In addition, the Senior PIK Toggle Notes issued on February 11, 2011 are also fixed interest rate instruments, and therefore, would not be impacted by changes in interest rates. Our potential interest rate risk results from the ABL Facility as an increase in interest rates would result in lower earnings and increased cash outflows. We do not have any outstanding balances under the ABL Facility, but if we were to draw upon it, we would be subject to changes in interest rates.

Diesel Fuel. We are exposed to fluctuations in diesel fuel prices. Fuel costs represented 13.5% of total operating revenues during the year ended December 31, 2011. We participate in fuel surcharge programs which provide additional revenue to help offset the increase in fuel expenses. We utilize the Department of Energy’s Retail Diesel Fuel Price index to calculate the fuel surcharges that are charged to our customers. The fuel surcharges fluctuate with the price of diesel fuel with a lag of less than one month. Therefore, we believe that we have reduced the risk of fluctuating diesel fuel prices to a low level. We are continuing to optimize our fuel surcharge programs to reduce our risk to the lowest level possible.

Customer Concentration Risk . Although our operations served approximately 500 customers in 2011, freight revenue from our 10 largest customers accounted for approximately 48% of our total freight revenues for the year ended December 31, 2011 with our largest customer accounting for approximately 10.9% of our total freight revenue. In addition, we have three primary aggregate customers with operations in south Florida whose freight revenues represented approximately 11.1% of our total freight revenues for the year ended December 31, 2011. Our revenues are affected by the demand for aggregate material, primarily in Florida, and the ability of these customers to supply this natural raw material efficiently and effectively. Substantial reduction in business with or loss of an important customer could have a material adverse effect on our business and financial results.

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ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2012. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2012, the Company’s disclosure controls and procedures are effective at the reasonable assurance level.

(b) Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Items 2, 3, and 4 are not applicable and have been omitted.

ITEM 1. LEGAL PROCEEDINGS

We have been, and may from time to time, be involved in litigation and claims incidental to the conduct of our business in the ordinary course. Our industry is also subject to scrutiny by governmental regulators, which could result in enforcement proceedings or litigation related to regulatory compliance matters. We maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards. As of the date of this Quarterly Report on Form 10-Q, we are not a party to any material legal or adverse regulatory proceedings.

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ITEM 1A. RISK FACTORS

Our operations and financial condition are subject to certain risks that could cause actual operating and financial results to differ materially from those expressed or forecast in our forward-looking statements, including the risks described below and the risks that may be identified in future documents that are filed or furnished to the SEC.

Risks Related to Our Business

Adverse macroeconomic and business conditions, particularly in the State of Florida and the southeast, have and could continue to have an adverse impact on our business.

The decline in economic activity in the United States and throughout the world over the past three years has had an adverse impact on our business. The global financial markets recently have undergone and may continue to experience significant volatility and disruption. The sustainability of an economic recovery is uncertain and additional macroeconomic, business and financial disruptions could have a material adverse effect on our operating results, financial condition and liquidity. In particular, our freight traffic is generally affected by overall economic conditions in Florida and the southeast United States, which have been severely impacted by the recent economic downturn. Our largest carload market, aggregates, is highly dependent upon the residential construction market, the commercial construction market and state and federal highway construction, each of which have been negatively affected by the recent economic conditions. The pace of residential construction as well as the level of state and federal highway and other public projects affect the amount of aggregate loadings that our customers request. During the recent economic downturn, the State of Florida has experienced an unprecedented decline in homebuilding. The condition of international economies, including the Caribbean, South America, Europe and Asian economies, can also affect our intermodal traffic.

We receive significant business from our customers who utilize the Port Miami and Port Everglades for shipping and cargo activity. Our railroad relies on these Ports to serve cargo ships on behalf of our customers for import and export freight. The decline of imports or exports at these Ports could have material adverse effect on our operating results, financial condition and liquidity. The Company plans to establish intermodal container rail service on its own rail line leading into the Port of Miami for an estimated cost to the Company of $9.1 million. In addition, the Company plans to construct a new Florida East Coast Intermodal Transfer Facility on Port Everglades, Florida for an estimated total cost of approximately $53 million, $30 million of which will be funded through a State Infrastructure Bank (SIB) loan, $18 million of which will be from a Florida Department of Transportation (FDOT) grant and $5 million from the Company’s capital budget. These investments could be at risk should the volumes not support the investments.

In addition, certain of our customers and suppliers are directly affected by the economic downturn, are facing credit issues and could experience cash flow problems that have and could continue to give rise to payment delays, increased credit risk, bankruptcies and other financial hardships that could decrease the demand for our rail services or delay our receipt of payment from certain customers. Adverse economic conditions could also affect our costs for insurance and our ability to acquire and maintain adequate insurance coverage for risks associated with the railroad business if insurance companies experience credit downgrades or bankruptcies. In addition, changes in governmental banking, monetary and fiscal policies to stimulate the economy, restore liquidity and increase credit availability may not be effective. It is difficult to determine the depth and duration of the economic and financial market problems and the many ways in which they may impact our customers, suppliers and our business in general. Moreover, given the asset-intensive nature of our business, the economic downturn increases the risk of significant asset impairment charges since we are required to assess for potential impairment of non-current assets whenever events or changes in circumstances, including economic circumstances, indicate that the respective asset’s carrying amount may not be recoverable. This may limit our ability to sell our assets to the extent we need, or find it desirable, to do so.

Furthermore, our railroad competes directly with other modes of transportation, including motor carriers, and ship, barge and pipeline operators. If these alternative methods of transportation become more cost-effective to our customers due to macroeconomic changes, or if legislation is passed providing materially greater opportunity for motor carriers with respect to size or weight restrictions, our operating results, financial condition and liquidity could be materially adversely affected.

Continuation or further worsening of current macroeconomic, business and financial conditions, particularly in the State of Florida and the southeast United States, could have a material adverse effect on our operating results, financial condition and liquidity.

Rising fuel costs could materially adversely affect our business.

Fuel costs were approximately 11.7% and 13.4% of our total operating revenue for the three months ended September 30, 2012 and 2011, respectively. Fuel costs were approximately 12.5% and 13.5% of our total operating revenue for the nine months ended September 30, 2012 and 2011, respectively. Fuel prices and supplies are influenced significantly by international, political and economic circumstances. If fuel supply shortages or unusual price volatility were to arise for any reason, the resulting higher fuel prices would significantly increase our operating costs. Increases in fuel price may be passed along to customers through a “fuel surcharge” or otherwise, though often with delayed effect. However, there are no assurances that these surcharges will cover the entire fuel price increase for a given period, or that competitive market conditions will effectively allow us to pass along this cost.

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As part of our railroad operations, we frequently transport hazardous materials, the accidental release of which could have an adverse effect on our operating results, financial condition and liquidity.

We are required to transport hazardous materials to the extent of our common carrier obligation. An accidental release of hazardous materials could result in significant loss of life and extensive property damage. The associated costs could have an adverse effect on our operating results, financial condition and liquidity. In 2011, approximately 1.0% of our moves were related to hazardous materials.

A majority of our employees belong to labor unions, and strikes or work stoppages could adversely affect our operations.

Many of our employees are union-represented. Our union employees work under collective bargaining agreements with various labor organizations. Our inability to negotiate acceptable contracts with these unions could result in, among other things, strikes, work stoppages or other slowdowns by the affected workers. If our union-represented employees were to engage in a strike, work stoppage or other slowdown, or other employees were to become unionized or their terms and conditions in future labor agreements were renegotiated, we could experience significant disruption of our operations and higher ongoing labor costs.

Because we depend on Class I railroads and certain other customers for a significant percentage of our operations, our business and financial results may be adversely affected if our relationships with Class I carriers and such customers deteriorate.

The railroad industry in the United States is dominated by a small number of Class I carriers that have substantial market control and negotiating leverage. Approximately 57.8% of our traffic for the year ended December 31, 2011 was interchanged from CSX and Norfolk Southern, each a Class I carrier, and South Central Florida Express, a regional short line railroad. In addition, approximately 47.4% of our total freight revenue for the year ended December 31, 2011 was derived from Class I traffic and Norfolk Southern accounted for 11% of our total freight revenue for the same period. Approximately 1.0% of our total freight revenue for the year ended December 31, 2011 was derived from the regional short line traffic. No other customer represented more than 10% of our total freight revenue for the year ended December 31, 2011. Our ability to provide rail service to our customers depends in large part upon our ability to maintain cooperative relationships with Class I carriers and certain other customers with respect to, among other matters, freight rates, car supply, switching, interchange, fuel surcharges and trackage rights (an arrangement where the Company that owns the line retains all rights, but allows another company to operate over certain sections of its track). In addition, loss of customers or service interruptions or delays by our Class I and other interchange partners relating to customers who ship over our track may decrease our revenue. Furthermore, the ability of Class I carriers, in particular CSX and Norfolk Southern, to market and service southbound traffic into the Florida market will affect the amount of traffic we move.

Although our operations served approximately 500 customers in 2011, freight revenue from our 10 largest freight revenue customers accounted for approximately 48.0% of our total freight revenues for the year ended December 31, 2011. In addition, we have three primary aggregate customers with operations in south Florida whose freight revenues represented approximately 12.3% of our total freight revenues for the year ended December 31, 2011 (of the three primary aggregate customers, none accounted for more than 10% of total freight revenue individually). Our revenues are affected by the demand for aggregate material, primarily in Florida, and the ability of these customers to supply this natural raw material efficiently and effectively. Substantial reduction in business with or loss of important customers could have a material adverse effect on our business and financial results.

The track maintenance tax credit was not renewed by Congress upon its expiration on December 31, 2011, currently we are no longer able to earn or assign credits for track maintenance. Several legislative efforts to extend various tax credits that expired at the end of the 2011 year are being pursued by short line and regional railroads. However, at this time there is no clarity as to whether the tax credits will be extended and, if they are, whether the extension would be retroactive to January 1, 2012.

In 2011, we received approximately $2.4 million from the assignment of tax credits for certain track maintenance expenditures pursuant to Section 45G of the Internal Revenue Code. Section 45G expired at the end of 2011. There can be no assurances that legislation renewing the availability of the Section 45G tax credit will be enacted for 2012 or beyond.

We are subject to environmental and other governmental regulation of our railroad operations, which could impose significant costs.

Our operations and properties are subject to federal, state and local environmental laws and regulations that impose strict, and in certain cases joint and several, liability for such costs, including, among other things, discharge of pollutants into the air, water and soil, the generation, handling, storage, transportation, treatment and disposal of waste and other regulated materials, and the cleanup of contaminated properties and human health and safety. The failure to comply with environmental and other governmental regulations could have a material adverse effect on us. We could incur significant costs, fines and penalties as a result of any allegations or findings to the effect that we have violated or are strictly liable under these laws or regulations. We may be required to incur significant expenses to investigate and remediate environmental contamination. We are also subject to governmental regulation by a significant number of federal, state and local regulatory authorities with respect to our railroad operations and a variety of health, safety, labor, maintenance and other matters.

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New legislation or regulatory changes could impact our or restrict our ability to independently negotiate prices.

Legislation passed by Congress or new regulations issued by federal agencies can significantly affect the revenues, costs and profitability of our business. For instance, in December 2009, a proposed bill called the “Surface Transportation Board Reauthorization Act of 2009” was introduced in the Senate but not advanced. In January 2011, the bill now referred to as the Surface Transportation Board Reauthorization Act of 2011 (“STB Reauthorization Bill”) was reintroduced. The STB Reauthorization Bill, if adopted, could increase government involvement in railroad pricing, service and operations. The proposed legislation also includes provisions that would reduce the ability to price at market levels, and open a carrier’s privately-owned and maintained rail network to competitors where certain conditions are met.

If adopted as proposed, this bill could significantly change the federal regulatory framework of the railroad industry. Several of the changes under consideration could have a significant negative impact on our ability to determine prices for rail services, meet service standards and could force a reduction in capital spending. Statutes imposing price constraints or affecting rail-to-rail competition could adversely affect our profitability.

Severe weather and natural disasters could disrupt normal business operations, which could result in increased costs and liabilities and decreases in revenues.

Our operating assets are located on Florida’s eastern seaboard. Severe weather conditions and other natural phenomena, including hurricanes and other severe storms, fires and floods, may cause significant damage, destruction and business interruptions and result in increased costs, increased liabilities and decreased revenue. Additionally, the operations and properties of some of our customers (especially aggregate suppliers) are also subject to natural disasters, which could significantly reduce the volumes they ship and result in decreased revenue.

We face possible catastrophic loss and liability, and our insurance may not be sufficient to cover our damages or damages to others.

The operation of any railroad carries with it an inherent risk of catastrophe, mechanical failure, collision, and property loss. In the course of our operations, spills or other environmental mishaps, cargo loss or damage, business interruption due to political developments, as well as labor disputes, strikes and adverse weather conditions, could result in a loss of revenues or increased liabilities and costs. Collisions, cargo leaks or explosions, environmental mishaps, or other accidents can cause serious bodily injury, death, and extensive property damage, particularly when such accidents occur in heavily populated areas. Additionally, our operations may be affected from time to time by natural disasters such as hurricanes and other severe storms and floods. The occurrence of a major natural disaster could have a material adverse effect on our operations and financial condition. We maintain insurance that is consistent with industry practice against the accident-related risks involved in the conduct of our business and business interruption due to natural disaster. In addition, due to the location of our assets on Florida’s eastern seaboard, we also maintain windstorm coverage. However, our insurance is subject to a number of limitations on coverage, depending on the nature of the risk insured against. This insurance may not be sufficient to cover our damages or damages to others and this insurance may not continue to be available at commercially reasonable rates. In addition, we are subject to the risk that one or more of our insurers may become insolvent and would be unable to pay a claim that may be made in the future. Even with insurance, if any catastrophic interruption of service occurs, we may not be able to restore service without a significant interruption to operations which could have an adverse effect on our financial condition.

We may face liability for casualty losses that are not covered by insurance.

We have obtained insurance coverage, including windstorm coverage, for losses sustained by our railroad arising from personal injury and for property damage in the event of derailments or other incidents. Personal injury claims made by our railroad employees are subject to the Federal Employers’ Liability Act (FELA) rather than state workers’ compensation laws. Currently, we are responsible for the first $2.0 million of expenditures per each incident under our general liability insurance policy and $0.75 million of expenditures per each incident under our property insurance policy. Severe accidents or personal injuries could cause our liability to exceed our insurance limits which might have a material adverse effect on our business and financial condition. Our annual insurance limits are $200.0 million and $25.0 million on liability and property, respectively. In addition, adverse events directly and indirectly attributable to us, including such things as derailments, accidents, discharge of toxic or hazardous materials, or other like occurrences in the industry, can be expected to result in increases in our insurance premiums or our self insured retentions and could result in limitations to the coverage under our existing policies. Furthermore, the market for windstorm coverage remains very limited and costly. It is unknown how much windstorm coverage we will purchase in the future, and it is possible that our property will experience windstorm damage and utility service interruption in excess of insurance limits.

Our inability to efficiently utilize our rail car and intermodal fleet could have an adverse effect on our operations and financial condition.

We earn per diem rents on the use of our rail car and intermodal fleet of equipment based on other railroads’ or transportation service providers’ use of the equipment. Future significant downturns in the overall U.S. economy, equipment obsolescence or reduced market demand for our car and/or intermodal fleet, or efforts by other railroads or transportation providers to improve equipment utilization practices or increase or decrease the size of their equipment fleets could affect the utilization of and per diem rents for our equipment.

Also, we, through operating agreements, currently lease approximately 3,255 rail cars from Greenbrier Leasing Corporation (“Greenbrier”), The CIT Group, First Union Rail and other entities, with lease lengths generally of three, five and ten years. Under the terms of the lease, the counterparty bills us an hourly rate based upon the length of time the car is on our railroad (on-line) or on another railroad (off-line). As a car goes off-line, a per diem rent sharing arrangement goes into effect whereby we and the counterparty apportion the rent based upon the length of time the car is off-line. Certain of these leases provide that we must pay the counterparty a base rent payment if the car remains on our line for a specified number of days. As a result, if a car remains on our line beyond certain periods of time, we may be required to pay our applicable counterparty a base rent amount even though we have not received any

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revenue under the contract because the car has not been off our line, which would reduce our operating results. Rents from Greenbrier, CIT, and other entities received by the Company were $4.2 million and $4.2 million, for the nine months ended September 30, 2012 and 2011, respectively. By contrast, to date, the base rent payments that we have made to counterparties—i.e., payments we have made to counterparties in excess of the amount of revenue we have generated under the applicable lease—have been minimal.

Shared use of our railroad corridor with passenger railroad operations could have an adverse effect on our ability to utilize our railway efficiently, which could impact our operations and financial condition.

In December 2007, we granted to FDG Passenger ROW Holdings LLC (“FDG Passenger”), a subsidiary of FECI, a permanent, perpetual and exclusive easement for purposes consistent with, or relating to, commuter rail and transit passenger railroad operations, subject to certain exceptions. If FDG Passenger were to commence operating a passenger railroad on our railway corridor pursuant to the right granted by the passenger rail easement, without infrastructure improvement and additional capacity on our network we could be required to reduce our levels of freight volume as a result of sharing the corridor, which could have an adverse effect on our ability to utilize our railway efficiently, which may impact our operations and financial condition. We may also incur additional liability, casualty and property risks as a result of shared use of the corridor with passenger railroad operations, which could also adversely affect our operations and financial condition.

We depend on our management and key personnel, and we may not be able to operate and grow our business effectively if we lose the services of our management or key personnel or are unable to attract qualified personnel in the future.

The success of our business is heavily dependent on the continued services and performance of our current management and other key personnel and our ability to attract and retain qualified personnel in the future. The loss of key personnel could affect our ability to run our business effectively. Competition for qualified personnel is intense, and there can be no assurance that we will be successful in attracting and retaining such personnel. Although we have entered into employment agreements with certain of our key personnel, these agreements do not ensure that our key personnel will continue in their present capacity with us for any particular period of time. The loss of any key personnel could require one or more remaining key personnel to divert immediate and substantial attention to seeking a replacement or performing the duties of the departed executive. An inability to find a suitable replacement for any departing executive officer on a timely basis could adversely affect our ability to operate and grow our business.

Future acts of terrorism or war, as well as the threat of war, may cause significant disruptions in our business operations.

Terrorist attacks, such as those that occurred on September 11, 2001, as well as the more recent attacks on the transportation systems in Madrid and London, any government response to those types of attacks and war or risk of war may adversely affect our results of operations, financial condition or liquidity. Our rail lines and facilities could be direct targets or indirect casualties of an act or acts of terror. Such acts could cause significant business interruption and result in increased costs and liabilities and decreased revenues, which could have an adverse effect on our operating results and financial condition. Such effects could be magnified where releases of hazardous materials are involved. Any act of terror, retaliatory strike, sustained military campaign or war or risk of war may have an adverse effect on our operating results and financial condition by causing or resulting in unpredictable operating or financial conditions, including disruptions of rail lines, volatility or sustained increase of fuel prices, fuel shortages, general economic decline and instability or weakness of financial markets which could restrict our ability to raise capital. In addition, insurance premiums charged for some or all of our coverage could increase dramatically or certain coverage may not be available to us in the future.

The availability of qualified personnel and an aging workforce may adversely affect our operations.

Changes in demographics, training requirements and the availability of qualified personnel, particularly train crew members, could negatively affect our service levels. Unpredictable increases in demand for rail services may exacerbate these risks and may have an adverse effect on our operating results, financial condition or liquidity.

Risks Related to Our Indebtedness

We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business.

As of September 30, 2012, our total indebtedness was approximately $626 million, including the Senior PIK Toggle Notes and the 8 1 / 8 % Notes, which represented approximately 79% of our total capitalization. Our substantial indebtedness could have important consequences, including:

· increasing our vulnerability to adverse economic, industry or competitive developments;

· requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

· making it more difficult for us to satisfy our obligations with respect to the notes;

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· restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

· limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; and

· limiting our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate, placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who therefore may be able to take advantage of opportunities that our leverage prevents us from exploiting.

Holdings Corp. is a holding company and, therefore, depends on its subsidiaries to service its financial obligations.

Holdings Corp. has no operations of its own and it derives all of its revenues and cash flow from FECR Corp. and its subsidiaries. FECR Corp. is a separate and distinct legal entity and has no obligation, contingent or otherwise, to make any funds available to pay Holdings Corp., whether by dividend, distribution, loan or other payments. Holdings Corp. will depend on FECR Corp. (and any other subsidiaries that Holdings Corp. may form in the future) for dividends and other payments to generate the funds necessary to meet Holdings Corp.’s financial obligations, including payments of principal and interest on the Senior PIK Toggle Notes. Legal and contractual restrictions in agreements governing current and future indebtedness, as well as the financial condition and operating requirements of FECR Corp., may limit Holdings Corp.’s ability to obtain cash from FECR Corp. The indenture governing the 8 1 / 8 % Notes restricts FECR Corp.’s ability to pay cash dividends and make other distributions or loans to Holdings Corp. Although Holdings Corp. is a guarantor with respect to the 8 1 / 8 % Notes, Holdings Corp.’s dependence on its subsidiaries to service its financial obligations, results in this guarantee providing little, if any, additional credit support for the 8 1 / 8 % Notes. In addition, the earnings from, or other available assets of, FECR Corp. may not be sufficient to pay dividends or make distributions or loans to enable Holdings Corp. to make payments in respect of the Senior PIK Toggle Notes when such payments are due. Furthermore, even if such earnings were sufficient, the agreements governing the current and future indebtedness of FECR Corp. may not permit FECR Corp. to provide us with sufficient dividends, distributions or loans to fund interest and principal payments on the Senior PIK Toggle Notes when due.

Despite our substantial indebtedness level, we and our subsidiaries will still be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness.

Subject to specified limitations, the indenture governing the notes permits Holding Corp. to incur additional debt. Further, the indenture governing the Senior PIK Toggle Notes, the indenture governing the 8 1 / 8 % Notes and the ABL Facility each permit our subsidiaries to incur additional debt. As of the date of this filing, FECR Corp. had $30.0 million of available borrowings under its ABL Facility. If new debt is added to our or any such subsidiary’s current debt levels, the risks described above could intensify. On September 26, 2012, the Company, through its subsidiaries FEC PEVT, L.L.C., as borrower, and Florida East Coast Railway L.L.C., as guarantor, entered into, the SIB Loan with FDOT. The SIB Loan requires that FEC PEVT, L.L.C., post with FDOT, as additional collateral through July 1, 2017, a standby letter of credit in the amount of $3 million (the “Standby Letter of Credit Collateral”). The Company anticipates utilizing its letter of credit facility created under the ABL Facility, reducing the Company’s availability under the ABL Facility.

Inability to refinance the ABL Facility may require the Company to deliver alternative cash collateral or pay down the SIB Loan

The SIB Loan requires FEC PEVT, L.L.C., as borrower, to post the $3.0 million Standby Letter of Credit with FDOT through July 1, 2017. The Company intends to utilize the letter of credit facility under the ABL Facility to obtain the Standby Letter of Credit. The ABL Facility matures on January 25, 2015. In the event the Company is not able to refinance the ABL Facility or obtain another a letter of credit facility, the Company may be required to post $3.0 million cash collateral with FDOT or pay down the SIB Loan by $3.0 million in substitution of the Standby Letter of Credit.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

The indentures governing the 8 1 / 8 % Notes, Senior PIK Toggle Notes and our ABL Facility contain various covenants that limit our ability to engage in specified types of transactions. The indentures and the ABL Facility’s covenants limit our and our restricted subsidiaries’ ability to, among other things:

· incur additional indebtedness;

· pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;

· make certain investments;

· sell, transfer or convey certain assets;

· create liens;

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· enter into sale and leaseback transactions;

· issue or sell preferred stock;

· in the case of our restricted subsidiaries, restrict them from making dividends or other payments to us;

· in the case of our restricted subsidiaries, guarantee or secure debt;

· engage in transactions with affiliates;

· create unrestricted subsidiaries; and

· consolidate, merge, sell or otherwise dispose of all or substantially all of our assets and the assets of our subsidiaries (if any) on a consolidated basis.

These covenants could adversely affect our ability to finance our future operations or capital needs and pursue available business opportunities.

In addition, if availability under the ABL Facility is below $7.5 million, we will be subject to a minimum fixed charge coverage ratio (as defined in the ABL Facility) of 1.1 to 1.0. If this covenant becomes operative in the future, events beyond our control, including changes in general economic and business conditions, may affect our ability to meet this financial ratio test.

There can be no assurance that we will meet this potential financial ratio test or that our lenders will waive any failure to meet this test.

A breach of any of these covenants or any other restrictive covenants contained in FECR Corp.’s ABL Facility or the indenture governing the Senior PIK Toggle Notes and the indenture governing the 8 1 / 8 % Notes could result in an event of default. If an event of default under FECR Corp.’s ABL Facility, the indenture governing the Senior PIK Toggle Notes or the indenture governing the 8 1 / 8 % Notes occurs, the holders of the affected indebtedness could declare all amounts outstanding, together with accrued interest, to be immediately due and payable, which, in turn, could cause the default and acceleration of the maturity of our or FECR Corp.’s other indebtedness. If we were unable to pay such amounts, the lenders under FECR Corp.’s ABL Facility and noteholders of the 8 1 / 8 % Notes could proceed against the collateral pledged to them.

The SIB Loan contains covenants and conditions that could restrict our ability to draw funds under the SIB Loan

The SIB Loan contains covenants and conditions to disbursements customarily contained in construction loans and loans from governmental entities. The SIB Loan requires FEC PEVT, L.L.C., the borrower under the SIB Loan, to undergo annual audits by the State of Florida as required by Florida law. In addition, FDOT has the right to annul the SIB Loan if FEC PEVT, L.L.C. does not make a request for disbursement within six months of the first scheduled disbursement (October 1, 2012) or, at anytime, suspend or terminate FDOT’s remaining obligations under the SIB Loan if FEC PEVT, L.L.C. abandons the ICTF construction project or if the ICTF construction project is rendered improbable, infeasible, impossible, or illegal. FDOT also has the right to unilaterally cancel the SIB Loan in the event the Company refuses to allow public access to all documents, papers, letters or other materials subject to the provisions of Chapter 119, Florida Statutes, and made or received in conjunction with the SIB Loan. FDOT’s obligation to make advances under the SIB Loan is contingent upon the annual appropriation of the Florida legislature and there is no assurance that the Florida legislature will make such appropriations.

A default under the SIB Loan may adversely affect the 8 1 / 8 % Notes

The SIB Loan contains customary events of default, including, failure to make a loan payment when due for more than 5 days, a warranty or representation of FEC PEVT, L.L.C., as borrower, or Florida East Coast Railway, L.L.C., as guarantor, is found to be untrue in any material respect, a bankruptcy or insolvency of FEC PEVT, L.L.C., as borrower, or Florida East Coast Railway, L.L.C., as guarantor, failure to provide or restore the Standby Letter of Credit Collateral, or a material covenant breach or failure to provide notice of a material covenant breach within the times periods set forth in the SIB Loan. As a condition to making the SIB Loan, FDOT required and was granted a first priority lien on certain fixtures (including rail trackage) and equipment included in the collateral securing 8 1/8% Notes. A default under the SIB Loan may result in the seizure of collateral securing the 8 1/8% Notes and default under the Indenture.

We may not be able to generate sufficient cash to service the 8 1 / 8 % Notes, the SIB Loan, or our other indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on the notes or our other indebtedness. Any payments we make directly or indirectly to our parent companies would reduce the level of cash available to us to make the scheduled payments in respect of the 8 1 / 8 % Notes, the SIB Loan and our other indebtedness.

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If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance the 8 1 / 8 % Notes or our other indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of the indenture governing the 8 1 / 8 % Notes and existing or future debt instruments may restrict us from adopting some of these alternatives. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

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ITEM 5. OTHER INFORMATION

Effective August 31, 2012, Hussein Cumber voluntarily resigned from his position as Executive Vice President for Corporate Development. Due to his resignation without “good reason” (as defined in his employment agreement), Mr. Cumber was not entitled to severance payments or equity acceleration upon termination of his employment agreement.

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ITEM 6. EXHIBITS

Exhibits
10.1		State-Funded State Infrastructure Bank Loan Agreement, effective as of September 26, 2012, among the State of Florida Department of Transportation, FEC PEVT, LLC, the Borrower, and Florida East Coast Railway, L.L.C., the Guarantor, incorporated by reference to Exhibit 10.1 to Florida East Coast Holdings Corp.’s Current Report on Form 8-K filed on October 2, 2012.

10.2		Port Everglades Intermodal Container Transfer Facility Lease and Operating Agreement, dated January 31, 2012, between Broward County, Florida, as lessor, and Florida East Coast Railway, L.L.C.and Assignment and Assumption of Lease, dated September 26, 2012 made by Florida East Coast Railway, L.L.C., as assignor, and FEC PEVT, LLC, as assignee, incorporated by reference to Exhibit 10.2 to Florida East Coast Holdings Corp.’s Current Report on Form 8-K filed on October 2, 2012.

31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer

32.1		Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002

32.2		Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002

101.INS †		XBRL Instance Document

101.SCH †		XBRL Taxonomy Extension Schema Document

101.CAL †		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF †		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB †		XBRL Taxonomy Extension Label Linkbase Document

101.PRE †		XBRL Taxonomy Extension Presentation Linkbase Document

† XBRL (eXtensible Business Reporting Language) information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FLORIDA EAST COAST HOLDINGS CORP.
Date: November 8, 2012	By:	/s/ John Brenholt
		John Brenholt, Executive Vice President and
		Chief Financial Officer
		(on behalf of Registrant and as Principal Financial Officer)

Florida East Coast Holdings Corp. 10-Q