##### Table of Contents



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 September 30, 2002          
|                                                            |  |                                                                                         
|OR                                                         
|                                                            |  |                                                                                         
|o                                                           |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|                                                            |  |                                                                                         
|For the transition period from ____________ to ____________

Commission File Number 001-08728

Florida East Coast Industries, Inc.




(Exact name of Registrant as specified in its charter)


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

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 September 30, 2002  
|                                                                    |  |                                    
|Class A Common Stock-no par value
Class B Common Stock-no par value |  | 17,024,316 shares
19,609,216 shares





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TABLE OF CONTENTS



|        |                                                                                                                                     |                                                                  |  |  |  |  |  | 
|------- | ----------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- |  |  |  |  |  | 
|        |                                                                                                                                     | CONSOLIDATED BALANCE SHEETS                                     
|        |                                                                                                                                     | CONSOLIDATED STATEMENTS OF INCOME                               
|        |                                                                                                                                     | CONSOLIDATED STATEMENTS OF CASH FLOWS                           
|        |                                                                                                                                     | NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
|        | Item 2. Managements Discussion and Analysis of the Consolidated                      Financial Condition and Results of Operations
|        | Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                 
|        | Item 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES                                                                           
|PART II
|        | Item 1. LEGAL PROCEEDINGS                                                                                                          
|        | Item 5. OTHER INFORMATION                                                                                                          
|        | Item 6. EXHIBITS AND REPORTS ON FORM 8-K                                                                                           
|        | SIGNATURES                                                                                                                         



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FLORIDA EAST COAST INDUSTRIES, INC.

|                                                                                                           |  |                                                                                                         |       |              |       | 
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------- | ----- | ------------ | ----- | 
|                                                                                                           |  |                                                                                                         |       | Page Numbers
|                                                                                                           |  |                                                                                                         |       |             
|PART I
FINANCIAL INFORMATION                                                                              
|Item 1. Financial Statements                                                                               |  |                                                                                                         |       |             
|                                                                                                           |  | Consolidated Balance Sheets -
September 30, 2002 and December 31, 2001                                  |       |              | 2     | 
|                                                                                                           |  | Consolidated Statements of Income -
Three Months and Nine Months Ended
September 30, 2002 and 2001      |       |              | 3     | 
|                                                                                                           |  | Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2002 and 2001                   |       |              | 4     | 
|                                                                                                           |  | Notes to Consolidated Condensed Financial Statements                                                    |       |              | 5-12  | 
|Item 2. Managements Discussion and Analysis of Consolidated
Financial Condition and Results of Operations |  |                                                                                                         |       |             
|                                                                                                           |  | Comparison of Third Quarter 2002 versus Third Quarter 2001
and Nine Months 2002 versus Nine Months 2001 |       |              | 13-19 | 
|                                                                                                           |  | Changes in Financial Condition, Liquidity and Capital Resources                                         |       |              | 19    | 
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                                         |  |                                                                                                         | 19    |             
|Item 4. Evaluation of Disclosure Controls and Procedures                                                   |  |                                                                                                         | 20    |             
|PART II
OTHER INFORMATION                                                                                 
|Item 1. Legal Proceedings                                                                                  |  |                                                                                                         | 20    |             
|Item 5. Other Information                                                                                  |  |                                                                                                         | 20-21 |             
|Item 6. Exhibits and Reports on Form 8-K                                                                   |  |                                                                                                         | 22    |             

1



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##### Table of Contents



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

|                                                           |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |         |         | 
|---------------------------------------------------------- | ------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | ------------ | ------- | ----------- | --------- | ------- | ------- | 
|                                                           |                                                         |                                                                                                                                                                                                                                         |         | September 30 |         | December 31
|                                                           |                                                         |                                                                                                                                                                                                                                         |         | 2002         |         | 2001       
|                                                           |                                                         |                                                                                                                                                                                                                                         |         |              |         |            
|                                                           |                                                         |                                                                                                                                                                                                                                         |         | (unaudited)  |         |             |           |        
|Assets                                                     |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |        
|Current Assets:                                            |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |        
|                                                           | Cash and cash equivalents                               |                                                                                                                                                                                                                                         |         | 28,512       |         |             |           | 14,089  |        
|                                                           | Accounts receivable (net)                               |                                                                                                                                                                                                                                         |         | 22,890       |         |             |           | 31,219  |        
|                                                           | Income tax receivable                                   |                                                                                                                                                                                                                                         |         | 2,800        |         |             |           | 10,105  |        
|                                                           | Materials and supplies                                  |                                                                                                                                                                                                                                         |         | 2,942        |         |             |           | 3,703   |        
|                                                           | Assets held for sale (Notes 2 and 9)                    |                                                                                                                                                                                                                                         |         | 11,672       |         |             |           | 7,825   |        
|                                                           | Assets related to discontinued operations (Note 2)      |                                                                                                                                                                                                                                         |         | 5,626        |         |             |           |        |        
|                                                           | Prepaid expenses and other current assets               |                                                                                                                                                                                                                                         |         | 13,129       |         |             |           | 14,720  |        
|                                                           | Deferred income taxes                                   |                                                                                                                                                                                                                                         |         | 10,026       |         |             |           |        |        
|                                                           |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |        
|                                                           |                                                         | Total current assets                                                                                                                                                                                                                    |         |              | 97,597  |             |           |         | 81,661  | 
|Properties, Less Accumulated Depreciation and Amortization |                                                         |                                                                                                                                                                                                                                         | 790,332 |              |         |             | 1,064,899 |        
|Other Assets and Deferred Charges                          |                                                         |                                                                                                                                                                                                                                         | 51,672  |              |         |             | 54,110    |        
|                                                           |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |        
|Total Assets                                               |                                                         |                                                                                                                                                                                                                                         | 939,601 |              |         |             | 1,200,670 |        
|                                                           |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |        
|Liabilities and Shareholders Equity                       |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |        
|Current Liabilities:                                       |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |        
|                                                           | Accounts payable                                        |                                                                                                                                                                                                                                         |         | 36,677       |         |             |           | 58,202  |        
|                                                           | Short-term debt                                         |                                                                                                                                                                                                                                         |         | 2,594        |         |             |           | 2,457   |        
|                                                           | Accrued casualty and other reserves                     |                                                                                                                                                                                                                                         |         | 2,141        |         |             |           | 1,987   |        
|                                                           | Liabilities related to discontinued operations (Note 2) |                                                                                                                                                                                                                                         |         | 6,225        |         |             |           |        |        
|                                                           | Other accrued liabilities                               |                                                                                                                                                                                                                                         |         | 28,748       |         |             |           | 16,746  |        
|                                                           |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |        
|                                                           |                                                         | Total current liabilities                                                                                                                                                                                                               |         |              | 76,385  |             |           |         | 79,392  | 
|Deferred Income Taxes                                      |                                                         |                                                                                                                                                                                                                                         | 22,158  |              |         |             | 103,673   |        
|Long-Term Debt                                             |                                                         |                                                                                                                                                                                                                                         | 269,821 |              |         |             | 282,784   |        
|Accrued Casualty and Other Long-Term Liabilities           |                                                         |                                                                                                                                                                                                                                         | 35,200  |              |         |             | 50,652    |        
|Shareholders Equity:                                      |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |        
|                                                           | Common Stock:                                           |                                                                                                                                                                                                                                         |         |              |         |             |           |         |        
|                                                           |                                                         | Class A common stock; no par value;
50,000,000 shares authorized; 17,823,400
shares issued and 17,024,316 shares outstanding at September 30, 2002, and
17,720,687 shares issued and 16,921,603 shares outstanding at December 31, 2001 |         |              | 69,142  |             |           |         | 66,533  | 
|                                                           |                                                         | Class B common stock; no par
value; 100,000,000 shares authorized; 19,609,216 shares
issued and outstanding at September 30, 2002 and December 31, 2001                                                                                 |         |              |         |             |           |         |         | 
|                                                           | Retained earnings                                       |                                                                                                                                                                                                                                         |         | 479,772      |         |             |           | 628,346 |        
|                                                           | Restricted stock deferred compensation                  |                                                                                                                                                                                                                                         |         | (3,522       | )       |             |           | (1,355  | )      
|                                                           | Treasury stock at cost (799,084 shares)                 |                                                                                                                                                                                                                                         |         | (9,355       | )       |             |           | (9,355  | )      
|                                                           |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |        
|                                                           |                                                         | Total shareholders equity                                                                                                                                                                                                              |         |              | 536,037 |             |           |         | 684,169 | 
|                                                           |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |        
|Total Liabilities and Shareholders Equity                 |                                                         |                                                                                                                                                                                                                                         | 939,601 |              |         |             | 1,200,670 |        
|                                                           |                                                         |                                                                                                                                                                                                                                         |         |              |         |             |           |        

(See accompanying notes to
consolidated condensed financial statements.)

2



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

|                                                                   |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------ |  | ------------------ | ---------- | ------------------ |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                   |  | THREE MONTHS       |            | NINE MONTHS       
|                                                                   |  | ENDED SEPTEMBER 30 |            | ENDED SEPTEMBER 30
|                                                                   |  |                    |            |                   
|                                                                   |  | 2002               |            | 2001               |  | 2002 |            | 2001
|                                                                   |  |                    |            |                    |  |      |            |     
|Operating revenues                                                 |  |                    | 64,485     |                    |  |      | 65,841     |      |  |   | 198,822    |   |  |   | 200,172    |  
|Operating expenses (Notes 3 and 9)                                 |  |                    | (300,177   | )                  |  |      | (60,776    | )    |  |   | (433,093   | ) |  |   | (184,428   | )
|                                                                   |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Operating (loss) profit                                            |  |                    | (235,692   | )                  |  |      | 5,065      |      |  |   | (234,271   | ) |  |   | 15,744     |  
|Interest expense                                                   |  |                    | (5,048     | )                  |  |      | (1,321     | )    |  |   | (14,865    | ) |  |   | (960       | )
|Other income (Note 7)                                              |  |                    | 458        |                    |  |      | 449        |      |  |   | 13,577     |   |  |   | 1,476      |  
|(Loss) income before income taxes                                  |  |                    | (240,282   | )                  |  |      | 4,193      |      |  |   | (235,559   | ) |  |   | 16,260     |  
|Benefit (provision) for income taxes                               |  |                    | 92,520     |                    |  |      | (1,596     | )    |  |   | 90,690     |   |  |   | (6,387     | )
|                                                                   |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|(Loss) income from continuing operations                           |  |                    | (147,762   | )                  |  |      | 2,597      |      |  |   | (144,869   | ) |  |   | 9,873      |  
|DISCONTINUED OPERATIONS (Note 2)                                   |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Loss from operation of discontinued operations (net of taxes)      |  |                    | (609       | )                  |  |      | (629       | )    |  |   | (1,951     | ) |  |   | (2,171     | )
|Gain on disposition of discontinued operations (net of taxes)      |  |                    | 988        |                    |  |      |           |      |  |   | 988        |   |  |   |           |  
|                                                                   |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Income (loss) from discontinued operations                         |  |                    | 379        |                    |  |      | (629       | )    |  |   | (963       | ) |  |   | (2,171     | )
|                                                                   |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Net (loss) income                                                  |  |                    | (147,383   | )                  |  |      | 1,968      |      |  |   | (145,832   | ) |  |   | 7,702      |  
|                                                                   |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|EARNINGS PER SHARE                                                 |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|(Loss) income from continuing operations  basic and diluted       |  | $                  | (4.05      | )                  |  | $    | 0.07       |      |  | $ | (3.98      | ) |  | $ | 0.27       |  
|Loss from operation of discontinued operations  basic and diluted |  | $                  | (0.02      | )                  |  | $    | (0.02      | )    |  | $ | (0.05      | ) |  | $ | (0.06      | )
|Gain on disposition of discontinued operations  basic and diluted |  | $                  | 0.03       |                    |  |      |           |      |  | $ | 0.03       |   |  |   |           |  
|                                                                   |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Net (loss) income  basic and diluted                              |  | $                  | (4.04      | )                  |  | $    | 0.05       |      |  | $ | (4.00      | ) |  | $ | 0.21       |  
|Average shares outstanding  basic                                 |  |                    | 36,440,611 |                    |  |      | 36,396,026 |      |  |   | 36,442,184 |   |  |   | 36,393,080 |  
|Average shares outstanding  diluted                               |  |                    | 36,440,611 |                    |  |      | 36,558,797 |      |  |   | 36,442,184 |   |  |   | 36,632,698 |  

(See accompanying notes to
consolidated condensed financial statements.)

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

|                                                      |                                                                                |                                                   |         |                            |         |      |          |          |         |  
|----------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------- | ------- | -------------------------- | ------- | ---- | -------- | -------- | ------- | -
|                                                      |                                                                                |                                                   |         | Nine Months Ended Sept. 30
|                                                      |                                                                                |                                                   |         |                           
|                                                      |                                                                                |                                                   |         | 2002                       |         | 2001
|                                                      |                                                                                |                                                   |         |                            |         |     
|Cash Flows from Operating Activities:                 |                                                                                |                                                   |         |                            |         |      |          |         
|                                                      | Net (loss) income                                                              |                                                   |         | (145,832                   | )       |      |          | 7,702    |        
|                                                      | Adjustments to reconcile net income to cash generated by operating activities: |                                                   |         |                            |         |      |          |          |        
|                                                      |                                                                                | Depreciation and amortization                     |         |                            | 49,012  |      |          |          | 38,340  |  
|                                                      |                                                                                | EPIK restructuring charges                        |         |                            | 5,474   |      |          |          |        |  
|                                                      |                                                                                | Payment of restructuring charges                  |         |                            | (4,512  | )    |          |          |        |  
|                                                      |                                                                                | Asset impairment charge                           |         |                            | 238,066 |      |          |          |        |  
|                                                      |                                                                                | FLX exit costs                                    |         |                            | 3,839   |      |          |          |        |  
|                                                      |                                                                                | Gain on sales and other disposition of properties |         |                            | (10,870 | )    |          |          | (10,256 | )
|                                                      |                                                                                | Non-cash gain on contract termination             |         |                            | (9,437  | )    |          |          |        |  
|                                                      |                                                                                | Other                                             |         |                            | (577    | )    |          |          | 610     |  
|                                                      |                                                                                | Deferred taxes                                    |         |                            | (91,541 | )    |          |          | (532    | )
|                                                      |                                                                                |                                                   |         |                            |         |      |          |         
|                                                      |                                                                                |                                                   | 33,622  |                            |         |      | 35,864   |         
|Changes in operating assets and liabilities: (Note 2) |                                                                                |                                                   |         |                            |         |      |          |         
|                                                      | Accounts receivable                                                            |                                                   |         | 6,695                      |         |      |          | (3,243   | )      
|                                                      | Other current assets                                                           |                                                   |         | (683                       | )       |      |          | (3,596   | )      
|                                                      | Other assets and deferred charges                                              |                                                   |         | 1,888                      |         |      |          | (3,476   | )      
|                                                      | Accounts payable                                                               |                                                   |         | (17,650                    | )       |      |          | (25,485  | )      
|                                                      | Income taxes receivable (payable)                                              |                                                   |         | 7,305                      |         |      |          | (4,834   | )      
|                                                      | Other current liabilities                                                      |                                                   |         | 17,106                     |         |      |          | 9,677    |        
|                                                      | Accrued casualty and other long-term liabilities                               |                                                   |         | (4,415                     | )       |      |          | 1,199    |        
|                                                      |                                                                                |                                                   |         |                            |         |      |          |         
|                                                      |                                                                                |                                                   | 10,246  |                            |         |      | (29,758  | )       
|Net cash generated by operating activities            |                                                                                |                                                   | 43,868  |                            |         |      | 6,106    |         
|Cash Flows from Investing Activities:                 |                                                                                |                                                   |         |                            |         |      |          |         
|                                                      | Purchase of properties                                                         |                                                   |         | (39,831                    | )       |      |          | (209,025 | )      
|                                                      | Proceeds from available-for-sale investments                                   |                                                   |         |                           |         |      |          | 13,007   |        
|                                                      | Proceeds from disposition of assets                                            |                                                   |         | 26,023                     |         |      |          | 17,967   |        
|                                                      |                                                                                |                                                   |         |                            |         |      |          |         
|Net cash (used in) generated by investing activities  |                                                                                |                                                   | (13,808 | )                          |         |      | (178,051 | )       
|Cash Flows from Financing Activities:                 |                                                                                |                                                   |         |                            |         |      |          |         
|                                                      | Proceeds from exercise of options                                              |                                                   |         |                           |         |      |          | 2,265    |        
|                                                      | Purchase of common stock                                                       |                                                   |         | (68                        | )       |      |          |         |        
|                                                      | Proceeds from mortgages                                                        |                                                   |         |                           |         |      |          | 247,000  |        
|                                                      | Payment of mortgage debt                                                       |                                                   |         | (1,827                     | )       |      |          | (243     | )      
|                                                      | Payment of line of credit                                                      |                                                   |         | (11,000                    | )       |      |          | (83,000  | )      
|                                                      | Debt issuance costs                                                            |                                                   |         |                           |         |      |          | (5,956   | )      
|                                                      | Payment of dividends                                                           |                                                   |         | (2,742                     | )       |      |          | (2,739   | )      
|                                                      |                                                                                |                                                   |         |                            |         |      |          |         
|Net cash (used in) provided by financing activities   |                                                                                |                                                   | (15,637 | )                          |         |      | 157,327  |         
|Net Increase (Decrease) in Cash and Cash Equivalents  |                                                                                |                                                   | 14,423  |                            |         |      | (14,618  | )       
|Cash and Cash Equivalents at Beginning of Period      |                                                                                |                                                   | 14,089  |                            |         |      | 18,444   |         
|                                                      |                                                                                |                                                   |         |                            |         |      |          |         
|Cash and Cash Equivalents at End of Period            |                                                                                |                                                   | 28,512  |                            |         |      | 3,826    |         
|                                                      |                                                                                |                                                   |         |                            |         |      |          |         
|Supplemental Disclosure of Cash Flow Information:     |                                                                                |                                                   |         |                            |         |      |          |         
|                                                      | Cash (received) paid for income taxes                                          |                                                   |         | (7,984                     | )       |      |          | 12,950   |        
|                                                      |                                                                                |                                                   |         |                            |         |      |          |         
|                                                      | Cash paid for interest                                                         |                                                   |         | 14,001                     |         |      |          | 6,562    |        
|                                                      |                                                                                |                                                   |         |                            |         |      |          |         
|                                                      | Property contributed to partnerships                                           |                                                   |         |                           |         |      |          | 4,590    |        
|                                                      |                                                                                |                                                   |         |                            |         |      |          |         

(See accompanying notes to
consolidated condensed financial statements.)

4



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FLORIDA EAST COAST INDUSTRIES, INC.




NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 1.General

In the opinion of management, the accompanying unaudited consolidated condensed
financial statements reflect all accruals and adjustments considered necessary
to present fairly the Companys financial position as of September 30, 2002 and
December 31, 2001, and the results of operations and cash flows for the
three-month and nine-month periods ended September 30, 2002 and 2001. 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 Annual Report on Form 10-K for the year ended
December 31, 2001 filed with the Securities and Exchange Commission.

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

Note 2.Discontinued Operations

Flagler Development

During the third quarter 2002, Flagler Development Company (Flagler) sold an
industrial building totaling approximately 300,000 square feet located in its
Beacon Station Business Park. By exercising an option, the tenant purchased the
building for $18.2 million, and Flagler reported a pre-tax gain of $5.5 million
($3.3 million, net of tax) on the sale. In addition, Flagler entered into a
contract to sell a 101,000-square foot building utilized as a call center in
its Beacon Station Business Park, with the sale expected to close in the fourth
quarter 2002. These sales are accounted for as discontinued operations under
the provisions of Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144),
and all periods presented have been restated for the discontinued operations of
both buildings. The gain on the sale of the industrial building has been
excluded from continuing operations and included in discontinued operations for
all periods presented. The call center building, which is expected to be sold
in the fourth quarter of 2002, with a net book value of $8.3 million, has been
included in assets held for sale.

|                                                        |  |                |      |                |  |      |      |      |  |  |        |   |  |  |       |  
|------------------------------------------------------- |  | -------------- | ---- | -------------- |  | ---- | ---- | ---- |  |  | ------ | - |  |  | ----- | -
|                                                        |  | THREE MONTHS   |      | NINE MONTHS   
|                                                        |  | ENDED SEPT. 30 |      | ENDED SEPT. 30
|                                                        |  |                |      |               
|                                                        |  | 2002           |      | 2001           |  | 2002 |      | 2001
|                                                        |  |                |      |                |  |      |      |     
|Summary of Operating Results of Discontinued Operations |  |                |      |                |  |      |      |      |  |  |        |   |  |  |       |  
|Flagler realty rental revenues                          |  |                | 829  |                |  |      | 848  |      |  |  | 2,698  |   |  |  | 1,465 |  
|Flagler realty rental expenses                          |  |                | (402 | )              |  |      | (344 | )    |  |  | (1,206 | ) |  |  | (661  | )
|                                                        |  |                |      |                |  |      |      |      |  |  |        |   |  |  |       |  
|Income before income taxes                              |  |                | 427  |                |  |      | 504  |      |  |  | 1,492  |   |  |  | 804   |  
|Income taxes                                            |  |                | (165 | )              |  |      | (195 | )    |  |  | (576   | ) |  |  | (310  | )
|                                                        |  |                |      |                |  |      |      |      |  |  |        |   |  |  |       |  
|Income from discontinued operations                     |  |                | 262  |                |  |      | 309  |      |  |  | 916    |   |  |  | 494   |  
|                                                        |  |                |      |                |  |      |      |      |  |  |        |   |  |  |       |  

Trucking Operations

During the third quarter of 2002, the Company adopted a plan to discontinue its
regional long-haul trucking operations. The Company expects shut down and
disposition activities to continue into the fourth quarter of 2002. As of
September 30, 2002, the estimated disposition loss of
approximately $5.2
million includes the following items: employee severance costs, tractor/trailer
disposition costs and other costs. At September 30, 2002, $3.8 million ($2.3
million, net of tax) of these costs had been accrued.

The Company reported the results of the trucking operations and the estimated
disposition loss as discontinued operations under the provisions of SFAS 144,
and all periods presented have been restated accordingly.

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Net Assets of Discontinued Operations

|                                           |                                                            |  |         |        |  
|------------------------------------------ | ---------------------------------------------------------- |  | ------- | ------ | -
|                                           |                                                            |  | 9/30/02
|                                           |                                                            |  |        
|Assets                                     |                                                            |  |         |       
|                                           | Accounts receivable (net)                                  |  |         | 2,672  |  
|                                           | Other current assets                                       |  |         | 1,104  |  
|                                           | Properties, less accumulated depreciation and amortization |  |         | 1,639  |  
|                                           | Other assets and deferred charges                          |  |         | 211    |  
|                                           |                                                            |  |         |       
|Total Assets                               |                                                            |  | 5,626   |       
|Liabilities                                |                                                            |  |         |       
|                                           | Accounts payable                                           |  |         | (1,455 | )
|                                           | Other liabilities                                          |  |         | (4,770 | )
|                                           |                                                            |  |         |       
|Total Liabilities                          |                                                            |  | (6,225  | )     
|                                           |                                                            |  |         |       
|Net Liabilities of Discontinued Operations |                                                            |  | (599    | )     
|                                           |                                                            |  |         |       

|                                                        |  |                |        |                |  |      |         |      |  |  |         |   |  |  |         |  
|------------------------------------------------------- |  | -------------- | ------ | -------------- |  | ---- | ------- | ---- |  |  | ------- | - |  |  | ------- | -
|                                                        |  | THREE MONTHS   |        | NINE MONTHS   
|                                                        |  | ENDED SEPT. 30 |        | ENDED SEPT. 30
|                                                        |  |                |        |               
|                                                        |  | 2002           |        | 2001           |  | 2002 |         | 2001
|                                                        |  |                |        |                |  |      |         |     
|Summary of Operating Results of Discontinued Operations |  |                |        |                |  |      |         |      |  |  |         |   |  |  |         |  
|Trucking revenues                                       |  |                | 6,497  |                |  |      | 9,457   |      |  |  | 22,940  |   |  |  | 25,485  |  
|Trucking expenses                                       |  |                | (7,913 | )              |  |      | (10,983 | )    |  |  | (27,601 | ) |  |  | (29,818 | )
|                                                        |  |                |        |                |  |      |         |      |  |  |         |   |  |  |         |  
|Loss before income taxes                                |  |                | (1,416 | )              |  |      | (1,526  | )    |  |  | (4,661  | ) |  |  | (4,333  | )
|Income taxes                                            |  |                | 545    |                |  |      | 588     |      |  |  | 1,794   |   |  |  | 1,668   |  
|                                                        |  |                |        |                |  |      |         |      |  |  |         |   |  |  |         |  
|Loss from discontinued operations                       |  |                | (871   | )              |  |      | (938    | )    |  |  | (2,867  | ) |  |  | (2,665  | )
|                                                        |  |                |        |                |  |      |         |      |  |  |         |   |  |  |         |  

Note 3.Telecommunications Asset Impairment

On June 20, 2002, the Company had announced
(as reflected on Form 8-K filed that day)
that it had retained Morgan Stanley to assist in a review of strategic
alternatives for EPIK Communications Incorporated, its wholly owned
telecommunications subsidiary. In its announcement, the Company had stated its
expectation that if the Company should consummate a transaction involving EPIK,
it likely would be for less than the book value, which would result in a
non-cash charge to earnings. However, the Company cautioned that there could be
no assurance the strategic review would result in a transaction involving EPIK.

The previously announced strategic alternatives review proceeded throughout and
past the end of the third quarter, as a result of which the Company obtained
new information about deteriorating conditions in the telecommunications
industry, the prospects for EPIKs business, the fair value of the Companys
investment in EPIK, and the alternatives available to the Company in respect of
this investment. As a result, the Company has fully impaired the remaining
$238.1 million carrying value of EPIKs long-lived telecommunications assets.
The carrying value of EPIKs other assets, consisting primarily of current
assets, totaled $11.0 million at September 30, 2002. As required by SFAS 144,
the Company has accounted for telecommunications as a continuing operation,
though the Company may reclassify telecommunications to discontinued operations
in the future if the criteria specified in SFAS 144 for discontinued operations
accounting are met. The Company presently intends to continue to support EPIKs
provision of service pursuant to existing customer obligations while the
Company seeks to exit the telecommunications business. However, there can be no
assurance that the Company will continue such support indefinitely. Although
the Company has been seeking a single purchaser for EPIK or substantially all
its assets, EPIK presently intends to seek to sell during the fourth quarter of
2002 those assets not needed to meet existing customer obligations. Given
overcapacity and substantial amounts of excess equipment available for sale in
the telecommunications industry, success in selling such assets is not assured,
the amount of proceeds is not reasonably determinable, and any such proceeds
are not expected to be material to the Company.

The Company has recorded a cumulative book deferred tax benefit of
approximately $101 million related to EPIKs long-lived telecommunications
assets. This deferred tax asset is shown net in the deferred tax liability
section of the Companys consolidated balance sheets.

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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 its estimated share of the total estimated
cleanup costs for the site. Based upon managements evaluation, the Company
does not expect to incur additional amounts, even though the Company may have
joint and several liability.

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
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 but not officially served on
the Railway. 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.

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.

Note 6.Dividends

On August 29, 2002, the Company declared a dividend of $.025 (2 1/2 cents) per
share on its outstanding common stock, payable September 27, 2002, to
shareholders of record September 13, 2002.

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##### Table of Contents



Note 7.Other Income

|                                 |  |                    |     |                    |  |      |     |      |  |  |        |  |  |  |       | 
|-------------------------------- |  | ------------------ | --- | ------------------ |  | ---- | --- | ---- |  |  | ------ |  |  |  | ----- | 
|                                 |  | THREE MONTHS       |     | NINE MONTHS       
|                                 |  | ENDED SEPTEMBER 30 |     | ENDED SEPTEMBER 30
|                                 |  |                    |     |                   
|(dollars in thousands)           |  | 2002               |     | 2001               |  | 2002 |     | 2001
|                                 |  |                    |     |                    |  |      |     |     
|EPIK  contract termination      |  |                    |    |                    |  |      |    |      |  |  | 9,437  |  |  |  |      | 
|Pipe & wire crossings/signboards |  |                    | 363 |                    |  |      | 364 |      |  |  | 3,830  |  |  |  | 1,445 | 
|Other (net)                      |  |                    | 95  |                    |  |      | 85  |      |  |  | 310    |  |  |  | 31    | 
|                                 |  |                    |     |                    |  |      |     |      |  |  |        |  |  |  |       | 
|                                 |  |                    | 458 |                    |  |      | 449 |      |  |  | 13,577 |  |  |  | 1,476 | 
|                                 |  |                    |     |                    |  |      |     |      |  |  |        |  |  |  |       | 

During 1999 through 2001, a now-bankrupt former customer made advance payments
to EPIK for network services to be provided in the future. EPIK recognizes
revenues from such payments only as and when it provides the contracted
services. However, under a bankruptcy settlement with the former customer,
which was completed during the second quarter of 2002, EPIK is no longer
contractually obligated to provide any future services or return the previously
received amounts. Accordingly, EPIK recorded $9.4 million of other income to
reflect the bankruptcy settlement of this commercial contract during the second
quarter of 2002.

Note 8.Debt

The Company maintains a $300 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 20-50 basis points. The borrowings under the credit agreement are
secured by the capital securities of FECR, Florida Express Carriers, Inc. (FLX)
and the Class A shares of EPIK. 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 EPIKs financial results, as well as 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 at any
time by the borrower, or at the conclusion of the facilitys term (March 31,
2004). At September 30, 2002, there were $28 million of direct borrowings
outstanding under the facility at an average interest rate of approximately
2.57%.

During 2001, Flagler issued $247 million of mortgage notes with $160 million
due July 1, 2011 and $87 million due October 1, 2008. At September 30, 2002,
$244.4 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.

Note 9. Restructuring Charges and Other Costs

During the fourth quarter of 2001 and second quarter of 2002, EPIK recorded
$14.0 million of restructuring charges related to the termination benefits of
management and other employees, and certain redundant collocation and
commercial realty lease liabilities. At September 30, 2002, the restructuring
liabilities were $7.5 million, the decrease primarily resulting from payments
of termination benefits.

At September 30, 2002, EPIK continued to actively pursue sales of equipment and
material identified as excess to its needs. The net carrying value of these
materials is $3.4 million and is included in assets held for sale.

Note 10.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 three reportable
operating segments, all within the same geographic area, as follows: railway
segment, realty segment and the telecommunications segment.

8



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##### Table of Contents



The railway segment, a part of FECR, provides rail freight transportation along
the east coast of Florida between Jacksonville and Miami. The realty segment,
which includes Flagler, is engaged in the development, leasing, management,
operation and selected sale of commercial and industrial property. EPIK, based
in Orlando, Florida, operates as a carriers carrier, providing wholesale
carrier services including bandwidth (private lines), wave services, Internet
Protocol services, collocation and dark fiber.

The Companys railway subsidiary generates revenues from leases to other
telecommunications companies for the installation of fiber optic and other
facilities on the railroad right-of-way, which are included in the
telecommunications segment. Also, the railway subsidiary generates 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 evaluates the railway segments performance based on operating
profit or loss from operations before other income and income taxes. Also, the
Company evaluates FECR on EBITDA from railway operations and for the legal
entity as a whole. Operating profit is operating revenue less directly
traceable costs and expenses. EBITDA is defined as operating profit before net
interest expense, income taxes, depreciation and amortization. The Company
evaluates the realty segment based on EBITDA and operating profit. The Company
evaluates the telecommunications segments performance, specifically EPIKs,
based on EBITDA.

Intersegment revenues for transactions between the segments are based generally
on rates, which are believed to approximate the cost that would have been
incurred had similar services been obtained from or provided to an unrelated
third party.

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

9



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##### Table of Contents



Information by industry segment:

|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |         |   |        |  
|--------------------------------------------------------------- | ---------------------------------------------- | ------------------ | ------------------------- | ------------------ | ------------ | ------- | ----------- | ------ | - | ------ | -------- | -------- | - | ------- | ------ | ------- | - | ------ | -
|                                                                |                                                |                    |                           |                    | THREE MONTHS |         | NINE MONTHS
|                                                                |                                                | ENDED SEPTEMBER 30 |                           | ENDED SEPTEMBER 30
|                                                                |                                                |                    |                           |                   
|(dollars in thousands)                                          |                                                | 2002               |                           | 2001               |              | 2002    |             | 2001  
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |         
|Operating Revenues                                              |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                | Railway                                        |                    |                           | 39,963             |              |         |             | 39,055 |   |        |          | 122,572  |   |         |        | 119,558 |  
|                                                                | Realty:                                        |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |         |  
|                                                                |                                                |                    | Flagler Realty Rental     |                    |              | 14,515  |             |        |   | 16,714 |          |          |   | 46,114  |        |         |   | 46,151 |  
|                                                                |                                                |                    | Flagler Realty Sales      |                    |              | 1,397   |             |        |   | 4,201  |          |          |   | 5,184   |        |         |   | 16,496 |  
|                                                                |                                                |                    | Other Rental              |                    |              | 1,068   |             |        |   | 978    |          |          |   | 2,752   |        |         |   | 2,649  |  
|                                                                |                                                |                    | Other Sales               |                    |              | 1,208   |             |        |   | 487    |          |          |   | 2,676   |        |         |   | 1,471  |  
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                | Total Realty                                   |                    |                           | 18,188             |              |         |             | 22,380 |   |        |          | 56,726   |   |         |        | 66,767  |  
|                                                                | Telecommunications:                            |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |         |  
|                                                                |                                                |                    | EPIK Communications       |                    |              | 4,842   |             |        |   | 2,858  |          |          |   | 14,915  |        |         |   | 8,872  |  
|                                                                |                                                |                    | Right-of-way Leases       |                    |              | 1,519   |             |        |   | 1,589  |          |          |   | 4,701   |        |         |   | 5,094  |  
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                | Total Telecommunications                       |                    |                           | 6,361              |              |         |             | 4,447  |   |        |          | 19,616   |   |         |        | 13,966  |  
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                | Total Revenues (segment)                       |                    |                           | 64,512             |              |         |             | 65,882 |   |        |          | 198,914  |   |         |        | 200,291 |  
|                                                                |                                                |                    | Intersegment Revenues (a) |                    |              | (27     | )           |        |   | (41    | )        |          |   | (92     | )      |         |   | (119   | )
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                | Total Revenues (consolidated)                  |                    |                           | 64,485             |              |         |             | 65,841 |   |        |          | 198,822  |   |         |        | 200,172 |  
|Operating Expenses                                              |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                | Railway                                        |                    |                           | 30,229             |              |         |             | 30,513 |   |        |          | 92,243   |   |         |        | 89,546  |  
|                                                                | Realty:                                        |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |         |  
|                                                                |                                                |                    | Flagler Realty Rental     |                    |              | 13,144  |             |        |   | 12,058 |          |          |   | 38,259  |        |         |   | 36,119 |  
|                                                                |                                                |                    | Flagler Realty Sales      |                    |              | 921     |             |        |   | 1,874  |          |          |   | 2,522   |        |         |   | 7,711  |  
|                                                                |                                                |                    | Other Rental              |                    |              | 1,237   |             |        |   | 927    |          |          |   | 3,544   |        |         |   | 2,909  |  
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                | Total Realty                                   |                    |                           | 15,302             |              |         |             | 14,859 |   |        |          | 44,325   |   |         |        | 46,739  |  
|                                                                | Telecommunications:                            |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |         |  
|                                                                |                                                |                    | EPIK Communications*      |                    |              | 251,790 |             |        |   | 13,795 |          |          |   | 288,099 |        |         |   | 42,857 |  
|                                                                |                                                |                    | Right-of-way Leases       |                    |              | 38      |             |        |   | 42     |          |          |   | 114     |        |         |   | 114    |  
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                | Total Telecommunications                       |                    |                           | 251,828            |              |         |             | 13,837 |   |        |          | 288,213  |   |         |        | 42,971  |  
|                                                                | Corporate General & Administrative             |                    |                           | 2,845              |              |         |             | 1,608  |   |        |          | 8,404    |   |         |        | 5,291   |  
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                | Total Expenses (segment)                       |                    |                           | 300,204            |              |         |             | 60,817 |   |        |          | 433,185  |   |         |        | 184,547 |  
|                                                                |                                                |                    | Intersegment Expenses (a) |                    |              | (27     | )           |        |   | (41    | )        |          |   | (92     | )      |         |   | (119   | )
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                | Total Expenses (consolidated)                  |                    |                           | 300,177            |              |         |             | 60,776 |   |        |          | 433,093  |   |         |        | 184,428 |  
|Operating (Loss) Profit                                         |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                | Railway                                        |                    |                           | 9,734              |              |         |             | 8,542  |   |        |          | 30,329   |   |         |        | 30,012  |  
|                                                                | Realty                                         |                    |                           | 2,886              |              |         |             | 7,521  |   |        |          | 12,401   |   |         |        | 20,028  |  
|                                                                | Telecommunications                             |                    |                           | (245,467           | )            |         |             | (9,390 | ) |        |          | (268,597 | ) |         |        | (29,005 | )
|                                                                | Corporate General & Administrative             |                    |                           | (2,845             | )            |         |             | (1,608 | ) |        |          | (8,404   | ) |         |        | (5,291  | )
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                | Segment & Consolidated Operating (Loss) Profit |                    |                           | (235,692           | )            |         |             | 5,065  |   |        |          | (234,271 | ) |         |        | 15,744  |  
|Interest Expense                                                |                                                |                    | (5,048                    | )                  |              |         | (1,321      | )      |   |        | (14,865  | )        |   |         | (960   | )      
|Other Income                                                    |                                                |                    | 458                       |                    |              |         | 449         |        |   |        | 13,577   |          |   |         | 1,476  |        
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|                                                                |                                                |                    | (4,590                    | )                  |              |         | (872        | )      |   |        | (1,288   | )        |   |         | 516    |        
|(Loss) Income before Taxes                                      |                                                |                    | (240,282                  | )                  |              |         | 4,193       |        |   |        | (235,559 | )        |   |         | 16,260 |        
|Benefit (provision) for Income Taxes                            |                                                |                    | 92,520                    |                    |              |         | (1,596      | )      |   |        | 90,690   |          |   |         | (6,387 | )      
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|(Loss) Income from Continuing Operations                        |                                                |                    | (147,762                  | )                  |              |         | 2,597       |        |   |        | (144,869 | )        |   |         | 9,873  |        
|DISCONTINUED OPERATIONS                                         |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|(Loss) from Operation of Discontinued
Operations (net of taxes) |                                                |                    | (609                      | )                  |              |         | (629        | )      |   |        | (1,951   | )        |   |         | (2,171 | )      
|Gain on Disposition of Discontinued Operations
(net of taxes)   |                                                |                    | 988                       |                    |              |         |            |        |   |        | 988      |          |   |         |       |        
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        
|Net (Loss) Income                                               |                                                |                    | (147,383                  | )                  |              |         | 1,968       |        |   |        | (145,832 | )        |   |         | 7,702  |        
|                                                                |                                                |                    |                           |                    |              |         |             |        |   |        |          |          |   |         |        |        

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EBITDA by industry segment:(b)

|                                                                                         |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |       | 
|---------------------------------------------------------------------------------------- | ----------------------------------------- | ---- | ------------------ | ----- | ------------------ | ---- | ------ | ----- |  |  | -------- | ----- |  |  | ------- | ----- | 
|                                                                                         |                                           |      | THREE MONTHS       |       | NINE MONTHS       
|                                                                                         |                                           |      | ENDED SEPTEMBER 30 |       | ENDED SEPTEMBER 30
|                                                                                         |                                           |      |                    |       |                   
|(dollars in thousands)                                                                   |                                           | 2002 |                    | 2001  |                    | 2002 |        | 2001 
|                                                                                         |                                           |      |                    |       |                    |      |        |      
|Railway EBITDA**                                                                         |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|FECR EBITDA                                                                              |                                           |      | 17,990             |       |                    |      | 16,080 |       |  |  | 56,821   |       |  |  | 51,578  |      
|Less:                                                                                    |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|                                                                                         | EBITDA from other realty rental and sales |      |                    | 1,684 |                    |      |        | 1,179 |  |  |          | 4,087 |  |  |         | 2,736 | 
|                                                                                         | EBITDA from right-of-way leases           |      |                    | 1,519 |                    |      |        | 1,589 |  |  |          | 4,701 |  |  |         | 5,094 | 
|                                                                                         | EBITDA from FECR other income             |      |                    | 511   |                    |      |        | 544   |  |  |          | 4,623 |  |  |         | 1,651 | 
|                                                                                         |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|Railway segments EBITDA (c)                                                             |                                           |      | 14,276             |       |                    |      | 12,768 |       |  |  | 43,410   |       |  |  | 42,097  |      
|                                                                                         |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|Realty EBITDA(Prior year amounts have been restated to
reflect discontinued operations.) |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|EBITDA from Flagler operating properties rents                                          |                                           |      | 8,811              |       |                    |      | 11,336 |       |  |  | 29,456   |       |  |  | 30,898  |      
|EBITDA from real estate services                                                         |                                           |      |                   |       |                    |      | 584    |       |  |  |         |       |  |  | 584     |      
|EBITDA (loss) from Flagler land rents/holding costs                                      |                                           |      | (876               | )     |                    |      | (517   | )     |  |  | (2,440   | )     |  |  | (1,905  | )    
|Equity pickups on partnership rents                                                      |                                           |      | 269                |       |                    |      | 226    |       |  |  | 1,223    |       |  |  | 622     |      
|Less: unallocated corporate overhead                                                     |                                           |      | (1,259             | )     |                    |      | (1,525 | )     |  |  | (3,742   | )     |  |  | (4,351  | )    
|                                                                                         |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|EBITDA from Flagler rental properties (net of overheads)                                 |                                           |      | 6,945              |       |                    |      | 10,104 |       |  |  | 24,497   |       |  |  | 25,848  |      
|EBITDA from Flagler real estate sales (net of overheads)                                 |                                           |      | 477                |       |                    |      | 2,327  |       |  |  | 2,662    |       |  |  | 8,785   |      
|                                                                                         |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|Total EBITDA  Flagler (c)                                                               |                                           |      | 7,422              |       |                    |      | 12,431 |       |  |  | 27,159   |       |  |  | 34,633  |      
|EBITDA (loss) from other rental                                                          |                                           |      | (159               | )     |                    |      | 61     |       |  |  | (761     | )     |  |  | (229    | )    
|EBITDA from other real estate sales                                                      |                                           |      | 1,208              |       |                    |      | 487    |       |  |  | 2,676    |       |  |  | 1,471   |      
|                                                                                         |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|Total EBITDA  real estate segment continuing operations (c)                             |                                           |      | 8,471              |       |                    |      | 12,979 |       |  |  | 29,074   |       |  |  | 35,875  |      
|                                                                                         |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|EBITDA discontinued operations                                                           |                                           |      | 638                |       |                    |      | 699    |       |  |  | 2,141    |       |  |  | 1,230   |      
|EBITDA from gain on disposition of discontinued operations                               |                                           |      | 5,532              |       |                    |      |       |       |  |  | 5,532    |       |  |  |        |      
|                                                                                         |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|Total EBITDA  discontinued operations (c)                                               |                                           |      | 6,170              |       |                    |      | 699    |       |  |  | 7,673    |       |  |  | 1,230   |      
|                                                                                         |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|Total EBITDA  real estate segment (c)                                                   |                                           |      | 14,641             |       |                    |      | 13,678 |       |  |  | 36,747   |       |  |  | 37,105  |      
|                                                                                         |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|Telecommunications EBITDA                                                               |                                           |      |                    |       |                    |      |        |       |  |  |          |       |  |  |         |      
|EPIK
EBITDA (c)*                                                                         |                                           |      | (241,486           | )     |                    |      | (7,093 | )     |  |  | (256,874 | )     |  |  | (26,517 | )    
|EPIK EBITDA excluding asset impairments, restructuring and
other costs                   |                                           |      | (3,421             | )     |                    |      | (7,093 | )     |  |  | (13,255  | )     |  |  | (26,517 | )    
|Telecommunications EBITDA (c)                                                           |                                           |      | (239,967           | )     |                    |      | (5,504 | )     |  |  | (252,173 | )     |  |  | (21,423 | )    

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

(a)  Included intersegment revenues and expenses of $27 and $41 for the three
months ended September 30, 2002 and 2001 and $92 and $119 for the nine months
ended September 30, 2002 and 2001, respectively.

(b)  EBITDA is defined as operating profit before net interest expense, income
taxes, depreciation and amortization. The Company has disclosed
information concerning EBITDA because an investor may find it is
useful in evaluating the Companys operating performance. EBITDA
should not be considered an alternative to net income or any other
measure of performance and should be read along with the
Companys financial statements. EBITDA should also not be used
as a measure of liquidity or cash flows under U.S. GAAP. In addition,
EBITDA as defined by the Company may not be comparable to similar
measures reported by other companies.

(c)  Railway segments EBITDA excludes depreciation of $4,542 and $4,226 for the
three months ended September 30, 2002 and 2001, and $13,081 and $12,085 for the
nine months ended September 30, 2002 and 2001, respectively. Total FECRs
EBITDA includes EBITDA from right-of-way leases, other realty rental, other
realty sales and other income of $3,714 and $3,312 for the three months ended
September 30, 2002 and 2001, and $13,411 and $9,481 for the nine months ended
September 30, 2002 and 2001, respectively, and in total, plus EBITDA from
Railway operations. Excludes depreciation in total of $4,590 and $4,278 for the
three months ended September 30, 2002 and 2001, and $13,226 and $12,230 for the
nine months ended September 30, 2002 and 2001, respectively.

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Total EBITDA  Flagler excludes depreciation and amortization of $5,574 and
$5,449 for the three months ended September 30, 2002 and 2001, and $16,642 and
$15,816 for the nine months ended September 30, 2002 and 2001, respectively.

Total EBITDA  real estate segment from continuing operations excludes
depreciation and amortization in total of $5,584 and $5,459 for the three
months ended September 30, 2002 and 2001, and $16,673 and $15,847 for the nine
months ended September 30, 2002 and 2001, respectively.

Total EBITDA  discontinued operations excludes depreciation and amortization
in total of $210 and $195 for the three months ended September 30, 2002 and
2001, and $649 and $425 for the nine months ended September 30, 2002 and 2001,
respectively.

Total EBITDA  real estate segment excludes depreciation and amortization in
total of $5,794 and $5,654 for the three months ended September 30, 2002 and
2001, and $17,322 and $16,272 for the nine months ended September 30, 2002 and
2001, respectively.

EPIKs EBITDA excludes depreciation and amortization of $5,462 and $3,844 for
the three months ended September 30, 2002 and 2001, and $16,310 and $7,468 for
the nine months ended September 30, 2002 and 2001, respectively.
Telecommunications EBITDA excludes depreciation and amortization in total of
$5,500 and $3,886 for the three months ended September 30, 2002 and 2001, and
$16,424 and $7,582 for the nine months ended September 30, 2002 and 2001,
respectively.

*-2002 amounts include $5.5 million of
restructuring and other costs (nine months only) and $238.1
million of impairment costs.

**-This table is provided to reconcile total EBITDA from the legal entity,
Florida East Coast Railway, L.L.C., to EBITDA associated with the Railway
operations of FECR and included in the Railway segment.

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##### Table of Contents






Item 2.

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

Forward-Looking Statements

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.
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 Companys ability to compete effectively
in a rapidly evolving capital constrained, volatile, and price competitive
telecommunications marketplace and to respond to customer demands and industry
changes; the ability to achieve revenue growth in uncertain telecommunications
markets, particularly from products and services that are in the early stages
of development or operation; credit risks associated with contractual
obligations from customers, including telecommunication customers; the ability
to manage growth; changes in business strategy, legislative or regulatory
changes; technological changes; volatility of fuel prices; changes in
depreciation rates resulting from future railway right-of-way and equipment
life studies; changing general economic conditions (particularly in the State
of Florida) as it relates to economically sensitive products in freight service
and building rental activities; industry competition; ability to manage through
economic recessions or downturns in customers business cycles; changes in
business strategies and implementation; natural events such as weather
conditions, floods, earthquakes and forest fires; the ability of the Company to
complete its financing plans; the availability and timing of utilization of the
Companys deferred tax assets; unanticipated changes in tax laws, regulations
and interpretation thereof that could limit the tax benefits of certain
possible transactions; the ultimate outcome of environmental investigations or
proceedings and other types of claims and litigation; increases in insurance
premiums and deductibles; the availability and costs of attracting and
retaining qualified independent third party contractors; and risks entailed in
restructuring the manner of delivery of transportation and
telecommunication services. In addition,
there are risks related to factors such as changes in telecommunications
industry business conditions, receptivity to industry consolidation by the
securities markets, perceptions of future growth of demand for
telecommunication services in Florida and elsewhere, and access to capital, all
of which could affect third parties level of interest in and ability to
consummate a transaction involving EPIK, or acquisition of some or all of
EPIKs assets that is acceptable to the Company; changes in the general or
local real estate market or in general or local economic conditions; the
ability of the buyers to terminate contracts to purchase real estate from the
Company prior to the expiration of inspection periods; ability of buyers to
obtain financing; fluctuations in interest rates; buyers ability to close
transactions; governmental decisions affecting the use of land; liability for
environmental remediation and changes in environmental laws and regulations;
failure or inability of third parties to fulfill their commitments or to
perform their obligations under agreements; and other risks inherent in the
real estate and other business 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 forward-looking statements
in this Report that reflect events or circumstances after the date hereof or
reflect the occurrence of unanticipated events.

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Results of Operations

Consolidated Results
Third Quarter and Nine Months

The Company reported consolidated revenues of $64.5 million for the third
quarter 2002, compared to $65.8 million for the third quarter 2001. The Company
reported a loss from continuing operations of $147.8 million, or $4.05 per
diluted share, for the third quarter of 2002, compared to income from continuing
operations of $2.6 million, or $0.07 per diluted share, for the third quarter of
2001. Third quarter 2002 net loss was $147.4
million, or $4.04 per diluted share, compared with net income of
$2.0 million, or $0.05 per diluted share, in the third quarter
2001.

For the nine months ended September 30, 2002, the Company reported consolidated
revenues of $198.8 million, compared to $200.2 million for the same period in
2001. The Company reported a loss from continuing operations of $144.9 million,
or $3.98 per diluted share, for the nine months ended September 30, 2002,
compared to income from continuing operations of $9.9 million, or $0.27 per
diluted share, for the third quarter of 2001. For the nine months ended
September 30, 2002, the net loss was $145.8 million, or $4.00 per diluted
share, compared with net income of $7.7 million, or $0.21 per
diluted share, for
the nine months ended September 30, 2001.

Railway Results

Third Quarter

Quarterly operating revenues increased $0.9 million to $40.0 million, for an
increase of 2.3% over the third quarter 2001. This increase resulted from
increased aggregate shipments as demand for rock and cement used in Southeast
road construction projects remained strong. This quarter experienced growth of
approximately 600 units for $0.6 million in additional revenue. Additionally,
growth in the foodstuffs market saw revenues increase $0.2 million, due
primarily to new business from Tropicana Products, Inc. and Gold Coast Beverage
Distributors. Motor vehicle revenues also contributed to the
increase, which is up to 15.6% as renewed financing incentives and the
introduction of 2003 models increased demand. Intermodal traffic was lower than the third quarter 2001 by $0.4
million. In the third quarter 2002, intermodal revenues declined 2.6%, mostly
due to decreased demand from international transport customers and LTL (less
than truckload) carriers. Offsetting this decrease were increases in
interchange revenues from FLX and from the Hurricane Train, a joint marketing
alliance with Norfolk Southern that began in August 2001. The Hurricane Train
from Atlanta to Miami generated 1,511 additional loads for an increase in
revenue of $1.1 million over the third quarter 2001. This business has grown
steadily throughout 2002.

Operating expenses for the third quarter 2002 decreased by $0.3 million from
the quarter ended September 30, 2001. For the quarter, the Railway realized
favorable car hire expenses of $1.0 million, lower fuel costs of $0.2 million,
and a reduction in rail grinding expenses of $0.4 million, compared to the
prior year quarter. Rail grinding expenses for 2002 were incurred during the
first quarter of the year. These lower expenses offset higher salaries and
benefits costs of $1.0 million, primarily as the Railway experienced an
infrequent maximum medical coverage claim and employee separation costs,
increased equipment rents ($0.4 million) related to increased trailer costs,
and increased depreciation expense of $0.3 million.

Nine Months

Railway segments revenues for the nine-month period ended September 30, 2002
increased 2.5% to $122.6 million, compared to $119.6 million for the same
period 2001. Operating profit was $30.3 million for the nine-month period ended
September 30, 2002, compared to $30.0 million in the prior year. Railway
segments EBITDA increased to $43.4 million for the nine-month period ended
September 30, 2002 versus $42.1 million for the same period 2001. The operating
ratio was 75.3% for the nine-month period ended September 30, 2002, compared to
74.9% for the same period 2001.

Freight revenues were 3.0% higher for the nine-month period ended September 30,
2002 than for the same period 2001. Revenues from carloads were up 6.9% for the
nine-month period ended September 30, 2002. The primary driver for the increase
was aggregate revenue, up 11.2%, benefiting from joint initiatives that
resulted in customers achieving increased market share and strong construction
demand. In addition, revenues from foodstuffs increased 33.9% due to
significant new business from moving chilled juice products for Tropicana
Products, Inc.

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Intermodal revenues declined 2.9% for the nine-month period ended September 30,
2002, primarily from reduced demand of international transport customers, LTL
(less than truckload) carriers, and reduced traffic from a connecting rail
carrier, though revenues from intermodal interconnections with FLX increased
23.1%, compared to 2001 levels.

Operating expenses for the Railway were $92.2 million for the nine-month period
ended September 30, 2002, compared to $89.5 million for the same period 2001.
Wages and benefits increased $3.0 million, reflecting a general wage increase,
employee separation costs, maximum medical coverage claims, and increased labor
to support the Railways efforts to gain and maintain new customers and
traffic. Purchased services were up $0.6 million from 2001 levels due to
several new outsourcing activities intended to improve customer service and
operations. Personal injury expenses increased $0.8 million, and derailment
expenses increased $0.9 million due to four derailments occurring during the
nine-month period. Depreciation expense increased $1.0 million. Partially
offsetting these increases for the nine-month period ended September 30, 2002
were decreased fuel costs of $1.4 million, primarily due to favorable fuel
prices and better utilization of the car fleet, resulting in decreased car hire
costs ($2.4 million).

As previously announced, the Company has discontinued its trucking operations
and the Railway will manage the drayage operations that support its intermodal
business. As a result, there will be incremental revenues and expenses related
to the operation that will be transitioned to the Railway.

The Railway expects to complete a right-of-way and equipment life study
during the fourth quarter of 2002. 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.

Trucking Results

During the third quarter of 2002, the Company adopted a plan to discontinue its
trucking operations. The Company expects shut down and disposition activities
to continue into the fourth quarter of 2002. As of September 30, 2002, the
estimated disposition loss includes the following items: employee severance
costs ($1.4 million), tractor/trailer disposition costs ($2.6 million) and
other costs of $1.2 million. At September 30, 2002, $3.8 million of these costs
had been accrued. Approximately $1.4 million of severance costs will be accrued
in the fourth quarter of 2002.

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 presented have been restated for the discontinued operations.
The loss on the disposition of the trucking companys operations has been
excluded from continuing operations and included in discontinued operations for
all periods presented.

Realty Results

Third Quarter Results from Continuing Operations

Realty rental and services operations and sales revenues from both Flagler and
other realty operations were $18.2 million during the third quarter 2002,
compared to $22.4 million for the same period last year.
Decreases from the prior
year relate to a $2.1 million decrease in rental revenues and a $2.1 million
decrease in land sales. Third quarter 2002 rental and services operations for
Flagler generated $14.5 million in revenues versus $16.7 million for 2001.
Included in Flaglers 2001 rental and services revenues was a lease termination
fee of $1.5 million and a property development fee of $0.6 million. Third
quarter 2002 rental and services revenues included no such amounts.

At the end of the third quarter 2002, Flagler held 55 finished buildings, with
5.9 million square feet, and an overall occupancy of 82%. Flaglers same
store properties, including buildings with 5.4 million square feet, were 84%
occupied at September 30, 2002, compared to 93% at September 30, 2001. Same
store rental revenues decreased by $2.6 million to $12.9 million during the
third quarter 2002, compared to $15.5 million in 2001. The decrease is
principally associated with the above-mentioned net lease termination fee of
$1.5 million, as well as decreased same store occupancy.

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Four 100% owned Flagler operating properties, with 561,413 square feet, were
delivered and began operating activities in 2001. Together, these four
properties contributed $1.1 million in third quarter 2002 revenues, compared to
$0.1 million in the prior year.

Third quarter realty rental, services and sales operating expenses (after
depreciation and amortization) for both Flagler and other realty increased from
$14.9 million in 2001 to $15.3 million in 2002. The increase primarily
reflected Flaglers increased rental operations expense, increased other realty
operations expense, offset partially by reduced land sales expense. Real estate
sales expenses were $0.9 million in
2002, compared to $1.9 million in 2001. Third quarter 2002 operating expenses
(after depreciation and amortization) related to both Flagler and other rental
activities were $14.4 million, up from $13.0 million in
2001. This increase primarily reflects increased operating expenses at
Flaglers rental properties related to same store properties and properties
beginning operating activities in 2001.

Third quarter 2002 EBITDA for the real estate segment was $8.5 million,
compared to $13.0 million in 2001. This decrease relates to reductions in
EBITDA from Flaglers operating properties rents of $2.5 million, primarily
related to a 2001 net lease termination fee of $1.5 million, reduced Flagler
real estate sales activity that contributed $2.3 million in 2001 versus $0.5
million in 2002, and a $0.6 million development fee recognized as revenue in
2001. Partly offsetting these decreases was increased EBITDA from other real
estate sales activity of $0.7 million compared to 2001. Flaglers same store
rental expenses (before depreciation and amortization) increased to $4.7
million in 2002 from $4.3 million in 2001. Flaglers operating expenses (before
depreciation and amortization) related to rental activities for four properties
delivered in 2001 were $0.5 million for third quarter 2002, with less than $0.1
million in expenses in the prior year period.

Corporate overhead costs decreased to $1.3 million in the third quarter 2002
from $1.5 million in the third quarter 2001. The decrease is principally
related to cost control initiatives at Flagler. Flagler occupies approximately
14,000 square feet of space in Jacksonville and currently has 36 employees.

At quarter end 2002, Flagler had six projects, with 771,550 square feet, in
various stages of development (181,000 square feet in lease-up stage; 590,550
square feet in predevelopment).

Nine-Months Results from Continuing Operations

Flaglers rental and services revenues remained comparable at $46.1 million
during the nine months ended September 30, 2002, while EBITDA from operating
properties rents decreased 4.7% to $29.5 million when compared to Flaglers 2001
results of $30.9 million. EBITDA decreased during 2002 related primarily to a
$2.7 million decrease in EBITDA from same store properties due mainly to
decreased rental revenues, partially offset by a $1.5 million increase in
EBITDA from properties delivered in 2001. Development services revenue was zero
in the nine months ended September 30, 2002, compared to $0.6 million in the
same period 2001. Flaglers operating expenses from rental operations were
$38.3 million, with depreciation and amortization of $16.6 million, an increase
of $0.8 million from prior years depreciation and amortization. Flagler
generated $2.7 million in land sale profits for the nine-month period ended
September 30, 2002, compared to $8.8 million during 2001. Other realty
operations contributed $2.7 million in profits from real estate sales, compared
to $1.5 million in 2001.

Third Quarter and Nine-Months 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, as
required by SFAS 144, income or loss attributable to the operations and sales
of the components classified as discontinued operations are presented in the
statement of operations as discontinued operations, net of applicable income
taxes.

During the three months ended September 30, 2002 and 2001,
discontinued operations include the gain on the sale of a commercial industrial
warehouse disposed of during the third quarter 2002, and the operations of this
sold property and of a commercial office building which was under contract for
sale at September 30, 2002. The gain recorded on the third quarter 2002 sale
was $5.5 million, or $3.3 million, net of applicable taxes of $2.2 million.
Discontinued operations generated revenues of $0.8 million during both the
third quarter ended September 30, 2002 and 2001, respectively, and incurred
operating expenses of $0.4 million and $0.3 million in 2002 and 2001,
respectively. Net operating income for the two

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buildings was $0.4 million in the third quarter ended September 30, 2002,
compared to $0.5 million in 2001. EBITDA generated by discontinued operations
was $0.6 million and $0.7 million during the quarters ended September 30, 2002
and 2001, respectively.

During the nine months ended September 30, 2002 and 2001,
discontinued operations include the gain on the sale of a commercial industrial
warehouse disposed of during 2002, and the
operations of the sold property and of a commercial office building which was
under contract for sale at September 30, 2002. The gain recorded on the
industrial warehouse sale was $5.5 million, or $3.3 million, net of taxes of
$2.2 million. During the nine months ended September 30, 2002, discontinued
operations generated revenues of $2.7 million, compared to $1.5 million in
2001. Net operating income for the two buildings was $1.5 million in the nine
months ended September 30, 2002, compared to $0.8 million in 2001. EBITDA
generated by the discontinued operations was $2.1 million and $1.2 million
during the nine months ended September 30, 2002 and 2001,
respectively.

Telecommunications Results

Third Quarter

On June 20, 2002, the Company announced (as
reflected on Form 8-K filed that day) that it
had retained Morgan Stanley to assist in a review of strategic alternatives for
EPIK, its wholly owned telecommunications
subsidiary. In its announcement, the Company had stated its expectation that if
the Company should consummate a transaction involving EPIK, it likely would be
for less than the book value, which would result in a non-cash charge to
earnings. However, the Company cautioned that there could be no assurance the
strategic review would result in a transaction involving EPIK.

The previously announced strategic alternatives review proceeded throughout and
past the end of the third quarter, as a result of which the Company obtained
new information about deteriorating conditions in the telecommunications
industry, the prospects for EPIKs business, the fair value of the Companys
investment in EPIK, and the alternatives available to the Company in respect of
this investment. As a result, the Company has fully impaired the remaining
$238.1 million carrying value of EPIKs long-lived telecommunications assets.
The carrying value of EPIKs other assets, consisting primarily of current
assets, totaled $11.0 million at September 30, 2002. As required by SFAS 144,
the Company has accounted for telecommunications as a continuing operation,
though the Company may reclassify telecommunications to discontinued operations
in the future if the criteria specified in SFAS 144 for discontinued operations
accounting are met. The Company presently intends to continue to support EPIKs
provision of service pursuant to existing customer obligations while the
Company seeks to exit the telecommunications business. However, there can be no
assurance that the Company will continue such support indefinitely. Although
the Company has been seeking a single purchaser for EPIK or substantially all
its assets, EPIK presently intends to seek to sell during the fourth quarter of
2002 those assets not needed to meet existing customer obligations. Given
overcapacity and substantial amounts of excess equipment available for sale in
the telecommunications industry, success in selling such assets is not assured,
the amount of proceeds is not reasonably determinable, and any such proceeds
are not expected to be material to the Company. If such sales are accomplished
and the proceeds from such sales are less than the tax basis of the sold
assets, it is possible the Company may carry back certain resulting losses, if
recognized in 2002, against prior years taxable income. However, there can be
no assurance of recovery of taxes paid in prior years.

The Company has recorded a cumulative book deferred tax benefit of
approximately $101 million related to EPIKs long-lived telecommunications
assets. This deferred tax asset is shown net in the deferred tax liability
section of the Companys consolidated balance sheets.

EPIKs operating results continue to be consistent with the Companys
expectation of its restructuring plan announced in November of 2001. Before
restructuring and other costs, EPIKs third quarter 2002 EBITDA loss from
operations was $3.4 million, which compares sequentially with the second
quarter of 2002 of $4.9 million and $7.1 million in the third quarter of 2001.
Also consistent with the restructuring plans expectation, capital expenditures
in the third quarter were $1.1 million.

EPIKs third quarter 2002 revenues were $4.8 million, which compares
sequentially with the second quarter of 2002 of $4.6 million and $2.9 million
in the third quarter 2001. EPIK recognizes certain revenues from credit risk
customers only as payments are received. Included in the third quarter of 2002
revenues are payments of $0.2 million received from credit risk customers for
services provided in prior periods. Excluded

17



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##### Table of Contents



in the quarter are $0.2 million of services provided to credit risk customers
that will not be recognized as revenue until collected. At September 30, 2002,
EPIKs contracted revenue backlog stood at $99.0 million, of which $20.6
million is considered at credit risk. Net increase in backlog from second
quarter 2002 results primarily from the addition of two customer contracts
during the current period offset by recognition of contracted revenue for
services provided. From the backlog, EPIK is scheduled to recognize revenues of
$4.2 million in the remainder of 2002, of which $0.7 million is considered at
risk.

Operating expenses were $13.7 million, which compares sequentially with the
second quarter 2002 expenses of $14.9 million, before restructuring and other
costs, and $13.8 million in the third quarter of 2001. Many of EPIKs expenses
are fixed, being governed by agreements with third parties such as facility
rents, fiber/conduit leases and maintenance and third party circuits. Future
amounts due under EPIKs agreements total approximately $60 million over terms
that range up to 20 years. EPIK has recently negotiated reductions in certain
of its obligations and may seek to negotiate reductions in other such
obligations in the future. Depreciation and amortization expense increased to
$5.5 million in the third quarter of 2002, compared to $3.8 million in the
third quarter of 2001. Offsetting this increase are continued expense savings
from the Companys restructuring plan announced in November of 2001, and
adjustments to EPIKs allowance for doubtful accounts ($1.0 million) as EPIK
continues to be successful in its collection efforts with credit risk
customers.

Nine Months

EPIKs 2002 year-to-date revenues were $14.9 million, compared to $8.9 million
in the same period in 2001. EPIK continues to recognize certain revenues from
credit risk customers only as payments are received. Included in revenues for
the first nine months of 2002 are payments of $1.5 million from credit risk
customers for services provided in prior periods. Conversely, in the first nine
months of 2002, EPIK provided services of $0.8 million to credit risk customers
that was not recognized as revenue in the first nine months.

Operating expenses for the nine months ended September 30, 2002, excluding the impairment charge
of $238.1 million, were $50.0 million, compared to $42.9 million for the
comparable prior year period. Included in these expenses is $16.3 million and
$7.5 million of depreciation and amortization, respectively, for 2002 and 2001.
Expenses for 2002 also included $5.5 million of restructuring charges and other
costs. Expenses for 2001 included $2.2 million of bad debt expenses. 2002
year-to-date capital expenditures were $4.5 million.

Corporate Expenses
Third Quarter and Nine Months

Corporate expenses for the third quarter and first nine months of 2002
increased to $2.8 million and $8.4 million, respectively, compared with 2001s
third quarter and first nine months expenses of $1.6 million and $5.3 million,
respectively. Increases in corporate expenses primarily relate to costs
associated with strategic initiatives, including legal and consulting fees.

Interest Expense
Third Quarter and Nine Months

Net interest expense for the third quarter and first nine months of 2002 was
$5.0 million and $14.9 million, respectively. This compares with net interest
expense of $1.3 million and $1.0 million for the third quarter and first nine
months of 2001, respectively. The higher net interest expense resulted
primarily from increased borrowings and reduced capitalization of interest due
to completion of telecommunications network construction.

Other Income
Third Quarter and Nine Months

Other income for the quarter and first nine months of 2002 was $0.5 million and
$13.6 million, respectively. This represents an increase of $0.1 million from
the third quarter of 2001 ($0.4 million) and an increase of $12.1 million from
the first nine months of 2001 ($1.5 million). Year-to date 2002 other income
includes a $9.4 million gain related to the settlement of a contract
termination with one of EPIKs former customers. Year-to-date 2002 results also
include $1.9 million of income from pipe and wire crossing agreements.

18



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##### Table of Contents



Provision for Income Taxes

Income tax expense/benefits represent an effective rate of 38.5% for the third
quarter and first nine months of 2002, compared to an effective rate for income
tax expense of 39.5% for the same periods of 2001.

Financial Condition, Liquidity and Capital Resources

Net cash generated from operations was $43.9 million and $6.1 million for the
nine months ended September 30, 2002 and 2001, respectively. Changes in
operating assets and liabilities generated $10.2 million and used $29.8 million
for the nine months ended September 30, 2002 and 2001, respectively, which
included, in the nine months ended September 30, 2002, a significant reduction
in EPIKs payables
related to construction of its telecommunications network that was completed in
late 2001. Eliminating changes in operating assets and liabilities, net cash
otherwise generated by operating activities was $33.6 million and $35.9 million
during the nine months ended September 30, 2002 and 2001, respectively. During
the first nine months of 2002, the Company made capital investments of $39.8
million, received $26.0 million from asset dispositions, and reduced debt
balances by $12.8 million and increased cash and equivalents balances by $14.4
million.

The Company continues to manage its capital spending, especially at Flagler, based on customer demand in the marketplace. Thus far in 2002, Flagler
has seen cyclical softness in the commercial real estate markets and, as a
result, anticipated 2002 capital investment has been reduced to between $25-30
million from its previously forecasted $45-60 million. In 2001 and 2000, the
Companys capital investments at EPIK were made primarily to construct a
telecommunications network and certain related facilities. This construction
was completed in late 2001. The Company presently does not expect to make
material capital expenditures to expand the network in 2002 or in the
foreseeable future. Capital expenditures estimated at $5 to $8 million are
expected to be made in 2002 to maintain EPIKs business.

Financing of the Companys investment program is planned through internally
generated cash flows and the use of the Companys $300 million revolving credit
facility. At September 30, 2002, the amount drawn down on the revolving credit
facility was $28 million.

The Companys $300 million revolving credit facility is provided pursuant to an
agreement, as amended, between the Company and eleven 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 the years ended December 31, 2001 and December 31, 2000. Pursuant
to the Credit Facility Agreement, the Company agreed, among other things, to
maintain certain financial ratios. The Company believes the most restrictive of
such ratios to be the Global Debt/EBITDA ratio (the terms Global Debt and
EBITDA being defined in the Credit Facility Agreement). The Credit Facility
Agreement provides that the Companys Global Debt/EBITDA ratio shall be no
greater than 4.25 at September 30, 2002. At September 30, 2002, the Companys
actual Global Debt/EBITDA ratio was 0.75. Pursuant to the Credit Facility
Agreement, the required Global Debt/EBITDA ratio varies in future periods,
declining from 4.25 at September 30, 2002 to 3.50 at March 31, 2003 and
thereafter, 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 Global Debt/EBITDA ratio covenant or other financial
covenants, the Company has complied with the terms of the Credit Facility
Agreement at all times in the past and expects to continue to comply with them
in the future.

These interim results on Financial Condition, Liquidity and Capital Resources
should be read in conjunction with the Companys Annual Report on Form 10-K for
the year ended December 31, 2001 filed with the Securities and Exchange
Commission.




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 41 of the
Companys 2001 Annual Report on Form 10-K.

19



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##### Table of Contents






Item 4.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of October 28, 2002, 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 15-d-14(c)). Based on that evaluation, the CEO and CFO concluded
that the Companys disclosure controls and procedures were effective as of
October 28, 2002. There were no significant changes in the Companys internal
controls or in the other factors that could significantly affect those controls
subsequent to the date of the evaluation.




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 5.

OTHER INFORMATION



| |  | FECRs traffic volume and revenues for the three months ended September 30,
2002 and 2001, respectively, are shown below. Also, FECRs and Flaglers quarterly operating expenses are presented below.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

TRAFFIC
Three Months Ended September 30
(dollars and units in thousands)

|                            |                        |               |      |       |       |          |      |          |       |          |      |          |      |         |        |       |        |  |        |       |        |  |      |       |     | 
|--------------------------- | ---------------------- | ------------- | ---- | ----- | ----- | -------- | ---- | -------- | ----- | -------- | ---- | -------- | ---- | ------- | ------ | ----- | ------ |  | ------ | ----- | ------ |  | ---- | ----- | --- | 
|                            |                        |               |      | 2002  |       | 2001     |      | Percent  |       | 2002     |      | 2001     |      | Percent
|                            |                        |               |      |       |       |          |      |          |       |          |      |          |      |        
|Commodity                   |                        | Units         |      | Units |       | Variance |      | Revenues |       | Revenues |      | Variance
|                            |                        |               |      |       |       |          |      |          |       |          |      |         
|Rail
Carloads
Crushed stone |                        |               | 27.6 |       |       |          | 27.0 |          |       |          | 2.2  |          |      |         | 12,491 |       |        |  | 11,931 |       |        |  | 4.7  |      
|                            | Construction materials |               |      | 1.4   |       |          |      | 1.2      |       |          |      | 16.7     |      |         |        | 815   |        |  |        | 701   |        |  |      | 16.3  |    
|                            | Vehicles               |               |      | 5.9   |       |          |      | 5.0      |       |          |      | 18.0     |      |         |        | 4,669 |        |  |        | 4,039 |        |  |      | 15.6  |    
|                            | Foodstuffs             |               |      | 2.8   |       |          |      | 2.1      |       |          |      | 33.3     |      |         |        | 1,919 |        |  |        | 1,679 |        |  |      | 14.3  |    
|                            | Chemicals              |               |      | 0.9   |       |          |      | 0.9      |       |          |      | 0.0      |      |         |        | 991   |        |  |        | 971   |        |  |      | 2.1   |    
|                            | Paper                  |               |      | 1.6   |       |          |      | 1.8      |       |          |      | (11.1    | )    |         |        | 1,556 |        |  |        | 1,776 |        |  |      | (12.4 | )  
|                            | Other                  |               |      | 3.4   |       |          |      | 3.7      |       |          |      | (8.1     | )    |         |        | 1,885 |        |  |        | 1,928 |        |  |      | (2.2  | )  
|                            |                        |               |      |       |       |          |      |          |       |          |      |          |      |         |        |       |        |  |        |       |        |  |      |      
|                            |                        | Total Carload |      |       | 43.6  |          |      |          | 41.7  |          |      |          | 4.6  |         |        |       | 24,326 |  |        |       | 23,025 |  |      |       | 5.7 | 
|Intermodal                  |                        |               | 63.8 |       |       |          | 68.7 |          |       |          | (7.1 | )        |      |         | 14,897 |       |        |  | 15,296 |       |        |  | (2.6 | )    
|                            |                        |               |      |       |       |          |      |          |       |          |      |          |      |         |        |       |        |  |        |       |        |  |      |      
|                            |                        | Total         |      |       | 107.4 |          |      |          | 110.4 |          |      |          | (2.7 | )       |        |       | 39,223 |  |        |       | 38,321 |  |      |       | 2.4 | 
|                            |                        |               |      |       |       |          |      |          |       |          |      |          |      |         |        |       |        |  |        |       |        |  |      |      

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

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RAILWAY OPERATING EXPENSES

|                                  |  |               |        |               |  |  |        |  
|--------------------------------- |  | ------------- | ------ | ------------- |  |  | ------ | -
|(dollars in thousands)            |  | Quarter       |        | Quarter      
|                                  |  |               |        |              
|                                  |  | Ended 9/30/02 |        | Ended 9/30/01
|                                  |  |               |        |              
|Compensation & Benefits           |  |               | 12,812 |               |  |  | 11,829 |  
|Fuel                              |  |               | 2,739  |               |  |  | 2,946  |  
|Equipment Rents (net)             |  |               | 688    |               |  |  | 305    |  
|Car Hire (net)                    |  |               | (1,203 | )             |  |  | (241   | )
|Depreciation                      |  |               | 4,542  |               |  |  | 4,226  |  
|Purchased Services                |  |               | 2,300  |               |  |  | 2,864  |  
|Repairs to/by Others (net)        |  |               | (635   | )             |  |  | (811   | )
|Load/Unload                       |  |               | 1,784  |               |  |  | 1,774  |  
|Casualty & Insurance              |  |               | 1,035  |               |  |  | 881    |  
|Property Taxes                    |  |               | 1,185  |               |  |  | 1,155  |  
|Materials                         |  |               | 2,012  |               |  |  | 2,276  |  
|General & Administrative Expenses |  |               | 2,011  |               |  |  | 2,390  |  
|Other                             |  |               | 959    |               |  |  | 919    |  
|                                  |  |               |        |               |  |  |        |  
|Total Operating Expenses          |  |               | 30,229 |               |  |  | 30,513 |  
|                                  |  |               |        |               |  |  |        |  

REALTY SEGMENT EXPENSES

|                                        |                                         |         |        |               |        |               |        |        |        | 
|--------------------------------------- | --------------------------------------- | ------- | ------ | ------------- | ------ | ------------- | ------ | ------ | ------ | 
|(dollars in thousands)                  |                                         | Quarter |        | Quarter      
|                                        |                                         |         |        |              
|                                        |                                         |         |        | Ended 9/30/02 |        | Ended 9/30/01
|                                        |                                         |         |        |               |        |              
|Continuing Operations                   |                                         |         |        |               |        |               |        |       
|Real Estate Taxes  Developed           |                                         |         | 1,562  |               |        |               | 1,405  |       
|Repairs & Maintenance  Recoverable     |                                         |         | 537    |               |        |               | 376    |       
|Services, Utilities, Management Costs   |                                         |         | 2,778  |               |        |               | 2,487  |       
|                                        |                                         |         |        |               |        |               |        |       
|                                        | Subtotal  Expenses subject to recovery |         |        | 4,877         |        |               |        | 4,268  |       
|Realty Sales Expense                    |                                         |         | 921    |               |        |               | 1,874  |       
|Real Estate Taxes  Undeveloped Land    |                                         |         | 1,163  |               |        |               | 604    |       
|Repairs & Maintenance  Non-recoverable |                                         |         | 204    |               |        |               | 206    |       
|Depreciation & Amortization             |                                         |         | 5,584  |               |        |               | 5,459  |       
|SG&A  Non-recoverable                  |                                         |         | 2,553  |               |        |               | 2,448  |       
|                                        |                                         |         |        |               |        |               |        |       
|                                        | Subtotal  Non-recoverable expenses     |         |        | 10,425        |        |               |        | 10,591 |       
|Total Operating Expenses                |                                         |         | 15,302 |               |        |               | 14,859 |       
|                                        |                                         |         |        |               |        |               |        |       
|Discontinued Operations                 |                                         |         |        |               |        |               |        |       
|Expenses subject to recovery            |                                         |         | 178    |               |        |               | 149    |       
|Realty Sales Expense                    |                                         |         | 12,631 |               |        |               |       |       
|Depreciation & Amortization             |                                         |         | 210    |               |        |               | 195    |       
|SG&A  Non-recoverable                  |                                         |         | 14     |               |        |               |       |       
|                                        |                                         |         |        |               |        |               |        |       
|Total Discontinued Expenses             |                                         |         | 13,033 |               |        |               | 344    |       
|                                        |                                         | Total   |        |               | 28,335 |               |        |        | 15,203 | 
|                                        |                                         |         |        |               |        |               |        |       

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Item 6.

EXHIBITS AND REPORTS ON FORM 8-K

Reports on Form 8-K



|1. |  | On July 29, 2002, under Item 9 on Form 8-K, the Registrant furnished
additional information about the Companys real estate holdings that was made
available in a document entitled Supplemental Real Estate Information Package
on the Companys website http://www.feci.com.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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: 11/06/02 |  | /s/ Mark A.
Leininger
Mark A. Leininger, Vice President and Controller                     
|               |  |                                                                                            
|               |  |                                                                                            
|Date: 11/06/02 |  | /s/ Richard
G. Smith
Richard G. Smith, Executive Vice President and Chief Financial Officer

CERTIFICATIONS

I, Robert W. Anestis, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Florida East
Coast Industries, Inc.;                                                                                                                                                                                                                                    
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|
| | 4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                      



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared.
|
| | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  

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| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;



| | 5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the Audit
Committee of registrants Board of Directors (or persons performing the
equivalent function):
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
|
| | b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                                           
|----------------------- |  | ------------------------------------------
|Dated: November 6,
2002 |  | By: /s/ Robert W. Anestis                 
|                        |  | Robert W. Anestis, Chief Executive Officer

I, Richard G. Smith, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Florida East
Coast Industries, Inc.;                                                                                                                                                                                                                                    
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|
| | 4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                      



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared.
|
| | b. evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the Audit
Committee of registrants Board of Directors (or persons performing the
equivalent function):
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and

23



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| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and



| | 6. |  | The registrants other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                                                                       
|----------------------- |  | ----------------------------------------------------------------------
|Dated: November 6,
2002 |  | By: /s/ Richard G.
Smith                                              
|                        |  | Richard G. Smith, Executive Vice President
and
Chief Financial Officer

24