##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 June 30, 2003               
|                                                            |  |                                                                                         
|OR                                                         
|                                                            |  |                                                                                         
|(  )                                                        |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from ____________ to ____________

Commission File Number
001-08728

Florida East Coast Industries, Inc.
(Exact name of Registrant as specified in its charter)

|                                                                                   |  |                                             
|---------------------------------------------------------------------------------- |  | --------------------------------------------
|Florida
(State or other jurisdiction of
incorporation or organization)             |  | 59-2349968
(IRS Employer
Identification No.)
|                                                                                   |  |                                             
|One Malaga Street, St. Augustine, Florida
(Address of principal executive offices) |  | 32084
(Zip Code)                            

Registrants telephone number, including area code  (904) 829-3421

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 (X) No (  )

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES (X) NO (  )

Indicate the number of shares outstanding of each of the issuers classes of
common stock as of the latest practicable date.

|                                  |  |                              |  | 
|--------------------------------- |  | ---------------------------- |  | 
|Class                             |  | Outstanding at June 30, 2003
|                                  |  |                             
|Class A Common Stock-no par value |  | 17,102,357 shares           
|Class B Common Stock-no par value |  | 19,609,216 shares           





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##### 



FLORIDA EAST COAST INDUSTRIES, INC.

PART I

FINANCIAL INFORMATION

INDEX

|                  |  |                                                                                                         |  |        
|----------------- |  | ------------------------------------------------------------------------------------------------------- |  | -------
|                  |  |                                                                                                         |  | Page   
|                  |  |                                                                                                         |  | Numbers
|                  |  |                                                                                                         |  |        
|Item 1.           |  | Financial Statements                                                                                    |  |        
|                  |  |                                                                                                         |  |        
|                  |  | Consolidated Balance Sheets -
June 30, 2003 and December 31, 2002                                       |  | 3      
|                  |  |                                                                                                         |  |        
|                  |  | Consolidated Statements of Income -
Three Months and Six Months Ended
June 30, 2003 and 2002            |  | 4      
|                  |  |                                                                                                         |  |        
|                  |  | Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2003 and 2002                         |  | 5      
|                  |  |                                                                                                         |  |        
|                  |  | Notes to Condensed Consolidated Financial Statements                                                    |  | 6-14   
|                  |  |                                                                                                         |  |        
|Item 2.           |  | Managements Discussion and Analysis of the Consolidated
Financial Condition and Results of Operations  |  |        
|                  |  |                                                                                                         |  |        
|                  |  | Comparison of Second Quarter 2003 versus Second Quarter 2002
and Six Months 2003 versus Six Months 2002 |  | 15-20  
|                  |  |                                                                                                         |  |        
|                  |  | Changes in Financial Condition, Liquidity and Capital Resources                                         |  | 20-21  
|                  |  |                                                                                                         |  |        
|                  |  | Other Matters                                                                                           |  | 21-22  
|                  |  |                                                                                                         |  |        
|Item 3.           |  | Quantitative and Qualitative Disclosures about Market Risk                                              |  | 22     
|                  |  |                                                                                                         |  |        
|Item 4.           |  | Controls and Procedures                                                                                 |  | 22     
|                  |  |                                                                                                         |  |        
|PART II          
|                  |  |                                                                                                         |  |        
|OTHER INFORMATION
|                  |  |                                                                                                         |  |        
|Item 1.           |  | Legal Proceedings                                                                                       |  | 22     
|                  |  |                                                                                                         |  |        
|Item 4.           |  | Submission of Matters to a Vote of Security Holders                                                     |  | 22-23  
|                  |  |                                                                                                         |  |        
|Item 5.           |  | Other Information                                                                                       |  | 23-25  
|                  |  |                                                                                                         |  |        
|Item 6.           |  | Exhibits and Reports on Form 8-K                                                                        |  | 26     

2



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##### 



FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |         |         | 
|---------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ----------- | ------- | ----------- | --------- | ------- | ------- | 
|                                                           |                                                |                                                                                                                                                                                                                                    |           | June 30     |         | December 31
|                                                           |                                                |                                                                                                                                                                                                                                    |           | 2003        |         | 2002       
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |            
|                                                           |                                                |                                                                                                                                                                                                                                    |           | (unaudited) |         |             |           |        
|Assets                                                     |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|Current Assets:                                            |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|                                                           | Cash and cash equivalents                      |                                                                                                                                                                                                                                    |           | 103,516     |         |             |           | 83,872  |        
|                                                           | Accounts receivable (net)                      |                                                                                                                                                                                                                                    |           | 23,208      |         |             |           | 20,538  |        
|                                                           | Income tax receivable                          |                                                                                                                                                                                                                                    |           |            |         |             |           | 74,572  |        
|                                                           | Materials and supplies                         |                                                                                                                                                                                                                                    |           | 3,733       |         |             |           | 1,710   |        
|                                                           | Assets related to discontinued operations      |                                                                                                                                                                                                                                    |           |            |         |             |           | 2,224   |        
|                                                           | Assets held for sale (Note 10)                 |                                                                                                                                                                                                                                    |           | 22,635      |         |             |           |        |        
|                                                           | Deferred income taxes                          |                                                                                                                                                                                                                                    |           | 15,400      |         |             |           | 15,400  |        
|                                                           | Other current assets                           |                                                                                                                                                                                                                                    |           | 6,858       |         |             |           | 6,760   |        
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|                                                           |                                                | Total current assets                                                                                                                                                                                                               |           |             | 175,350 |             |           |         | 205,076 | 
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|Properties, Less Accumulated Depreciation and Amortization |                                                |                                                                                                                                                                                                                                    | 825,165   |             |         |             | 795,650   |        
|Other Assets and Deferred Charges                          |                                                |                                                                                                                                                                                                                                    | 26,657    |             |         |             | 50,510    |        
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|Total Assets                                               |                                                |                                                                                                                                                                                                                                    | 1,027,172 |             |         |             | 1,051,236 |        
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|Liabilities and Shareholders Equity                       |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|Current Liabilities:                                       |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|                                                           | Accounts payable and accrued expenses          |                                                                                                                                                                                                                                    |           | 27,021      |         |             |           | 30,901  |        
|                                                           | Short-term debt (Note 8)                       |                                                                                                                                                                                                                                    |           | 2,738       |         |             |           | 2,641   |        
|                                                           | Accrued casualty and other liabilities         |                                                                                                                                                                                                                                    |           | 2,098       |         |             |           | 2,047   |        
|                                                           | Liabilities related to discontinued operations |                                                                                                                                                                                                                                    |           |            |         |             |           | 2,464   |        
|                                                           | Other accrued liabilities                      |                                                                                                                                                                                                                                    |           | 23,555      |         |             |           | 12,343  |        
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|                                                           |                                                | Total current liabilities                                                                                                                                                                                                          |           |             | 55,412  |             |           |         | 50,396  | 
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|Deferred Income Taxes                                      |                                                |                                                                                                                                                                                                                                    | 132,354   |             |         |             | 122,103   |        
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|Long-Term Debt, net of current portion(Note 8)             |                                                |                                                                                                                                                                                                                                    | 239,749   |             |         |             | 294,143   |        
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|Accrued Casualty and Other Liabilities                     |                                                |                                                                                                                                                                                                                                    | 10,739    |             |         |             | 11,278    |        
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|Shareholders Equity:                                      |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|                                                           | Common Stock:                                  |                                                                                                                                                                                                                                    |           |             |         |             |           |         |        
|                                                           |                                                | Class A common stock; no par value; 50,000,000 shares authorized; 17,901,441 shares
issued and 17,102,357 shares outstanding at June 30, 2003, and 17,827,299 shares
issued and 17,028,215 shares outstanding at December 31, 2002 |           |             | 70,414  |             |           |         | 68,888  | 
|                                                           |                                                | Class B common stock; no par value; 100,000,000 shares authorized; 19,609,216 shares
issued and outstanding at June 30, 2003 and December 31, 2002                                                                                 |           |             |         |             |           |         |         | 
|                                                           | Retained earnings                              |                                                                                                                                                                                                                                    |           | 530,723     |         |             |           | 516,937 |        
|                                                           | Restricted stock deferred compensation         |                                                                                                                                                                                                                                    |           | (2,864      | )       |             |           | (3,154  | )      
|                                                           | Treasury stock at cost (799,084 shares)        |                                                                                                                                                                                                                                    |           | (9,355      | )       |             |           | (9,355  | )      
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|                                                           |                                                | Total shareholders equity                                                                                                                                                                                                         |           |             | 588,918 |             |           |         | 573,316 | 
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        
|Total Liabilities and Shareholders Equity                 |                                                |                                                                                                                                                                                                                                    | 1,027,172 |             |         |             | 1,051,236 |        
|                                                           |                                                |                                                                                                                                                                                                                                    |           |             |         |             |           |        

(Prior years results have been reclassified to conform to current years presentation.)

See accompanying notes to unaudited condensed consolidated financial statements.

3



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##### 



FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
(unaudited)

|                                                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------- |  | ------------- | ---------- | ------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                          |  | Three Months  |            | Six Months   
|                                                                          |  | Ended June 30 |            | Ended June 30
|                                                                          |  |               |            |              
|                                                                          |  | 2003          |            | 2002          |  | 2003 |            | 2002
|                                                                          |  |               |            |               |  |      |            |     
|Operating revenues                                                        |  |               | 72,638     |               |  |      | 61,722     |      |  |   | 148,659    |   |  |   | 121,340    |  
|Operating expenses                                                        |  |               | (57,168    | )             |  |      | (49,064    | )    |  |   | (120,170   | ) |  |   | (96,902    | )
|                                                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|Operating profit                                                          |  |               | 15,470     |               |  |      | 12,658     |      |  |   | 28,489     |   |  |   | 24,438     |  
|                                                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|Interest income                                                           |  |               | 237        |               |  |      | 49         |      |  |   | 394        |   |  |   | 123        |  
|Other income (Note 7)                                                     |  |               | 2,942      |               |  |      | 2,894      |      |  |   | 5,193      |   |  |   | 6,735      |  
|Interest expense                                                          |  |               | (4,207     | )             |  |      | (5,149     | )    |  |   | (8,504     | ) |  |   | (9,940     | )
|                                                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|                                                                          |  |               | (1,028     | )             |  |      | (2,206     | )    |  |   | (2,917     | ) |  |   | (3,082     | )
|                                                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|Income before income taxes                                                |  |               | 14,442     |               |  |      | 10,452     |      |  |   | 25,572     |   |  |   | 21,356     |  
|Provision for income taxes                                                |  |               | (5,560     | )             |  |      | (4,037     | )    |  |   | (9,845     | ) |  |   | (8,235     | )
|                                                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations                                         |  |               | 8,882      |               |  |      | 6,415      |      |  |   | 15,727     |   |  |   | 13,121     |  
|                                                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|Discontinued Operations:(Note 3)                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|Income (loss) from operation of discontinued operations (net of taxes)    |  |               | 155        |               |  |      | (4,448     | )    |  |   | 415        |   |  |   | (11,570    | )
|Gain on disposition of discontinued operations (net of taxes)             |  |               | 215        |               |  |      |           |      |  |   | 27         |   |  |   |           |  
|                                                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|Income (loss) from discontinued operations                                |  |               | 370        |               |  |      | (4,448     | )    |  |   | 442        |   |  |   | (11,570    | )
|                                                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|Net income                                                                |  |               | 9,252      |               |  |      | 1,967      |      |  |   | 16,169     |   |  |   | 1,551      |  
|                                                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|Earnings Per Share:                                                       |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations  basic & diluted                       |  | $             | 0.24       |               |  | $    | 0.18       |      |  | $ | 0.43       |   |  | $ | 0.36       |  
|Income (loss) from operation of discontinued operations  basic & diluted |  |               |           |               |  |      | ($0.13     | )    |  | $ | 0.01       |   |  |   | ($0.32     | )
|Gain on disposition of discontinued operations  basic & diluted          |  | $             | 0.01       |               |  |      |           |      |  |   |           |   |  |   |           |  
|                                                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|Net income   basic & diluted                                             |  | $             | 0.25       |               |  | $    | 0.05       |      |  | $ | 0.44       |   |  | $ | 0.04       |  
|                                                                          |  |               |            |               |  |      |            |      |  |   |            |   |  |   |            |  
|Average shares outstanding  basic                                        |  |               | 36,505,016 |               |  |      | 36,446,612 |      |  |   | 36,496,492 |   |  |   | 36,442,971 |  
|Average shares outstanding  diluted                                      |  |               | 36,800,438 |               |  |      | 36,643,377 |      |  |   | 36,748,713 |   |  |   | 36,616,155 |  

(Prior years results have been reclassified to conform to current years presentation.)

See accompanying notes to unaudited condensed consolidated financial statements.

4



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##### 



FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)

|                                                     |                                                                                |                                                   |         |               |         |      |         |         |        |  
|---------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------- | ------- | ------------- | ------- | ---- | ------- | ------- | ------ | -
|                                                     |                                                                                |                                                   |         | Six Months   
|                                                     |                                                                                |                                                   |         | Ended June 30
|                                                     |                                                                                |                                                   |         |              
|                                                     |                                                                                |                                                   |         | 2003          |         | 2002
|                                                     |                                                                                |                                                   |         |               |         |     
|Cash Flows from Operating Activities:                |                                                                                |                                                   |         |               |         |      |         |        
|                                                     | Net income                                                                     |                                                   |         | 16,169        |         |      |         | 1,551   |       
|                                                     | Adjustments to reconcile net income to cash generated by operating activities: |                                                   |         |               |         |      |         |         |       
|                                                     |                                                                                | Depreciation and amortization                     |         |               | 24,481  |      |         |         | 32,840 |  
|                                                     |                                                                                | Restructuring charges and other costs             |         |               |        |      |         |         | 5,474  |  
|                                                     |                                                                                | Payment of restructuring charges                  |         |               |        |      |         |         | (3,705 | )
|                                                     |                                                                                | Gain on sales and other disposition of properties |         |               | (13,906 | )    |         |         | (3,654 | )
|                                                     |                                                                                | Non-cash gain on contract termination             |         |               |        |      |         |         | (9,437 | )
|                                                     |                                                                                | Deferred taxes                                    |         |               | 10,251  |      |         |         | (20    | )
|                                                     |                                                                                | Stock compensation plans                          |         |               | 1,676   |      |         |         | 366    |  
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|                                                     |                                                                                |                                                   | 38,671  |               |         |      | 23,415  |        
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|Changes in operating assets and liabilities:         |                                                                                |                                                   |         |               |         |      |         |        
|                                                     | Accounts receivable                                                            |                                                   |         | (1,845        | )       |      |         | 2,637   |       
|                                                     | Other current assets                                                           |                                                   |         | (3,580        | )       |      |         | 2,306   |       
|                                                     | Other assets and deferred charges                                              |                                                   |         | (3,789        | )       |      |         | 2,109   |       
|                                                     | Accounts payable                                                               |                                                   |         | (4,912        | )       |      |         | (14,735 | )     
|                                                     | Income taxes receivable/payable                                                |                                                   |         | 74,572        |         |      |         | 2,542   |       
|                                                     | Other current liabilities                                                      |                                                   |         | 9,252         |         |      |         | 12,382  |       
|                                                     | Accrued casualty and other long-term liabilities                               |                                                   |         | (627          | )       |      |         | (3,076  | )     
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|                                                     |                                                                                |                                                   | 69,071  |               |         |      | 4,165   |        
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|Net cash generated by operating activities           |                                                                                |                                                   | 107,742 |               |         |      | 27,580  |        
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|Cash Flows from Investing Activities:                |                                                                                |                                                   |         |               |         |      |         |        
|                                                     | Purchase of properties                                                         |                                                   |         | (57,109       | )       |      |         | (29,180 | )     
|                                                     | Proceeds from disposition of assets                                            |                                                   |         | 25,125        |         |      |         | 5,255   |       
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|Net cash used in investing activities                |                                                                                |                                                   | (31,984 | )             |         |      | (23,925 | )      
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|Cash Flows from Financing Activities:                |                                                                                |                                                   |         |               |         |      |         |        
|                                                     | Proceeds from exercise of options                                              |                                                   |         | 649           |         |      |         |        |       
|                                                     | Purchase of common stock                                                       |                                                   |         | (83           | )       |      |         | (68     | )     
|                                                     | Payments of mortgage debt                                                      |                                                   |         | (1,297        | )       |      |         | (1,207  | )     
|                                                     | Net payments of line of credit                                                 |                                                   |         | (53,000       | )       |      |         | (5,000  | )     
|                                                     | Payment of dividends                                                           |                                                   |         | (2,383        | )       |      |         | (1,826  | )     
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|Net cash used in financing activities                |                                                                                |                                                   | (56,114 | )             |         |      | (8,101  | )      
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                                |                                                   | 19,644  |               |         |      | (4,446  | )      
|Cash and Cash Equivalents at Beginning of Period     |                                                                                |                                                   | 83,872  |               |         |      | 14,089  |        
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|Cash and Cash Equivalents at End of Period           |                                                                                |                                                   | 103,516 |               |         |      | 9,643   |        
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|Supplemental Disclosure of Cash Flow Information:    |                                                                                |                                                   |         |               |         |      |         |        
|                                                     | Cash received for income tax refunds                                           |                                                   |         | (74,551       | )       |      |         | (2,542  | )     
|                                                     |                                                                                |                                                   |         |               |         |      |         |        
|                                                     | Cash paid for interest                                                         |                                                   |         | 8,996         |         |      |         | 9,359   |       
|                                                     |                                                                                |                                                   |         |               |         |      |         |        

See accompanying notes to unaudited condensed consolidated financial statements.

5



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##### 



FLORIDA EAST COAST INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1.General

In the opinion of management, the accompanying
unaudited condensed consolidated financial
statements reflect all accruals and adjustments considered necessary to present
fairly the Companys financial position as of June 30, 2003 and December 31,
2002, the results of operations for the three-month and six-month periods ended
June 30, 2003 and 2002 and cash flows for the six-month periods ended June 30,
2003 and 2002. Results for interim periods are not necessarily indicative of
the results to be expected for the year. These interim financial statements
should be read in conjunction with the Companys 2002 Annual Report on Form
10-K and Form 10-K/A for the year ended December 31, 2002 filed with the
Securities and Exchange Commission.

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

Note 2.Recapitalization

On February 27, 2003, FECIs Board of Directors approved the submission of a
proposal to shareholders to amend the Companys Articles of Incorporation to
eliminate the Companys dual-class structure by reclassifying the Companys
Class A common stock and Class B common stock into a new single class of common
stock on a one-for-one basis. The reclassification was subsequently approved at
the Annual Meeting of Shareholders held on May 28, 2003. The reclassification
is subject to certain other conditions, including receipt of a private letter
ruling from the Internal Revenue Service that the reclassification will not
affect the tax-free distribution by The St. Joe Company (NYSE: JOE) in October
2000 of the Class B shares to its shareholders. The reclassification is
intended to simplify FECIs capital structure, increase the liquidity and
trading efficiencies of the common stock, and reduce the administrative costs
associated with the dual-class structure.

Note 3.Discontinued Operations

Trucking

During the third quarter of 2002, the Company adopted a plan to discontinue and
ceased operations of its regional long-haul trucking operations. The Company
largely completed its operational shut down and disposition activities for the
trucking operation during the fourth quarter of 2002. Wind-down activities were
completed during the second quarter of 2003.

Accordingly, the Company reported the results of the trucking operations and
the estimated disposition loss as discontinued operations under the provisions
of SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
and all periods have been restated.

|                                                                                            |  |               |     |               |  |      |        |      |  |  |      |   |  |  |        |  
|------------------------------------------------------------------------------------------- |  | ------------- | --- | ------------- |  | ---- | ------ | ---- |  |  | ---- | - |  |  | ------ | -
|                                                                                            |  | Three Months  |     | Six Months   
|                                                                                            |  | Ended June 30 |     | Ended June 30
|                                                                                            |  |               |     |              
|(dollars in thousands)                                                                      |  | 2003          |     | 2002          |  | 2003 |        | 2002
|                                                                                            |  |               |     |               |  |      |        |     
|Summary of Operating Results of Discontinued Operations                                     |  |               |     |               |  |      |        |      |  |  |      |   |  |  |        |  
|Trucking revenues                                                                           |  |               |    |               |  |      | 7,325  |      |  |  |     |   |  |  | 16,443 |  
|Trucking expenses                                                                           |  |               |    |               |  |      | 8,813  |      |  |  | (259 | ) |  |  | 19,688 |  
|                                                                                            |  |               |     |               |  |      |        |      |  |  |      |   |  |  |        |  
|(Loss) income before income taxes                                                           |  |               |    |               |  |      | (1,488 | )    |  |  | 259  |   |  |  | (3,245 | )
|Income taxes                                                                                |  |               |    |               |  |      | 573    |      |  |  | (100 | ) |  |  | 1,249  |  
|                                                                                            |  |               |     |               |  |      |        |      |  |  |      |   |  |  |        |  
|(Loss) income from discontinued operations                                                  |  |               |    |               |  |      | (915   | )    |  |  | 159  |   |  |  | (1,996 | )
|                                                                                            |  |               |     |               |  |      |        |      |  |  |      |   |  |  |        |  
|Gain on disposition of discontinued operations (net of
taxes of $134 and $17, respectively) |  |               | 215 |               |  |      |       |      |  |  | 27   |   |  |  |       |  
|                                                                                            |  |               |     |               |  |      |        |      |  |  |      |   |  |  |        |  

6



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##### 



During the third quarter of 2002, the Company adopted a plan to discontinue its
trucking operations. Certain liabilities were accrued related to this exit
plan. A roll-forward of the liabilities through June 30, 2003 is as follows:

|                           |  |           |      |                   |  |       |      |        |  |  |      |   |  |  |       |  
|-------------------------- |  | --------- | ---- | ----------------- |  | ----- | ---- | ------ |  |  | ---- | - |  |  | ----- | -
|                           |  | Employee  |      |                   |  |       |      |        |  |  |      |   |  | 
|                           |  | Severance |      | Tractor/Trailer   |  |       |      |        |  |  |      |  
|(dollars in thousands)     |  | Costs     |      | Disposition Costs |  | Other |      | Totals
|                           |  |           |      |                   |  |       |      |       
|Accruals @ 12/31/02        |  |           | 694  |                   |  |       |     |        |  |  | 461  |   |  |  | 1,155 |  
|Additions & adjustments*   |  |           | (182 | )                 |  |       | 367  |        |  |  | (229 | ) |  |  | (44   | )
|Utilization                |  |           | (235 | )                 |  |       | (367 | )      |  |  |     |   |  |  | (602  | )
|                           |  |           |      |                   |  |       |      |        |  |  |      |   |  |  |       |  
|Ending balance @ 6/30/03** |  |           | 277  |                   |  |       |     |        |  |  | 232  |   |  |  | 509   |  
|                           |  |           |      |                   |  |       |      |        |  |  |      |   |  |  |       |  

* - Any additions and adjustments to the liabilities that resulted from changes
in estimates or final determinations are accounted for as gain or loss on
disposition of discontinued operations on the consolidated financial
statements.
**- These amounts are included in Railways liabilities as of June 30, 2003.

Real Estate

At December 31, 2002, Flagler owned a 101,000-rentable sq. ft. commercial
office building located at its Beacon Station business park that was classified
as held for sale. In accordance with SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, operations of this building were classified
as discontinued operations. However, during the first quarter of 2003, the
Company terminated negotiations with the prospective buyer of the building and
the building is no longer being marketed for sale.

Accordingly, this building is no longer classified as a discontinued operation
and it has been reclassified into continuing operations. All prior periods have
been reclassified to conform to the current presentation. Revenues of $0.4
million and $0.4 million for the quarters ended June 30, 2003 and 2002, and
$0.7 million and $0.8 million for the six months ended June 30, 2003 and 2002,
respectively, and expenses of $0.2 million and $0.2 million for the quarters
ended June 30, 2003 and 2002, and $0.4 million and $0.4 million for the six
months ended 2003 and 2002, respectively, have been reclassified to continuing
operations. This building is currently stated at its original net book value,
which is considered to be at or below market value.

During the third quarter 2002, Flagler sold an industrial building totaling
approximately 300,000 sq. ft. located in its Beacon Station business park. On
July 1, 2003, Flagler sold its 50% interest in three 98,000-sq. ft. commercial
office buildings located in the Beacon Pointe Office Park in South Florida
previously held in partnership with Duke Realty Corporation. At June 30, 2003,
these interests were considered held for sale under the provisions of SFAS
144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS
144). Accordingly, this property and interest are classified and accounted for
as discontinued operations under the provisions of FAS 144, and all periods
presented have been restated for the discontinued operations of the properties
and ownership interests.

|                                                        |  |               |     |               |  |      |      |      |  |  |      |   |  |  |       |  
|------------------------------------------------------- |  | ------------- | --- | ------------- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ----- | -
|                                                        |  | Three Months  |     | Six Months   
|                                                        |  | Ended June 30 |     | Ended June 30
|                                                        |  |               |     |              
|(dollars in thousands)                                  |  | 2003          |     | 2002          |  | 2003 |      | 2002
|                                                        |  |               |     |               |  |      |      |     
|Summary of Operating Results of Discontinued Operations |  |               |     |               |  |      |      |      |  |  |      |   |  |  |       |  
|Flagler realty rental revenues                          |  |               | 267 |               |  |      | 743  |      |  |  | 511  |   |  |  | 1,612 |  
|Flagler realty rental expenses                          |  |               | 14  |               |  |      | 220  |      |  |  | 30   |   |  |  | 434   |  
|                                                        |  |               |     |               |  |      |      |      |  |  |      |   |  |  |       |  
|Income before income taxes                              |  |               | 253 |               |  |      | 523  |      |  |  | 481  |   |  |  | 1,178 |  
|Income taxes                                            |  |               | (98 | )             |  |      | (201 | )    |  |  | (185 | ) |  |  | (453  | )
|                                                        |  |               |     |               |  |      |      |      |  |  |      |   |  |  |       |  
|Income from discontinued operations                     |  |               | 155 |               |  |      | 322  |      |  |  | 296  |   |  |  | 725   |  
|                                                        |  |               |     |               |  |      |      |      |  |  |      |   |  |  |       |  

Telecommunications

FECI completed the sale of its wholly owned telecommunications subsidiary,
EPIK, to Odyssey Telecorp, Inc. (Odyssey), a privately held holding company
specializing in telecom network assets during the fourth quarter of 2002. In
accordance with SFAS 144, EPIKs results from operations and the estimated
disposition gain have been reported as discontinued operations for all years
presented.

7



---



##### 



|                                                        |  |               |   |               |  |      |         |      |  |  |     |   |  |  |         |  
|------------------------------------------------------- |  | ------------- | - | ------------- |  | ---- | ------- | ---- |  |  | --- | - |  |  | ------- | -
|                                                        |  | Three Months  |   | Six Months   
|                                                        |  | Ended June 30 |   | Ended June 30
|                                                        |  |               |   |              
|(dollars in thousands)                                  |  | 2003          |   | 2002          |  | 2003 |         | 2002
|                                                        |  |               |   |               |  |      |         |     
|Summary of Operating Results of Discontinued Operations |  |               |   |               |  |      |         |      |  |  |     |   |  |  |         |  
|EPIK revenues                                           |  |               |  |               |  |      | 4,632   |      |  |  |    |   |  |  | 10,073  |  
|EPIK expenses                                           |  |               |  |               |  |      | 20,384  |      |  |  | 65  |   |  |  | 36,309  |  
|                                                        |  |               |   |               |  |      |         |      |  |  |     |   |  |  |         |  
|Operating loss                                          |  |               |  |               |  |      | (15,752 | )    |  |  | (65 | ) |  |  | (26,236 | )
|Other income                                            |  |               |  |               |  |      | 9,484   |      |  |  |    |   |  |  | 9,490   |  
|                                                        |  |               |   |               |  |      |         |      |  |  |     |   |  |  |         |  
|Loss before income taxes                                |  |               |  |               |  |      | (6,268  | )    |  |  | (65 | ) |  |  | (16,746 | )
|Income taxes                                            |  |               |  |               |  |      | 2,413   |      |  |  | 25  |   |  |  | 6,447   |  
|                                                        |  |               |   |               |  |      |         |      |  |  |     |   |  |  |         |  
|Loss from discontinued operations                       |  |               |  |               |  |      | (3,855  | )    |  |  | (40 | ) |  |  | (10,299 | )
|                                                        |  |               |   |               |  |      |         |      |  |  |     |   |  |  |         |  

At the time of EPIKs sale, the Company accrued certain liabilities (primarily
employee severance) related to the sale. A roll-forward of the liabilities
through June 30, 2003 is as follows:

|                          |  |           |        |       |  |        |      |   |  |  |        |  
|------------------------- |  | --------- | ------ | ----- |  | ------ | ---- | - |  |  | ------ | -
|                          |  | Employee  |        |       |  |        |      |   |  | 
|                          |  | Severance |        |       |  |        |      |   |  | 
|(dollars in thousands)    |  | Costs     |        | Other |  | Totals
|                          |  |           |        |       |  |       
|Accruals @ 12/31/02       |  |           | 2,279  |       |  |        | 531  |   |  |  | 2,810  |  
|Additions & adjustments** |  |           |       |       |  |        |     |   |  |  |       |  
|Utilization               |  |           | (1,523 | )     |  |        | (633 | ) |  |  | (2,156 | )
|                          |  |           |        |       |  |        |      |   |  |  |        |  
|Ending balance @ 6/30/03  |  |           | 756    |       |  |        | (102 | ) |  |  | 654    |  
|                          |  |           |        |       |  |        |      |   |  |  |        |  

** - Any additions and adjustments to the liabilities that resulted from
changes in estimates or final determinations are accounted for as gain or loss
on disposition of discontinued operations on the consolidated financial
statements

Also, FECI is a guarantor on certain leases (primarily office space) and could
be contingently liable if EPIK were to default on certain lease obligations.
Estimates for these guarantees were approximately $2.5 million at the time of
the sale. These amounts could be subject to change in subsequent periods.

Note 4.Commitments and Contingencies

The Company is the defendant and plaintiff in various lawsuits resulting from
its operations. In the opinion of management, appropriate provision has been
made in the financial statements for the estimated liability that may result
from disposition of such matters. The Company maintains comprehensive liability
insurance for bodily injury and property claims, but is self-insured or
maintains a significant self-insured retention for these exposures,
particularly at Florida East Coast Railway, L.L.C. (FECR or Railway). These
lawsuits are related to alleged bodily injuries sustained by Railway employees
or third parties, employment related matters such as alleged wrongful
termination and commercial or contract disputes.

The Company is subject to proceedings and consent decrees arising out of its
historic disposal of fuel and oil used in the transportation business. It is
the Companys policy to accrue environmental cleanup costs
when it is probable that a liability has been incurred and an amount can be
reasonably estimated. As assessments and cleanups proceed, these accruals are
reviewed and adjusted.

The Company is participating, together with several other potentially
responsible parties (PRPs), in the remediation of a site in Jacksonville,
Florida, pursuant to an agreement with the United States Environmental
Protection Agency (USEPA). The site previously accepted waste oil from many
businesses. The Company has accrued $250,000, which is its estimated share of
the total estimated cleanup costs for the site. The cleanup is expected to take
approximately five years. Based upon managements evaluation of the PRPs, which
include the City of Jacksonville, CSX Transportation, Inc. and the federal
government, the Company does not expect to incur additional material amounts,
even though the Company may have joint and several liability. It is possible
that the remediation costs could be higher than anticipated, but the Company is
not aware of any facts or circumstances, which indicate that the costs are
expected to be materially higher than currently anticipated.

FECR is investigating sites where contaminants from its historic railroad
operations may have migrated off-site through the movement of groundwater or
contaminated soil. FECR, if required as a result of the investigation, will
develop an appropriate plan of remediation, with possible alternatives
including natural attenuation and groundwater pumping and treatment. Historic
railroad operations at the Companys main

8



---



##### 



rail facilities have resulted in soil and groundwater impacts. In consultation
with the Florida Department of Environmental Protection (FDEP), the Company
operates and maintains groundwater treatment systems at its primary facilities.

FECR is one of several PRPs alleged to have contributed to the environmental
contamination at and near the Miami International Airport. The allegations are
contained in a lawsuit filed by Miami-Dade County. The Company does not
currently possess sufficient information to reasonably estimate the amount of
remediation liability, if any, it may have in regard to this matter. While the
ultimate results of the claim against FECR cannot be predicted with certainty,
based on information presently available, management does not expect that
resolution of this matter will have a material adverse effect on the Companys
financial position, liquidity or results of operation.

The Company monitors a small number of sites leased to others, or acquired by
the Company or its subsidiaries. Based on managements ongoing review and
monitoring of the sites, and the ability to seek contribution or
indemnification from the PRPs, the Company does not expect to incur material
additional costs, if any.

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.

During the second quarter of 2003, the Company discussed with Broward County
and a large home improvement retailer the possible lease to the retailer of a
substantial portion of the land at Port Everglades, Florida, that is subject to
a long-term ground lease from the County to the Company. In this regard, the
County Commission authorized the County staff to pursue a proposal to terminate
the entire ground lease if the Company were to convey to the County, at no
cost, certain land improvements, a warehouse on the leased land and a lease
termination fee of $8 million. The Company has not accepted this proposal,
which is subject to various contingencies and conditions, including the
Countys leasing certain of the land to the retailer. However, negotiations
continue among the parties.

The Companys ground lease covers 97 acres owned in fee by Broward County at
Port Everglades, which is located near Fort Lauderdale, Florida. The Companys
Railway is the exclusive rail-service provider to the Port. In acquiring the
ground lease in 2000, the Company intended to work with the County to develop
an intermodal transshipment yard and warehouses at the Port. The term of the
ground lease runs until 2032 and provides for base rent of $4 million per year,
which the Company records as operating expense, with six 10-year renewals at
the Companys option. The Company is also obligated to make an annual payment
in lieu of ad valorem taxes on the ground lease property to the City of
Hollywood, the amount of which is currently $0.2 million. The current net book
value of the ground lease, related land improvements and a warehouse that the
Company built on the site is $9.3 million. The Company has provided the County
with a bank letter of credit in the amount of $10 million to secure its lease
obligations, and the Company could be required to pay up to an additional $10
million if the lease were terminated due to the Companys default. The
warehouse is partially leased to a tenant and finalization of a lease of the
remainder of the warehouse is pending, awaiting certain action by the County.

The ground lease permits the County to terminate the lease of portions of the
land if the Company does not develop warehouse space on the land pursuant to a
scheduled rate. Due to increased restrictions on Port access since the
September 11th terrorist attacks, restrictions on allowable uses of Port
property, changes in business conditions, and other factors, the pace of the
Companys development of warehouse space at the Port has been slower than
originally contemplated and the Company and the County have not been able to
reach agreement on developing an intermodal transshipment yard at the Port.
During the second quarter of 2003, the County notified the Company that it was
exercising its right to terminate the lease on a portion of the land. Various
matters relating to the termination, including the amount of land and the
resulting rent reduction, are unresolved between the parties.

In light of the foregoing, the Company is reviewing its alternatives with
respect to this project. In future periods, the Company may record charges,
which may be material, related to modifying, terminating or continuing the
lease.

9



---



##### 



Note 5.Earnings Per Share

The diluted weighted-average number of shares includes the net shares that
would be issued upon the exercise of in-the-money stock options using the
treasury stock method. Applying the treasury stock method, the in-the-money
stock options resulted in the dilution of 252,221 shares and 173,184 shares for
the six-month periods ended June 30, 2003 and 2002, respectively.
Out-of-the-money shares were 2,192,370 shares and 2,147,813 shares at June
30, 2003 and 2002, respectively.

Note 6.Dividends

On May 28, 2003, the Company declared a dividend of $0.04 per share on its
outstanding common stock, payable June 25, 2003, to shareholders of record June
11, 2003.

Note 7.Other Income

|                                 |  |               |       |               |  |      |       |      |  |  |       |  |  |  |       |  
|-------------------------------- |  | ------------- | ----- | ------------- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- | -
|                                 |  | Three Months  |       | Six Months   
|                                 |  | Ended June 30 |       | Ended June 30
|                                 |  |               |       |              
|(dollars in thousands)           |  | 2003          |       | 2002          |  | 2003 |       | 2002
|                                 |  |               |       |               |  |      |       |     
|Pipe & wire crossings/signboards |  |               | 1,136 |               |  |      | 1,661 |      |  |  | 1,897 |  |  |  | 4,112 |  
|Fiber lease income               |  |               | 1,650 |               |  |      | 1,259 |      |  |  | 3,295 |  |  |  | 2,793 |  
|Other (net)                      |  |               | 156   |               |  |      | (26   | )    |  |  | 1     |  |  |  | (170  | )
|                                 |  |               |       |               |  |      |       |      |  |  |       |  |  |  |       |  
|                                 |  |               | 2,942 |               |  |      | 2,894 |      |  |  | 5,193 |  |  |  | 6,735 |  
|                                 |  |               |       |               |  |      |       |      |  |  |       |  |  |  |       |  

FECR generates income from the grant of licenses and leases to use railroad
property and rights-of-way for outdoor advertising, parking lots and lateral
crossings of wires and pipes by municipalities and utility and
telecommunications companies. This income is recorded in other income as pipe
and wire crossings/signboards as it is earned. FECR generates other income
from leases to telecommunications companies for the installation of fiber optic
and other facilities on the railroad right-of-way. This income is recorded in
other income as fiber lease income as it is earned.

Note 8.Debt

The Company maintains a $200 million revolving credit agreement with certain
financial institutions, for which the Company presently pays (quarterly)
commitment fees, as applicable under the agreement, at a range of 20-37.5 basis
points. The borrowings under the credit agreement had been secured by the
capital securities of FECR and FLX. During the first quarter of 2003, these
securities were released to the Company as a result of its meeting certain
pre-determined financial covenant thresholds over the prior two quarters and
need not be re-pledged, provided the Company continues to meet certain
financial covenant tests in the future. The Companys revolving credit
agreement contains various covenants which, among other things, require the
maintenance of certain financial ratios related to fixed charge coverage and
maximum leverage; establish minimum levels of net worth; establish limitations
on indebtedness, certain types of payments, including dividends, liens and
investments; and limit the use of proceeds of asset sales. Some of the above
covenants provide specific exclusion of certain financing and investing
activities at Flagler. Borrowings under the credit agreement bear interest at
variable rates linked to the LIBOR Index. Interest on borrowings is due and
payable on the rollover date for each draw. Outstanding borrowings can be
paid off at any time and become due at the conclusion of the facilitys term on
March 31, 2005. At June 30, 2003, there were no borrowings outstanding under
the facility.

During 2001, Flagler issued $247 million of mortgage notes with $160 million
due July 1, 2011 and $87 million due October 1, 2008. At June 30, 2003, $242.5
million was outstanding on these notes. These notes are collateralized by
certain buildings and properties of Flagler. Blended interest and principal
repayment on the notes is payable monthly based on a fixed 7.39% and 6.95%
weighted-average interest
rate, respectively, for each note offering, on the outstanding principal amount
of the mortgage notes and assuming a thirty-year amortization period. The net
proceeds in 2001 were used to repay existing indebtedness under the Companys
revolving credit facility. At June 30, 2003, the Company considers the
estimated fair market value of the mortgage notes to be $273 million.

10



---



##### 



Note 9.Stock-Based Compensation

The Company applies the intrinsic value-based method of accounting prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB Opinion No. 25), and related interpretations in accounting for
stock options. As such, compensation expenses would be recorded on the date of
the grant only if the current market price of the underlying stock exceeded the
exercise price. Compensation expenses for grants of restricted stock are
recognized over the applicable vesting period.

The following table illustrates the effect on net income and earnings per share
as if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation:

|                                                                                                                                                              |                                  |      |               |      |               |      |        |      |  |  |        |      |  |  |        |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | ---- | ------------- | ---- | ------------- | ---- | ------ | ---- |  |  | ------ | ---- |  |  | ------ | ------ | -
|                                                                                                                                                              |                                  |      | Three Months  |      | Six Months   
|                                                                                                                                                              |                                  |      | Ended June 30 |      | Ended June 30
|                                                                                                                                                              |                                  |      |               |      |              
|(dollars in thousands, except per share amounts)                                                                                                              |                                  | 2003 |               | 2002 |               | 2003 |        | 2002
|                                                                                                                                                              |                                  |      |               |      |               |      |        |     
|Net income  as reported                                                                                                                                      |                                  |      | 9,252         |      |               |      | 1,967  |      |  |  | 16,169 |      |  |  | 1,551  |       
|                                                                                                                                                              |                                  |      |               |      |               |      |        |      |  |  |        |      |  |  |        |       
|Deduct: Total stock-based employee compensation expense
determined under the fair value based method for all stock
option awards (net of related tax effects) |                                  |      | (557          | )    |               |      | (1,101 | )    |  |  | (1,115 | )    |  |  | (2,203 | )     
|                                                                                                                                                              |                                  |      |               |      |               |      |        |      |  |  |        |      |  |  |        |       
|Pro forma net income (loss)                                                                                                                                   |                                  |      | 8,695         |      |               |      | 866    |      |  |  | 15,054 |      |  |  | (652   | )     
|                                                                                                                                                              |                                  |      |               |      |               |      |        |      |  |  |        |      |  |  |        |       
|                                                                                                                                                              |                                  |      |               |      |               |      |        |      |  |  |        |      |  |  |        |       
|Earnings per share:                                                                                                                                           |                                  |      |               |      |               |      |        |      |  |  |        |      |  |  |        |       
|                                                                                                                                                              | Earnings per share  as reported |      | $             | 0.25 |               |      | $      | 0.05 |  |  | $      | 0.44 |  |  | $      | 0.04   |  
|                                                                                                                                                              | Earnings per share  pro forma   |      | $             | 0.24 |               |      | $      | 0.02 |  |  | $      | 0.41 |  |  |        | ($0.02 | )
|                                                                                                                                                              |                                  |      |               |      |               |      |        |      |  |  |        |      |  |  |        |       
|                                                                                                                                                              | Diluted  as reported            |      | $             | 0.25 |               |      | $      | 0.05 |  |  | $      | 0.44 |  |  | $      | 0.04   |  
|                                                                                                                                                              | Diluted  pro forma              |      | $             | 0.24 |               |      | $      | 0.02 |  |  | $      | 0.41 |  |  |        | ($0.02 | )

Note 10.Realty Land Sales and Associated Costs

In accordance with Statement of Financial Accounting Standard No. 66,
Accounting for Sale of Real Estate, revenue for realty land sales is
recognized upon the closing of sales contracts, provided the buyers initial
and continuing investments are adequate, risks of ownership have been
transferred to the buyer, and collection of the sales proceeds is reasonably
assured.

The net book value of land is classified as assets held for sale in the
Consolidated Balance Sheets when a sale is considered probable and expected to
close within one year (i.e., a sales contract is executed and significant
non-refundable monies are provided by the buyer.) Not all land sales,
especially smaller parcels, will meet the criteria described above.

The Company capitalizes infrastructure costs (including costs of infrastructure
assets deeded to governmental authorities) into the basis of commercial real
estate developments benefiting from such infrastructure, and allocates these
costs to the individual parcels within a development on a relative fair value
basis in accordance with Statement of Financial Accounting Standard No. 67,
Accounting for Costs and Initial Rental Operations of Real Estate Projects.

Note 11.Real Estate Joint Ventures

On January 24, 2003, the Company acquired four commercial buildings for $23.3
million, three of which were previously 50%-owned and held in joint ventures
with a third party. The total purchase price has been allocated to the acquired
land, building, identifiable intangibles and liabilities assumed based on their
estimated fair values at the date of acquisition. The acquisition of these
joint venture interests resulted in a change from the equity method of
accounting to consolidation of the operating results of the buildings
previously held in partnership into the operating results of the Company.
Operating revenues and expenses from these buildings are now included in
Flaglers realty rental and services revenues and expenses and were $1.0
million and $1.7 million of revenues, and $0.7 million and $1.1 million of
expenses for the three and six months ended June 30, 2003, respectively.

11



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Flagler had investments in 50%-owned joint ventures of $18.7 million and $26.3
million at June 30, 2003 and December 31, 2002, respectively, the business of
which is the development and leasing of commercial real estate. On July 1,
2003, Flagler sold its investment in these joint ventures for $22.3 million for
an estimated gain of $2.9 million. As discussed in Note 3, these investments
are now accounted for in discontinued operations for all periods presented.

Note 12.Segment Information

The Company follows Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of an Enterprise and Related Information (SFAS
131). Under the provisions of SFAS 131, the Company has two reportable
operating segments, both within the same geographic area. These are the
railway and realty segments.

The railway segment provides freight transportation along the east coast of
Florida between Jacksonville and Miami.

The realty segment is engaged in the development, leasing, management,
operation and selected sale of commercial and industrial property.

FECR generates other income from leases to telecommunications companies for the
installation of fiber optic and other facilities on the railroad right-of-way.
In addition, FECR generates revenues from the grant of licenses and leases to
use railroad property and rights-of-way for outdoor advertising, parking lots
and lateral crossings of wires and pipes by municipalities and utility and
telecommunications companies. These miscellaneous rents are included in other
income.

Also, FECI and FECR generate revenues and expenses from the rental, leasing,
and sale of buildings and properties that are ancillary to the railroads
operations. These revenues and expenses are included in the realty segment.

The Companys reportable segments are strategic business units that offer
different products and services and are managed separately.

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| |                                 
| | --------------------------------
| | Information by industry segment:

|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |         |        |     |  
|---------------------------------------------------------------------- | --------------------------------------- | ---------------------------------- | --------------------- | ------ | ------------- | - | ------------- | ------ | ---------------------- | --- | ------ | ------- | ------ | - | ------- | ------- | ------ | --- | -
|                                                                       |                                         |                                    |                       |        |               |   |               |        | (dollars in thousands) |     |        |         |       
|                                                                       |                                         |                                    |                       |        |               |   |               |        | (unaudited)            |     |        |         |       
|                                                                       |                                         |                                    |                       |        | Three Months  |   | Six Months   
|                                                                       |                                         |                                    |                       |        | Ended June 30 |   | Ended June 30
|                                                                       |                                         |                                    |                       |        |               |   |              
|                                                                       |                                         |                                    |                       |        | 2003          |   | 2002          |        | 2003                   |     | 2002  
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |       
|Operating Revenues:                                                    |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|                                                                       | Railway operations                      |                                    |                       | 45,227 |               |   |               | 41,671 |                        |     |        | 89,498  |        |   |         | 82,609  |       
|                                                                       | Realty:                                 |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |         |       
|                                                                       |                                         | Flagler realty rental and services |                       |        | 16,401        |   |               |        | 17,050                 |     |        |         | 32,507 |   |         |         | 31,856 |    
|                                                                       |                                         | Flagler realty sales               |                       |        | 9,435         |   |               |        | 1,236                  |     |        |         | 21,694 |   |         |         | 3,787  |    
|                                                                       |                                         | Other rental                       |                       |        | 782           |   |               |        | 889                    |     |        |         | 1,529  |   |         |         | 1,684  |    
|                                                                       |                                         | Other sales                        |                       |        | 793           |   |               |        | 903                    |     |        |         | 3,431  |   |         |         | 1,468  |    
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|                                                                       | Total realty                            |                                    |                       | 27,411 |               |   |               | 20,078 |                        |     |        | 59,161  |        |   |         | 38,795  |       
|                                                                       | Total revenues (segment)                |                                    |                       | 72,638 |               |   |               | 61,749 |                        |     |        | 148,659 |        |   |         | 121,404 |       
|                                                                       |                                         |                                    | Intersegment revenues |        |               |  |               |        |                        | (27 | )      |         |        |  |         |         |        | (64 | )
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|                                                                       | Total revenues (consolidated)           |                                    |                       | 72,638 |               |   |               | 61,722 |                        |     |        | 148,659 |        |   |         | 121,340 |       
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|Operating Expenses:                                                    |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|                                                                       | Railway operations                      |                                    |                       | 33,999 |               |   |               | 30,778 |                        |     |        | 69,439  |        |   |         | 62,014  |       
|                                                                       | Realty:                                 |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |         |       
|                                                                       |                                         | Flagler realty rental and services |                       |        | 15,829        |   |               |        | 13,081                 |     |        |         | 30,748 |   |         |         | 25,485 |    
|                                                                       |                                         | Flagler realty sales               |                       |        | 2,586         |   |               |        | 458                    |     |        |         | 11,219 |   |         |         | 1,601  |    
|                                                                       |                                         | Other rental                       |                       |        | 1,773         |   |               |        | 1,148                  |     |        |         | 2,867  |   |         |         | 2,307  |    
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|                                                                       | Total realty                            |                                    |                       | 20,188 |               |   |               | 14,687 |                        |     |        | 44,834  |        |   |         | 29,393  |       
|                                                                       | Corporate general & administrative      |                                    |                       | 2,981  |               |   |               | 3,626  |                        |     |        | 5,897   |        |   |         | 5,559   |       
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|                                                                       | Total expenses (segment)                |                                    |                       | 57,168 |               |   |               | 49,091 |                        |     |        | 120,170 |        |   |         | 96,966  |       
|                                                                       |                                         |                                    | Intersegment expenses |        |               |  |               |        |                        | (27 | )      |         |        |  |         |         |        | (64 | )
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|                                                                       | Total expenses (consolidated)           |                                    |                       | 57,168 |               |   |               | 49,064 |                        |     |        | 120,170 |        |   |         | 96,902  |       
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|Operating Profit (Loss):                                               |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|                                                                       | Railway operations                      |                                    |                       | 11,228 |               |   |               | 10,893 |                        |     |        | 20,059  |        |   |         | 20,595  |       
|                                                                       | Realty                                  |                                    |                       | 7,223  |               |   |               | 5,391  |                        |     |        | 14,327  |        |   |         | 9,402   |       
|                                                                       | Corporate general & administrative      |                                    |                       | (2,981 | )             |   |               | (3,626 | )                      |     |        | (5,897  | )      |   |         | (5,559  | )     
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|                                                                       | Segment & consolidated operating profit |                                    |                       | 15,470 |               |   |               | 12,658 |                        |     |        | 28,489  |        |   |         | 24,438  |       
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|Interest income                                                        |                                         |                                    | 237                   |        |               |   | 49            |        |                        |     | 394    |         |        |   | 123     |        
|Other income                                                           |                                         |                                    | 2,942                 |        |               |   | 2,894         |        |                        |     | 5,193  |         |        |   | 6,735   |        
|Interest expense                                                       |                                         |                                    | (4,207                | )      |               |   | (5,149        | )      |                        |     | (8,504 | )       |        |   | (9,940  | )      
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|                                                                       |                                         |                                    | (1,028                | )      |               |   | (2,206        | )      |                        |     | (2,917 | )       |        |   | (3,082  | )      
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|Income before income taxes                                             |                                         |                                    | 14,442                |        |               |   | 10,452        |        |                        |     | 25,572 |         |        |   | 21,356  |        
|Provision for income taxes                                             |                                         |                                    | (5,560                | )      |               |   | (4,037        | )      |                        |     | (9,845 | )       |        |   | (8,235  | )      
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|Income from continuing operations                                      |                                         |                                    | 8,882                 |        |               |   | 6,415         |        |                        |     | 15,727 |         |        |   | 13,121  |        
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|Discontinued Operations:                                               |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|Income (loss) from operation of discontinued
operations (net of taxes) |                                         |                                    | 155                   |        |               |   | (4,448        | )      |                        |     | 415    |         |        |   | (11,570 | )      
|Gain on disposition of discontinued operations                         |                                         |                                    | 215                   |        |               |   |              |        |                        |     | 27     |         |        |   |        |        
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        
|Net Income                                                             |                                         |                                    | 9,252                 |        |               |   | 1,967         |        |                        |     | 16,169 |         |        |   | 1,551   |        
|                                                                       |                                         |                                    |                       |        |               |   |               |        |                        |     |        |         |        |   |         |        

(Prior years results have been reclassified to conform to current years presentation.)

13



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Note 13.Stock Purchase Loans

Certain directors, officers and senior management acquired stock pursuant to
grants made by the Compensation Committee in 2000 and executed promissory notes
therefor. The current indebtedness is $1.7 million. These notes bear interest,
compounded annually, at a rate of 6.10% for notes executed in December 2000 and
5.9% for notes executed in January 2001, must be paid within three years and
are secured by a pledge of the shares purchased.

The Companys directors and officers that have not already done so are expected
to repay these stock purchase loans provided by the Company in 2000 at any time
on or before the loans due dates which are in December 2003 and January 2004
(refer to the Companys proxy statements dated April 23, 2002 and April 28,
2003 for more information). Pursuant to these loans, directors and officers
purchased 48,099 Class A common shares of the Company at prices ranging from
$34.13 to $37.81 per share. The Company may accept cash or tendered shares,
valued at the market price on date of tender, in repayment for these loans.

Note 14.The St. Joe Company

Flagler Development Company, a wholly owned subsidiary, owns, develops, leases
and manages commercial and industrial properties throughout Florida. Effective
as of January 1, 1998, The St. Joe Company and Flagler entered into a
management agreement, pursuant to which Flagler appointed St. Joe as its agent
to provide property management, property development and construction
coordination services for Flaglers real estate business. Prior to October 9,
2000, St. Joe owned 54% of the Companys stock, which it distributed to its
shareholders on that date. St. Joe continues to provide property management,
leasing and development services for certain Flagler properties under contracts
which expire in October 2003. Under the revised agreement, St. Joe was required
to pay Flagler $6 million in three annual installments commencing on October 9,
2000. Flagler paid St. Joe and certain of its affiliates the following amounts
during the second quarter of 2003 and 2002, respectively: property management
services of $0.7 million and $0.8 million, development fees of $0 million and
$0.1 million, construction coordination fees of $0.1 million and $0.1 million,
and leasing commissions of $1.2 million and $0.2 million.

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Item 2.

Managements Discussion and Analysis of the Consolidated
Financial Condition and Results of Operations

Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
include the Companys present expectations or beliefs concerning future events.
These statements may be identified by the use of words like plan, expect,
aim, believe, project, anticipate, intend, estimate, will,
should, could, and other expressions that indicate future events and
trends. The Company cautions that such statements are necessarily based on
certain assumptions, which are subject to risks and uncertainties that could
cause actual results to materially differ from those contained in these
forward-looking statements. Such forward-looking statements may include,
without limitation, statements that the Company does not expect that lawsuits,
environmental costs, commitments, including future contractual obligations,
contingent liabilities, financing availability, labor negotiations or other
matters will have a material adverse effect on its consolidated financial
condition, statements concerning future capital needs and sources of such
capital funding, statements concerning future intentions with respect to the
payment of dividends and other potential capital distributions, future growth
potential of the Companys lines of business, performance of the Companys
product offerings, other similar expressions concerning matters that are not
historical facts, and projections relating to the Companys financial results.
The Company cautions that such statements are necessarily based on certain
assumptions, which are subject to risks and uncertainties that could cause
actual results to materially differ from those contained in these
forward-looking statements. Important factors that could cause such differences
include, but are not limited to, the changing general economic conditions
(particularly in the state of Florida, the southeast US and the Caribbean) as
they relate to economically sensitive products in freight service and building
rental activities; ability to manage through economic recessions or downturns
in customers business cycles; industry competition; possible future changes in
the Companys structure, lines of business, business and investment strategies,
and related implementation; legislative or regulatory changes; technological
changes; volatility of fuel prices (including volatility caused by military
actions); changes in depreciation rates resulting from future railway
right-of-way and equipment life studies; the ability of the Company to complete
its financing plans, settle future contractual obligations as estimated in time
and amount and conclude labor negotiations in a satisfactory way; changes in
insurance markets, including increases in insurance premiums and deductibles;
the availability and costs of attracting and retaining qualified independent
third party contractors; liability for environmental remediation and changes in
environmental laws and regulations; the ultimate outcome of environmental
investigations or proceedings and other types of claims and litigation; natural
events such as weather conditions, floods, earthquakes and forest fires;
discretionary government decisions affecting the use of land and delays
resulting from weather conditions and other natural occurrences that may affect
construction or cause damage to assets; the ability of the buyers to terminate
contracts to purchase real estate from the Company prior to the expiration of
inspection periods; failure or inability of third parties to fulfill their
commitments or to perform their obligations under agreements; costs and
availability of land and construction materials; buyers ability to close
transactions; the Companys future taxable income and other factors that may
affect the availability and timing of utilization of the Companys deferred tax
assets; uncertainties, changes or litigation related to tax laws, regulations
and the application thereof that could limit the tax benefits of the EPIK sale
or of other possible transactions involving the Company; whether FECI will
implement the proposed reclassification of its shares; receipt of a favorable
Internal Revenue Service ruling; the Companys ability to pay dividends or to
make other distributions to shareholders; and other risks inherent in the real
estate and other businesses of the Company.

As a result of these and other factors, the Company may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect its business, financial condition,
operating results and stock price.

Readers should not place undue reliance on forward-looking statements, which
reflect managements view only as of the date thereof. The Company undertakes
no obligation to publicly release revisions to the

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forward-looking statements in this Report that reflect events or circumstances
after the date hereof or reflect the occurrence of unanticipated events.

Results of Operations

Consolidated ResultsSecond Quarter and Six Months

The Company reported consolidated revenues of $72.6 million for the second
quarter 2003, compared to $61.7 million in the second quarter 2002. The Company
reported income from continuing operations of $8.9 million and $6.4 million for
the quarters ended June 30, 2003 and 2002, respectively. The Company reported
net income of $9.3 million, or $0.25 per diluted share, compared with net
income of $2.0 million, or $0.05 per diluted share, in the second quarter 2002.

For the six months ended June 30, 2003, FECI reported consolidated revenues of
$148.7 million, compared to $121.3 million for the same period in 2002. The
Company reported income from continuing operations of $15.7 million and $13.1
million for the six months ended June 30, 2003 and 2002, respectively. The
Company reported net income of $16.2 million, or $0.44 per diluted share, for
the six months ended June 30, 2003, compared to net income of $1.6 million, or
$0.04 per diluted share, for the prior year period.

RailwaySecond Quarter

Railway segments operating revenues increased $3.5 million at $45.2 million
for 2003 versus $41.7 million for 2002. In late 2002, FECR began managing
certain of the dray operations as a result of discontinuing the trucking
division. This traffic increased FECRs revenues $2.7 million in 2003 over
2002. Aggregate traffic increased $0.4 million or 2.8% to $13.8 million in 2003
versus $13.4 million in 2002, and vehicle traffic increased
$0.2 million or 3.7%
from 2002 to 2003. Included in Railways revenues in the second quarter 2003
were increases of $0.4 million due to fuel surcharges.

Operating expenses increased $3.2 million to $34.0 million for 2003, compared
with $30.8 million for second quarter 2002. In late 2002, FECR began managing
certain of the dray operations for intermodal shipments to the Railway,
increasing expenses in second quarter $2.7 million over 2002. Fuel expense
increased $0.6 million from 2002 due to the increased price of diesel fuel.
Depreciation expense increased $0.6 million with higher capital programs.
Casualty and insurance expenses decreased $0.4 million due to lower personal
injury expenses.

Railway forward purchases fuel contracts to manage the risk of fuel price
increases. As of June 30, 2003, Railway had forward purchase contracts of 5.3
million gallons for delivery from July 2003 to May 2004 for an average purchase
price of $0.7289 per gallon before taxes and freight. This represents 57% of
the estimated consumption for the remainder of 2003 and 26% for the first five
months of 2004.

The Railways continuing right-of-way and equipment life study is expected
to conclude during 2003. This study will potentially adjust the estimated
remaining useful lives of the Railways major property, plant and equipment
assets and thereby potentially affect future depreciation rates and expenses.

Six Months

Railway segments operating revenues were up $6.9 million at $89.5 million for
2003 versus $82.6 million for 2002. In late 2002, FECR began managing certain
of the dray operations as a result of discontinuing the trucking division. This
traffic increased FECR s 2003 first six months revenues $5.1 million over
2002. In addition, revenues increased $0.8 million in 2003 due to fuel
surcharges. Other increases were from additional aggregate rock traffic
increasing $1.1 million in 2003 due to the increase in construction demand
throughout the state of Florida. Paper, coal and forest products increased
11.2% or $0.4 million over 2002. Automotive traffic increased
2.3% or $0.2
million versus 2002. Intermodal revenues were down $0.1 million from 2002.

16



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Operating expenses increased $7.4 million to $69.4 million for 2003, compared
with $62.0 million for the first six months of 2002. In late 2002, FECR began
managing certain of the dray operations for intermodal shipments to the
Railway, increasing expenses in the first half $5.2 million over 2002. Fuel
costs increased $1.2 million with the higher fuel prices. Depreciation costs
increased $1.2 million from 2002 with higher capital programs.

RealtySecond Quarter

Flaglers rental revenues decreased $0.7 million or 3.8% quarter-over-quarter
from $17.1 million to $16.4 million. Included in 2002 revenues are net
termination fees of $1.8 million. Before termination fees, rental revenues
increased $1.1 million or 7.5%. Before termination fees, revenues from
operating properties increased $1.3 million, primarily related to additional
revenue from properties acquired in January 2003 of $1.2 million, offset by
decreased same store revenue of $0.4 million. Same store revenues, before
termination fees, were down quarter-over-quarter, primarily related to lower
rental rates. Newer projects contributed a $0.5 million revenue increase due to
occupancy improvements. Income from equity investments decreased $0.2 million
due to Flaglers acquisition of the Beacon Station partnership interests from
Duke Realty in January 2003.

Flagler held 60 finished buildings with 6.6 million square feet, with occupancy
of 87% at quarter end. Same store properties include 5.7 million square feet
and occupancy of 87%, compared to 86% in the prior year. Flagler had eight
projects with 994,000 square feet in various stages of development (403,000
square feet-under construction; 591,000 square feet-predevelopment) at quarter
end. Projects under construction include 290,000 square feet of build-to-suit
projects and a 113,000-square foot office project which is 53% preleased.

Flaglers realty sales revenues increased from $1.2 million in 2002 to $9.4
million in 2003, primarily related to the sale of approximately 228 acres in
Fort Pierce to Wal-Mart for $5.6 million, and two sales to Urbieta Oil for a
combined $2.0 million in the Beacon Station Business Park.

Flaglers operating expenses increased $2.7 million or 21.0% from $13.1 million
to $15.8 million quarter-over-quarter. Properties acquired in 2003 contributed
$0.8 million of the increase, including $0.5 million of depreciation and
amortization increases. Existing operating properties expenses increased $1.4
million, mainly due to real estate taxes ($0.2 million), insurance ($0.2
million), repairs and maintenance ($0.1 million) and depreciation and
amortization ($0.7 million). Included in existing operating properties
expenses is the write off of unamortized lease commissions ($0.5 million), the
write off of accrued straight-line rent asset ($0.2 million) and increased bad
debt expense ($0.1 million) related to a significant tenant bankruptcy which
occurred in the second quarter. Real estate taxes on undeveloped land increased
$0.2 million. Corporate overhead expenses increased $0.4 million, mainly due to
increased bad debt expenses related primarily to the previously mentioned
bankrupt tenant, and increased staffing related to the upcoming transition of
certain realty management services from The St. Joe Company.

Other realty rental expenses increased due to increased rental costs associated
with land the Company leases at Port Everglades.

Flaglers realty cost of sales increased $2.1 million from $0.5 million to $2.6
million, given increased sales activity in 2003.

During the second quarter of 2003, the Company discussed with Broward County
and a large home improvement retailer the possible lease to the retailer of a
substantial portion of the land at Port Everglades, Florida, that is subject to
a long-term ground lease from the County to the Company. In this regard, the
County Commission authorized the County staff to pursue a proposal to terminate
the entire ground lease if the Company were to convey to the County, at no
cost, certain land improvements, a warehouse on the leased land and a lease
termination fee of $8 million. The Company has not accepted this proposal,
which is subject to various contingencies and conditions, including the
Countys leasing certain of the land to the retailer. However, negotiations
continue among the parties.

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The Companys ground lease covers 97 acres owned in fee by Broward County at
Port Everglades, which is located near Fort Lauderdale, Florida. The Companys
Railway is the exclusive rail-service provider to the Port. In acquiring the
ground lease in 2000, the Company intended to work with the County to develop
an intermodal transshipment yard and warehouses at the Port. The term of the
ground lease runs until 2032 and provides for base rent of $4 million per year,
which the Company records as operating expense, with six 10-year renewals at
the Companys option. The Company is also obligated to make an annual payment
in lieu of ad valorem taxes on the ground lease property to the City of
Hollywood, the amount of which is currently $0.2 million. The current net book
value of the ground lease, related land improvements and a warehouse that the
Company built on the site is $9.3 million. The Company has provided the County
with a bank letter of credit in the amount of $10 million to secure its lease
obligations, and the Company could be required to pay up to an additional $10
million if the lease were terminated due to the Companys default. The
warehouse is partially leased to a tenant and finalization of a lease of the
remainder of the warehouse is pending, awaiting certain action by the County.

The ground lease permits the County to terminate the lease of portions of the
land if the Company does not develop warehouse space on the land pursuant to a
scheduled rate. Due to increased restrictions on Port access since the
September 11th terrorist attacks, restrictions on allowable uses of Port
property, changes in business conditions, and other factors, the pace of the
Companys development of warehouse space at the Port has been slower than
originally contemplated and the Company and the County have not been able to
reach agreement on developing an intermodal transshipment yard at the Port.
During the second quarter of 2003, the County notified the Company that it was
exercising its right to terminate the lease on a portion of the land. Various
matters relating to the termination, including the amount of land and the
resulting rent reduction, are unresolved between the parties.

In light of the foregoing, the Company is reviewing its alternatives with
respect to this project. In future periods, the Company may record charges,
which may be material, related to modifying, terminating or continuing the
lease.

Six Months

Flaglers rental revenues increased $0.6 million from $31.9 million in 2002 to
$32.5 million in 2003. Included in 2002 revenues are net termination fees of
$1.8 million. Excluding termination fees, the increase from year-to-year is
$2.4 million or 8.2%. Excluding termination fees, revenues from operating
properties increased $2.8 million, with $2.1 million of the increase
attributable to properties acquired during 2003. Same store revenues
decreased $0.3 million, excluding termination fees, with second quarter 2003
occupancy of 87%, compared to second quarter 2002 occupancy of 86%. Average
occupancy for the six months ended June 30, 2003 was 86%, compared to 88% for
the period ended June 30, 2002. Newer properties contributed additional revenue
of $0.9 million related to occupancy increases. Income from equity investments
decreased $0.4 million due to Flaglers acquisition of the Beacon Station
partnership interests from Duke Realty in January 2003.

Flaglers realty sales revenues increased from $3.8 million in 2002 to $21.7
million in 2003. Real estate sales in 2003 included the Baptist Hospital sale
($9.5 million), Urbieta ($2.0 million), Fort Pierce ($5.6 million), Malabar
($1.0 million), Bonaventure ($1.3 million) and other parcel sales.

Flaglers operating expenses increased $5.2 million or 20.7% from $25.5 million
to $30.7 million. Properties acquired contributed $1.4 million of the increase,
including $0.9 million of depreciation and amortization. Existing operating
properties expenses increased $3.0 million, mainly due to real estate taxes
($0.4 million), insurance ($0.5 million), repairs and maintenance ($0.3
million) and increased depreciation and amortization ($0.9 million). Included
in existing operating properties expenses is the write off of unamortized
lease commissions ($0.5 million), the write off of accrued straight-line rent
asset ($0.5 million) and increased bad debt expense ($0.2 million) related to a
significant tenant bankruptcy which occurred in 2003. Real estate taxes on
undeveloped land increased $0.4 million. Corporate overhead expenses increased
$0.6 million due to additional staffing related to the transition of certain
building operations from The St. Joe Company, bad debt expenses, legal expenses
and deal chase costs.

Other realty rental expenses increased due to increased rental costs associated
with land the Company leases at Port Everglades.

18



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##### 



Flaglers realty cost of sales increased $9.6 million from $1.6 million to
$11.2 million, given increased sales activity in 2003.

Results from Discontinued Operations

In accordance with SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, effective for financial statements issued for fiscal years
beginning after December 15, 2001, components of Flagler that meet certain
criteria have been accounted for as discontinued operations. Therefore, income
or loss attributable to the operations and sale of the components classified as
discontinued operations are presented in the summary of operating results as
discontinued operations, net of applicable income taxes.

During the third quarter 2002, Flagler sold an industrial building totaling
approximately 300,000 square feet located in its Beacon Station Business Park.
On July 1, 2003, Flagler sold its 50% interest in three 98,000-sq. ft.
commercial office buildings located in the Beacon Pointe Office Park in South
Florida previously held in partnership with Duke Realty Corporation. The
results of these operations are presented as discontinued operations as
follows:

|                                                        |  |               |     |               |  |      |      |      |  |  |      |   |  |  |       |  
|------------------------------------------------------- |  | ------------- | --- | ------------- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ----- | -
|                                                        |  | Three Months  |     | Six Months   
|                                                        |  | Ended June 30 |     | Ended June 30
|                                                        |  |               |     |              
|(dollars in thousands)                                  |  | 2003          |     | 2002          |  | 2003 |      | 2002
|                                                        |  |               |     |               |  |      |      |     
|Summary of Operating Results of Discontinued Operations |  |               |     |               |  |      |      |      |  |  |      |   |  |  |       |  
|Flagler realty rental revenues                          |  |               | 267 |               |  |      | 743  |      |  |  | 511  |   |  |  | 1,612 |  
|Flagler realty rental expenses                          |  |               | 14  |               |  |      | 220  |      |  |  | 30   |   |  |  | 434   |  
|                                                        |  |               |     |               |  |      |      |      |  |  |      |   |  |  |       |  
|Income before income taxes                              |  |               | 253 |               |  |      | 523  |      |  |  | 481  |   |  |  | 1,178 |  
|Income taxes                                            |  |               | (98 | )             |  |      | (201 | )    |  |  | (185 | ) |  |  | (453  | )
|                                                        |  |               |     |               |  |      |      |      |  |  |      |   |  |  |       |  
|Income from discontinued operations                     |  |               | 155 |               |  |      | 322  |      |  |  | 296  |   |  |  | 725   |  
|                                                        |  |               |     |               |  |      |      |      |  |  |      |   |  |  |       |  

Corporate ExpensesSecond Quarter and Six Months

Corporate expenses for the second quarter 2003 were $3.0 million, compared to
$3.6 million for second quarter 2002. The decrease quarter-over-quarter
primarily relates to costs recorded in second quarter 2002 associated with
strategic initiatives, including consulting fees.

Corporate expenses for the six months ended June 30, 2003 and 2002 were $5.9
million and $5.6 million, respectively. The increase primarily relates to costs
associated with professional services and increased compensation expenses.
During the third quarter of 2002, restricted stock awards (pursuant to which
restrictions lapse pro rata over four years) were granted to senior executives.
The stock grants also provide for accelerated lapsing of restrictions based on
the Companys performance to pre-established targets. In the first quarter of
2003, the Compensation Committee of the Board of Directors approved performance
acceleration of 25% of the grant. These grants result in additional recognition
of compensation expense in 2003.

Interest ExpenseSecond Quarter and Six Months

Interest expense for the second quarter and first six months of 2003 was $4.2
million and $8.5 million, respectively. This compares with interest expense of
$5.1 million and $9.9 million for the second quarter and first six months of
2002, respectively. The lower interest expense resulted primarily from
decreased borrowings on the revolver and lower interest rates.

Other IncomeSecond Quarter and Six Months

Other income for the second quarter and first six months of 2003 was $2.9
million and $5.2 million, respectively, compared to $2.9 million and $6.7
million for the second quarter and first six months of 2002.

19



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##### 



Pipe and wire crossing income for 2002 included $1.9 million of income from
additional pipe and wire crossing agreements.

Provision for Income TaxesSecond Quarter and Six Months

Income tax expense represents an effective rate of 38.5% for the second quarter
and first six months of 2003 and 2002. As a result primarily of the Companys
sale of EPIK in late 2002, the Company claimed a cash federal income tax refund
of $74.6 million for that year, which was refunded to the Company during the
second quarter of 2003. The Companys federal income tax returns through year
1999 have been reviewed and closed by the Internal Revenue Service (IRS). The
IRS is currently reviewing the 2000 and 2001 federal income tax returns.

Financial Condition, Liquidity and Capital ResourcesSecond Quarter and Six Months

Net cash generated by operating activities was $107.7 million and $27.6 million
for the six months ended June 30 2003 and 2002, respectively. The year-to-year
fluctuation in net cash generated by operating activities is the result of a
$74.6 million income tax refund received during the second quarter of 2003. Net
cash generated by operating activities is expressed net of gains on asset
disposals, primarily building and land sales, which also fluctuate. Asset
dispositions for the six months ended June 30, 2003 and 2002 generated pretax
gains of $13.9 million and $3.7 million, respectively.

As a result primarily of the Companys sale of EPIK in late 2002, the Company
claimed a cash federal income tax refund of $74.6 million for that year, which
was refunded to the Company during the second quarter of 2003. Additionally, as
a result primarily of the EPIK sale, the Company expects to carry forward
losses of $74.5 million (pretax), which are expected to be deductible from
taxable income on the Companys federal tax returns in future years. However,
the Company cannot guarantee its realization of these expected future tax
benefits, which are subject to possible future changes in federal income tax
laws and differing interpretations thereof, among other factors.

During the six months ended June 30, 2003 and 2002, respectively, the Company
invested approximately $48 million and $11 million at Flagler. For the six
months ended June 30, 2003 and 2002, respectively, the Companys capital
investments at FECR were approximately $9 million and $16 million.

During the second quarter of 2003, the Company announced that its Board of
Directors declared a sixty percent increase in the quarterly cash dividend on
its Class A and Class B common stock to $0.04 per share from $0.025 per share.
Total dividend payments for the second quarter of 2003 were $1.5 million
compared to $0.9 million in the first quarter of 2003.

At June 30, 2003, the Company had in place a $200 million revolving credit
facility pursuant to an agreement, as amended from time to time, between the
Company and certain banking institutions (the Credit Facility Agreement). The
description herein of the revolving credit facility is qualified in its
entirety by reference to the Credit Facility Agreement, which is incorporated
as Exhibit 10(b) to the Companys Reports on Form 10-K for years ended December
31, 2000, 2001 and 2002. On February 7, 2003, the Credit Facility Agreement was
extended for an additional year to March 31, 2005 and amended to reduce the
facilitys size to $200 million, increase the stock repurchase and special
dividend limit from $50 million to $150 million (which may be increased in 2004
to $200 million if certain financial ratio tests are met), increase the
non-recourse mortgage financing limit from $250 million to $325 million, and
make other miscellaneous modifications. At June 30, 2003, the Company had $0
million drawn on the revolving credit facility. Pursuant to the Credit Facility
Agreement, the Company has agreed, among other things, to maintain certain
financial ratios. The Company believes the most restrictive of such ratios is
the Group Debt/EBITDA ratio (as defined in the Credit Facility Agreement). The
Credit Facility Agreement provides that at June 30, 2003, the Companys Group
Debt/EBITDA ratio shall be no greater than 2.75. At June 30, 2003, the
Companys actual Group Debt/EBITDA ratio was 0.02. Pursuant to the Credit
Facility Agreement, the required Group Debt/EBITDA ratio is 2.75 through
December 31, 2003, and 2.50 from January 1, 2004 to March 31, 2005, all as more
particularly set forth in the Credit Facility Agreement. Although no assurances
can be given as to the Companys future compliance with the
Group Debt/EBITDA ratio covenant or other financial covenants, the Company has
complied with the terms of the Credit Facility Agreement in the past and
expects to continue to comply with them in the future.

20



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##### 



OTHER MATTERS

Critical Accounting Policies

The Company has reviewed its accounting policies to identify those that are
very important to the portrayal of the Companys financial condition and
results, and that require managements most difficult, subjective or complex
judgments (the Critical Accounting Policies). The Company has determined that
its accounting policies governing impairment of long-lived assets, income tax
provisions, realty rental revenue recognition, and real estate infrastructure
costs, may be considered Critical Accounting Policies.

Impairment of Long-lived Assets  The Company reviews the carrying value of its
property, plant and equipment for impairment whenever events or changes in
circumstances indicate the carrying value of an asset or asset grouping may not
be recoverable from the undiscounted future net cash flows expected to be
generated over its remaining useful life. Detecting these events or changes in
circumstances can be difficult. At June 30, 2003, management had not identified
indicators of an impairment of value for any significant asset group of the
Companys. However, events or changes in circumstances could develop or occur
that would cause the Company to evaluate the recovery of its long-lived assets
and potentially record an impairment, the amount of which could be material.
Assets that are deemed impaired are recorded at the lower of carrying amount or
fair value.

Income Tax Provisions  FECIs net deferred tax liability was $117.0 million
and $106.7 million at June 30, 2003 and December 31, 2002, respectively.
Included in these net liabilities is a tax asset of approximately $26 million
and $37 million (federal and state), respectively, associated with net
operating loss carry forwards. The net deferred tax liability is estimated
based on the expected future tax consequences of items recognized in the
financial statements. Management must use judgment when estimating the future
timing and deductibility of expenses and loss carry forwards in the Companys
tax returns. A valuation allowance is required to be recorded if management
expects that it is more likely than not that its deferred tax assets will not
be realized. As of June 30, 2003 and December 31, 2002, FECI has no valuation
allowance since it expects to realize its deferred tax assets. This
expectation is primarily based upon FECIs expectation that future operations
will be sufficiently profitable to utilize the operating loss carry forwards,
as well as the existence of various tax, business and other planning
strategies available to the Company. However, the Company cannot guarantee
that it will realize this tax asset or that future valuation allowances will
not be required. Failure to utilize the tax asset could materially affect the
Companys financial results and financial position.

Revenue Recognition  Realty Rental
Revenues  Revenues from realty rentals are
primarily contractual base rents from leases of commercial property. The
Company recognizes revenues from these base rents evenly over the lease term in
accordance with SFAS No. 13, Accounting for Leases. SFAS No. 13 requires
rental income from an operating lease be recognized on a straight-line basis
over the non-cancelable lease term. Accordingly, total contractual minimum
lease payments, including scheduled rent increases, are recognized as rental
revenue evenly over the lease term. Accrued revenues from contractually
scheduled rent increases in excess of amounts currently due amounted to $11.3
million and
$9.3 million at June 30, 2003 and December 31, 2002, respectively, which is
reported in other assets. The Company monitors this asset for collection risk
and establishes reserves for any amounts deemed not collectible. However,
amounts collected in future periods may vary from the Companys expectations.

Real Estate Infrastructure Costs  The Company periodically constructs road,
road structures and general infrastructure related to the development of
commercial real estate. Certain of these infrastructure assets may be deeded,
upon completion, to applicable governmental authorities. The Company believes
these deeded items (e.g., roads) benefit and increase the value of the parcels
within and adjacent to the related commercial real estate developments. The
Company capitalizes all infrastructure costs (including costs of infrastructure
assets deeded to government authorities) into the basis of its commercial real
estate developments, and allocates these costs to the individual parcels within
the park on a relative fair value basis in accordance with SFAS 67, Accounting
for Costs and Initial Rental Operations of Real Estate Projects.

21



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##### 



In connection with infrastructure assets deeded to government authorities,
certain government authorities may agree to reimburse the Company certain of
its construction costs for the deeded assets based on and to the extent of
annual incremental taxes (such as property taxes) as may be collected by the
government authority from the applicable properties over a stipulated period of
time. Prior to and at the date of deeding the infrastructure asset to the
government authority, reimbursements are accounted for as a reduction in the
allocated costs described above to the extent the Companys receipt of such
reimbursements has become fixed and determinable, based upon the related
incremental taxes having been assessed and become payable. The Company does not
recognize expected future tax reimbursements even though they may be probable
and estimable, until they become fixed and determinable.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change to the disclosures made under the heading
Quantitative and Qualitative Disclosures about Market Risk on page 31 of the
Companys 2002 Annual Report on Form 10-K.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Companys Chief
Executive Officer (CEO) and the Chief Financial Officer (CFO), management has
evaluated the effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c)
and 15d-14(c)). Based on that evaluation, the CEO and CFO concluded that the
Companys disclosure controls and procedures were effective as of June 30,
2003.

Changes in Internal Control over Financial Reporting

There were no changes in the registrants internal control over financial
reporting identified in connection with the evaluation required by paragraph
(d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the
registrants last fiscal quarter (the registrants fourth fiscal quarter in the
case of an annual report) that have materially affected, or are reasonably
likely to materially affect, the registrants internal control over financial
reporting.

PART II

Item 1.

LEGAL PROCEEDINGS

There are no new legal or regulatory proceedings pending or known to be
contemplated which, in managements opinion, are other than normal and
incidental to the kinds of businesses conducted by the Company.

Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders was held on May 28, 2003. There were
17,035,365 shares of Class A Common Stock and 19,609,216 shares of Class B
Common Stock outstanding as of the Record Date, April 4, 2003. Of this amount,
there were 15,757,463 Class A Common Stock and 18,830,435 Class B Common Stock
represented in person or by proxy.

22



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##### 



Proposal 1: The election of ten directors: two directors to be elected by Class
A shareholders; eight directors to be elected by Class B shareholders.

|                      |  |                      |            |                |  |  |         | 
|--------------------- |  | -------------------- | ---------- | -------------- |  |  | ------- | 
|                      |  | Number of Votes Cast
|                      |  |                     
|                      |  | Votes For            |            | Votes Withheld
|                      |  |                      |            |               
|Common
Class A  Name |  |                      |            |                |  |  |         | 
|Allen C. Harper       |  |                      | 15,512,978 |                |  |  | 244,485 | 
|Gilbert Lamphere      |  |                      | 15,529,037 |                |  |  | 228,426 | 
|                      |  |                      |            |                |  |  |         | 
|Common Class B  Name |  |                      |            |                |  |  |         | 
|Robert W. Anestis     |  |                      | 17,841,232 |                |  |  | 989,203 | 
|Richard S. Ellwood    |  |                      | 18,814,083 |                |  |  | 16,352  | 
|J. Nelson Fairbanks   |  |                      | 18,812,815 |                |  |  | 17,620  | 
|David M. Foster       |  |                      | 18,814,060 |                |  |  | 16,375  | 
|Adolfo Henriques      |  |                      | 18,813,827 |                |  |  | 16,608  | 
|Joseph Nemec          |  |                      | 18,814,461 |                |  |  | 15,974  | 
|Herbert H. Peyton     |  |                      | 18,813,306 |                |  |  | 17,129  | 
|Winfred L. Thornton   |  |                      | 17,936,679 |                |  |  | 893,756 | 

Proposal 2: Proposal to amend Florida East Coast Industries Amended and
Restated Articles of Incorporation to reclassify the Class A common stock and
the Class B common stock into a single class of common stock.

|                |  |                      |            |         |  |         |         |                 |  |  |        |  |  |  |           | 
|--------------- |  | -------------------- | ---------- | ------- |  | ------- | ------- | --------------- |  |  | ------ |  |  |  | --------- | 
|                |  | Number of Votes Cast |            |         |  |        
|                |  |                      |            |         |  |        
|                |  | For                  |            | Against |  | Abstain |         | Broker Non-Vote
|                |  |                      |            |         |  |         |         |                
|Common Class A  |  |                      | 13,768,354 |         |  |         | 173,554 |                 |  |  | 4,410  |  |  |  | 1,811,145 | 
|Common Class B  |  |                      | 16,583,992 |         |  |         | 18,118  |                 |  |  | 5,695  |  |  |  | 2,222,630 | 
|                |  |                      |            |         |  |         |         |                 |  |  |        |  |  |  |           | 
|Combined Totals |  |                      | 30,352,346 |         |  |         | 191,672 |                 |  |  | 10,105 |  |  |  | 4,033,775 | 

Item 5.

OTHER INFORMATION

FECRs traffic volume and revenues for the three months ended June 30, 2003 and
2002, respectively, are shown below. Also, Realty segments revenues for the
three months ended March 31, 2003 and 2002, and June 30, 2003 and 2002,
respectively, are shown below. FECRs and Realty segments quarterly operating
expenses are also presented below.

TRAFFICThree Months Ended June 30
(dollars and units in thousands)

|                  |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |       |  
|----------------- | ---------------------------- | ----- | ---- | ----- | ---- | -------- | ------- | -------- | ---- | -------- | ---- | -------- | ------- |  | ------ | ------ |  |  | ------ | ------ |  |  | ---- | ----- | -
|                  |                              |       | 2003 |       | 2002 |          | Percent |          | 2003 |          | 2002 |          | Percent
|Commodity         |                              | Units |      | Units |      | Variance |         | Revenues |      | Revenues |      | Variance
|                  |                              |       |      |       |      |          |         |          |      |          |      |         
|Rail carloads     |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |      
|                  | Crushed stone                |       |      | 30.4  |      |          |         | 29.5     |      |          |      | 3.1      |         |  |        | 13,794 |  |  |        | 13,412 |  |  |      | 2.8   |  
|                  | Construction materials       |       |      | 1.4   |      |          |         | 1.3      |      |          |      | 7.7      |         |  |        | 795    |  |  |        | 761    |  |  |      | 4.5   |  
|                  | Vehicles                     |       |      | 6.0   |      |          |         | 5.8      |      |          |      | 3.4      |         |  |        | 4,925  |  |  |        | 4,751  |  |  |      | 3.7   |  
|                  | Foodstuffs                   |       |      | 3.1   |      |          |         | 2.9      |      |          |      | 6.9      |         |  |        | 2,306  |  |  |        | 2,166  |  |  |      | 6.5   |  
|                  | Chemicals                    |       |      | 0.9   |      |          |         | 1.0      |      |          |      | (10.0    | )       |  |        | 1,085  |  |  |        | 1,214  |  |  |      | (10.6 | )
|                  | Paper                        |       |      | 1.8   |      |          |         | 1.7      |      |          |      | 5.9      |         |  |        | 1,707  |  |  |        | 1,707  |  |  |      |      |  
|                  | Other                        |       |      | 3.8   |      |          |         | 3.4      |      |          |      | 11.8     |         |  |        | 2,255  |  |  |        | 2,035  |  |  |      | 10.8  |  
|                  |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |      
|                  | Total carload                |       |      | 47.4  |      |          |         | 45.6     |      |          |      | 3.9      |         |  |        | 26,867 |  |  |        | 26,046 |  |  |      | 3.2   |  
|Intermodal        |                              |       | 61.8 |       |      |          | 64.0    |          |      |          | (3.4 | )        |         |  | 14,938 |        |  |  | 14,980 |        |  |  | (0.3 | )    
|                  |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |      
|                  | Total freight units/revenues |       |      | 109.2 |      |          |         | 109.6    |      |          |      | (0.4     | )       |  |        | 41,805 |  |  |        | 41,026 |  |  |      | 1.9   |  
|                  |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |      
|Drayage           |                              |       | 13.0 |       |      |          |        |          |      |          |     |          |         |  | 2,692  |        |  |  |       |        |  |  |     |      
|                  |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |      
|Ancillary revenue |                              |       |     |       |      |          |        |          |      |          |     |          |         |  | 730    |        |  |  | 645    |        |  |  | 13.2 |      
|                  |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |      

(Prior years results have been reclassified to conform to current years presentation.)

23



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##### 



RAILWAY OPERATING EXPENSES
(dollars in thousands)
(unaudited)

|                                  |  |               |        |               |  |  |        |  
|--------------------------------- |  | ------------- | ------ | ------------- |  |  | ------ | -
|                                  |  | Three Months  |        | Three Months 
|                                  |  | Ended June 30 |        | Ended June 30
|                                  |  | 2003          |        | 2002         
|                                  |  |               |        |              
|Compensation & benefits           |  |               | 12,316 |               |  |  | 12,736 |  
|Fuel                              |  |               | 3,361  |               |  |  | 2,720  |  
|Equipment rents (net)             |  |               | 717    |               |  |  | 1,048  |  
|Car hire (net)                    |  |               | (538   | )             |  |  | (972   | )
|Depreciation                      |  |               | 4,890  |               |  |  | 4,305  |  
|Purchased services                |  |               | 1,870  |               |  |  | 2,076  |  
|Repairs to/by others (net)        |  |               | (871   | )             |  |  | (1,208 | )
|Load/unload                       |  |               | 1,839  |               |  |  | 1,823  |  
|Casualty & insurance              |  |               | 1,257  |               |  |  | 1,631  |  
|Property taxes                    |  |               | 1,244  |               |  |  | 1,185  |  
|Materials                         |  |               | 2,486  |               |  |  | 2,138  |  
|General & administrative expenses |  |               | 2,195  |               |  |  | 2,279  |  
|Drayage                           |  |               | 2,667  |               |  |  |       |  
|Other                             |  |               | 566    |               |  |  | 1,017  |  
|                                  |  |               |        |               |  |  |        |  
|Total operating expenses          |  |               | 33,999 |               |  |  | 30,778 |  
|                                  |  |               |        |               |  |  |        |  

(Prior years results have been reclassified to conform to current years presentation.)

REALTY SEGMENT REVENUES
(dollars in thousands)
(unaudited)

|                                                  |                                           |                                        |        |                |        |                |        |        |        | 
|------------------------------------------------- | ----------------------------------------- | -------------------------------------- | ------ | -------------- | ------ | -------------- | ------ | ------ | ------ | 
|                                                  |                                           |                                        |        | Three Months   |        | Three Months  
|                                                  |                                           |                                        |        | Ended March 31 |        | Ended March 31
|                                                  |                                           |                                        |        | 2003           |        | 2002          
|                                                  |                                           |                                        |        |                |        |               
|Rental revenues  Flagler                         |                                           |                                        | 13,122 |                |        |                | 12,475 |       
|Rental income  straight-line rent adjustments    |                                           |                                        | 1,109  |                |        |                | 755    |       
|Operating expense recoveries                      |                                           |                                        | 1,315  |                |        |                | 926    |       
|Rental revenues  undeveloped land                |                                           |                                        | 302    |                |        |                | 262    |       
|Equity pickups                                    |                                           |                                        | 62     |                |        |                | 211    |       
|Other rental revenues                             |                                           |                                        | 196    |                |        |                | 177    |       
|                                                  |                                           |                                        |        |                |        |                |        |       
|                                                  | Total rental revenue  Flagler properties |                                        |        | 16,106         |        |                |        | 14,806 |       
|Rental revenues  other realty operations         |                                           |                                        | 747    |                |        |                | 795    |       
|                                                  |                                           |                                        |        |                |        |                |        |       
|                                                  |                                           | Total rental revenues                  |        |                | 16,853 |                |        |        | 15,601 | 
|                                                  |                                           |                                        |        |                |        |                |        |       
|Building and land sales  Flagler                 |                                           |                                        | 12,259 |                |        |                | 2,551  |       
|Building and land sales  other realty operations |                                           |                                        | 2,638  |                |        |                | 565    |       
|                                                  |                                           |                                        |        |                |        |                |        |       
|                                                  |                                           | Total building and land sales revenues |        |                | 14,897 |                |        |        | 3,116  | 
|                                                  |                                           |                                        |        |                |        |                |        |       
|                                                  |                                           |                                        |        |                |        |                |        |       
|                                                  | Total realty segment revenues             |                                        |        | 31,750         |        |                |        | 18,717 |       
|                                                  |                                           |                                        |        |                |        |                |        |       

(Prior years results have been reclassified to conform to current years presentation.)

24



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##### 



REALTY SEGMENT REVENUES
(dollars in thousands)
(unaudited)

|                                                  |                                           |                                        |        |               |        |               |        |        |        | 
|------------------------------------------------- | ----------------------------------------- | -------------------------------------- | ------ | ------------- | ------ | ------------- | ------ | ------ | ------ | 
|                                                  |                                           |                                        |        | Three Months  |        | Three Months 
|                                                  |                                           |                                        |        | Ended June 30 |        | Ended June 30
|                                                  |                                           |                                        |        | 2003          |        | 2002         
|                                                  |                                           |                                        |        |               |        |              
|Rental revenues  Flagler                         |                                           |                                        | 13,520 |               |        |               | 14,269 |       
|Rental income  straight-line rent adjustments    |                                           |                                        | 1,135  |               |        |               | 891    |       
|Operating expense recoveries                      |                                           |                                        | 1,255  |               |        |               | 1,198  |       
|Rental revenues  undeveloped land                |                                           |                                        | 285    |               |        |               | 260    |       
|Equity pickups                                    |                                           |                                        |       |               |        |               | 214    |       
|Other rental revenues                             |                                           |                                        | 206    |               |        |               | 218    |       
|                                                  |                                           |                                        |        |               |        |               |        |       
|                                                  | Total rental revenue  Flagler properties |                                        |        | 16,401        |        |               |        | 17,050 |       
|Realty revenues  other realty operations         |                                           |                                        | 782    |               |        |               | 889    |       
|                                                  |                                           |                                        |        |               |        |               |        |       
|                                                  |                                           | Total rental revenues                  |        |               | 17,183 |               |        |        | 17,939 | 
|                                                  |                                           |                                        |        |               |        |               |        |       
|Building and land sales  Flagler                 |                                           |                                        | 9,435  |               |        |               | 1,236  |       
|Building and land sales  other realty operations |                                           |                                        | 793    |               |        |               | 903    |       
|                                                  |                                           |                                        |        |               |        |               |        |       
|                                                  |                                           | Total building and land sales revenues |        |               | 10,228 |               |        |        | 2,139  | 
|                                                  |                                           |                                        |        |               |        |               |        |       
|                                                  |                                           |                                        |        |               |        |               |        |       
|                                                  | Total realty segment revenues             |                                        |        | 27,411        |        |               |        | 20,078 |       
|                                                  |                                           |                                        |        |               |        |               |        |       

(Prior years results have been reclassified to conform to current years presentation.)

REALTY SEGMENT EXPENSES
(dollars in thousands)
(unaudited)

|                                             |                                            |                                                         |                                                 |        |               |       |               |        |       |       | 
|-------------------------------------------- | ------------------------------------------ | ------------------------------------------------------- | ----------------------------------------------- | ------ | ------------- | ----- | ------------- | ------ | ----- | ----- | 
|                                             |                                            |                                                         |                                                 |        | Three Months  |       | Three Months 
|                                             |                                            |                                                         |                                                 |        | Ended June 30 |       | Ended June 30
|                                             |                                            |                                                         |                                                 |        | 2003          |       | 2002         
|                                             |                                            |                                                         |                                                 |        |               |       |              
|Real estate taxes  developed                |                                            |                                                         | 2,181                                           |        |               |       | 1,835         |       
|Repairs & maintenance  recoverable          |                                            |                                                         | 629                                             |        |               |       | 507           |       
|Services, utilities, management costs        |                                            |                                                         | 3,049                                           |        |               |       | 2,574         |       
|                                             |                                            |                                                         |                                                 |        |               |       |               |       
|                                             |                                            | Total expenses subject to recovery  Flagler properties |                                                 |        | 5,859         |       |               |        | 4,916 |      
|Real estate taxes  Flagler undeveloped land |                                            |                                                         | 887                                             |        |               |       | 713           |       
|Repairs & maintenance  non-recoverable      |                                            |                                                         | 197                                             |        |               |       | 245           |       
|Depreciation & amortization  Flagler        |                                            |                                                         | 6,916                                           |        |               |       | 5,818         |       
|SG&A  non-recoverable  Flagler             |                                            |                                                         | 1,970                                           |        |               |       | 1,389         |       
|                                             |                                            |                                                         |                                                 |        |               |       |               |       
|                                             |                                            | Total  non-recoverable expenses  Flagler properties   |                                                 |        | 9,970         |       |               |        | 8,165 |      
|                                             |                                            |                                                         |                                                 |        |               |       |               |       
|                                             | Total rental expenses  Flagler properties |                                                         |                                                 | 15,829 |               |       |               | 13,081 |      
|                                             |                                            |                                                         |                                                 |        |               |       |               |       
|Real estate taxes  other undeveloped land   |                                            |                                                         | 153                                             |        |               |       | 107           |       
|Depreciation & amortization  other          |                                            |                                                         | 28                                              |        |               |       | 10            |       
|SG&A  non-recoverable  other               |                                            |                                                         | 1,592                                           |        |               |       | 1,031         |       
|                                             |                                            |                                                         |                                                 |        |               |       |               |       
|                                             |                                            |                                                         | Total rental expenses  other realty operations |        |               | 1,773 |               |        |       | 1,148 | 
|                                             |                                            |                                                         |                                                 |        |               |       |               |       
|                                             | Total rental expenses                      |                                                         |                                                 | 17,602 |               |       |               | 14,229 |      
|                                             |                                            |                                                         |                                                 |        |               |       |               |       
|Realty sales expenses                        |                                            |                                                         | 2,586                                           |        |               |       | 458           |       
|                                             |                                            |                                                         |                                                 |        |               |       |               |       
|                                             |                                            |                                                         |                                                 |        |               |       |               |       
|Total operating expenses                     |                                            |                                                         | 20,188                                          |        |               |       | 14,687        |       
|                                             |                                            |                                                         |                                                 |        |               |       |               |       

(Prior years results have been reclassified to conform to current years presentation.)

25



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##### 



Item 6.

EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

The Exhibits listed on the accompanying Index to Exhibits are filed as part of
this Report or furnished with this Report.

(b) Reports on Form 8-K

1.     The Registrant furnished information under Item 9 on Form 8-K on April 18,
2003, reporting information the Registrant elected to disclose through Form 8-K
pursuant to Regulation FD. The information advised that Mr. Robert W. Anestis,
Chief Executive Officer, and Mr. Richard G. Smith, Chief Financial Officer,
Florida East Coast Industries, Inc., had made certifications pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, which accompanied FECIs Annual Report on Form 10-K/A for the year
ended December 31, 2002.

2.     The Registrant furnished information under Item 9 on Form 8-K on April 23,
2003, reporting information the Registrant elected to disclose through Form 8-K
pursuant to Regulation FD. The information advised that in
accordance with
Securities and Exchange Commission Release No. 33-8216, the following
information, which is intended to be furnished under Item 12, Results of
Operations and Financial Condition, is instead being furnished under Item 9.
This information shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1933, as amended, or the Exchange Act, except as
shall be expressly set forth by specific reference in such a filing. Florida
East Coast Industries, Inc. issued a press release on this date, describing its
results of operations for the first quarter ended March 31, 2003. A copy of the
press release was attached as Exhibit 99 to this report.

3.     The Registrant furnished information under Item 9 on Form 8-K on May 14,
2003, reporting information the Registrant elected to disclose through Form 8-K
pursuant to Regulation FD. The information concerned presentations to be made
by Mr. Robert W. Anestis, Chairman, President and Chief Executive Officer of
Florida East Coast Industries, Inc., to various potential investors at various
locations in New York City and Boston on May 14 and 15, 2003.

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 INDUSTRIES, INC.                                   
|              |  | (Registrant)                                                          
|              |  |                                                                       
|Date: 7/24/03 |  | /s/ Mark A. Leininger                                                 
|              |  |                                                                       
|              |  | Mark A. Leininger, Vice President and Controller                      
|              |  |                                                                       
|Date: 7/24/03 |  | /s/ Richard G. Smith                                                  
|              |  |                                                                       
|              |  | Richard G. Smith, Executive Vice President
and Chief Financial Officer

26



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##### 



INDEX TO EXHIBITS

|             |  |                                                                                                      |  |        
|------------ |  | ---------------------------------------------------------------------------------------------------- |  | -------
|             |  |                                                                                                      |  | PAGE   
|S-K ITEM 601 |  | DOCUMENTS                                                                                            |  | NUMBERS
|             |  |                                                                                                      |  |        
|             |  |                                                                                                      |  |        
|3.(i)        |  | Amended and Restated Articles of Incorporation                                                       |  | *      
|             |  |                                                                                                      |  |        
|3.(ii)       |  | Amended and Restated By-Laws                                                                         |  | *      
|             |  |                                                                                                      |  |        
|4            |  | Stock Purchase Rights                                                                                |  | #      
|             |  |                                                                                                      |  |        
|10           |  | Amendment dated March 6, 2003 to October 30, 1998
Employment Agreement between FECI and R.W. Anestis |  | 28-29  
|             |  |                                                                                                      |  |        
|99.1         |  | Section 302 Certifications                                                                           |  | 30-31  
|             |  |                                                                                                      |  |        
|99.2         |  | Section 906 Certification                                                                            |  | 32     

* Amended and Restated Articles of Incorporation and Amended and Restated
By-Laws of the Registrant, incorporated by reference to Appendices D and
E, respectively, to the definitive Proxy Statement on Schedule 14A, filed
with the Securities and Exchange Commission on February 4, 2000
(Registration No. 001-08728).

# Stock Purchase Rights and Rights Agreement, incorporated by reference to
Exhibit 1 to Florida East Coast Industries, Inc.s Registration Statement
on Form 8A, filed with the Securities and Exchange Commission on October
4, 2000.

27