##### 



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, 2003


OR

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from  to


Commission File Number
001-08728

Florida East Coast Industries, Inc.

(Exact name of Registrant as specified in its charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Florida                                                        |  | 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 (  )

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

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

|                          |  |                                  
|------------------------- |  | ---------------------------------
|Class                     |  | Outstanding at September 30, 2003
|                          |  |                                  
|Common Stock-no par value |  | 36,683,998 shares                





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##### 



FLORIDA EAST COAST INDUSTRIES, INC.

PART I

FINANCIAL INFORMATION

INDEX

|                                                                                                               |                                                                                                         |  |         |       | 
|-------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  | ------- | ----- | 
|                                                                                                               |                                                                                                         |  | Page   
|                                                                                                               |                                                                                                         |  | Numbers
|                                                                                                               |                                                                                                         |  |        
|Item 1. Financial Statements                                                                                   |                                                                                                         |  |         |      
|                                                                                                               | Consolidated Balance Sheets -
September 30, 2003 and December 31, 2002                                  |  |         | 3     | 
|                                                                                                               | Consolidated Statements of Income -
Three Months and Nine Months Ended
September 30, 2003 and 2002      |  |         | 4     | 
|                                                                                                               | Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2003 and 2002                   |  |         | 5     | 
|                                                                                                               | Notes to Condensed Consolidated Financial Statements                                                    |  |         | 6-15  | 
|Item 2. Managements Discussion and Analysis of the Consolidated
Financial Condition and Results of Operations |                                                                                                         |  |         |      
|                                                                                                               | Comparison of Third Quarter 2003 versus Third Quarter 2002
and Nine Months 2003 versus Nine Months 2002 |  |         | 16-21 | 
|                                                                                                               | Changes in Financial Condition, Liquidity and Capital Resources                                         |  |         | 21-22 | 
|                                                                                                               | Other Matters                                                                                           |  |         | 22-23 | 
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                                             |                                                                                                         |  | 23      |      
|Item 4. Controls and Procedures                                                                                |                                                                                                         |  | 23-24   |      
|PART II                                                                                                        |                                                                                                         |  |         |      
|OTHER INFORMATION                                                                                              |                                                                                                         |  |         |      
|Item 1. Legal Proceedings                                                                                      |                                                                                                         |  | 24      |      
|Item 2. Changes in Securities and Use of Proceeds                                                              |                                                                                                         |  | 24      |      
|Item 5. Other Information                                                                                      |                                                                                                         |  | 25-26   |      
|Item 6. Exhibits and Reports on Form 8-K                                                                       |                                                                                                         |  | 27      |      

2



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##### 



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

|                                                           |                                                |                                                                                                                                                     |           |              |         |             |           |         |         | 
|---------------------------------------------------------- | ---------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ------------ | ------- | ----------- | --------- | ------- | ------- | 
|                                                           |                                                |                                                                                                                                                     |           | September 30 |         | December 31
|                                                           |                                                |                                                                                                                                                     |           | 2003         |         | 2002       
|                                                           |                                                |                                                                                                                                                     |           |              |         |            
|                                                           |                                                |                                                                                                                                                     |           | (unaudited)  |         |             |           |        
|Assets                                                     |                                                |                                                                                                                                                     |           |              |         |             |           |        
|Current Assets:                                            |                                                |                                                                                                                                                     |           |              |         |             |           |        
|                                                           | Cash and cash equivalents                      |                                                                                                                                                     |           | 91,967       |         |             |           | 83,872  |        
|                                                           | Accounts receivable (net)                      |                                                                                                                                                     |           | 27,236       |         |             |           | 20,538  |        
|                                                           | Income tax receivable                          |                                                                                                                                                     |           |             |         |             |           | 74,572  |        
|                                                           | Materials and supplies                         |                                                                                                                                                     |           | 2,671        |         |             |           | 1,710   |        
|                                                           | Assets related to discontinued operations      |                                                                                                                                                     |           |             |         |             |           | 2,224   |        
|                                                           | Assets held for sale (Note 10)                 |                                                                                                                                                     |           | 13,410       |         |             |           |        |        
|                                                           | Deferred income taxes                          |                                                                                                                                                     |           | 25,788       |         |             |           | 15,400  |        
|                                                           | Other current assets                           |                                                                                                                                                     |           | 9,028        |         |             |           | 6,760   |        
|                                                           |                                                |                                                                                                                                                     |           |              |         |             |           |        
|                                                           |                                                | Total current assets                                                                                                                                |           |              | 170,100 |             |           |         | 205,076 | 
|Properties, Less Accumulated Depreciation and Amortization |                                                |                                                                                                                                                     | 810,286   |              |         |             | 795,650   |        
|Other Assets and Deferred Charges                          |                                                |                                                                                                                                                     | 21,402    |              |         |             | 50,510    |        
|                                                           |                                                |                                                                                                                                                     |           |              |         |             |           |        
|Total Assets                                               |                                                |                                                                                                                                                     | 1,001,788 |              |         |             | 1,051,236 |        
|                                                           |                                                |                                                                                                                                                     |           |              |         |             |           |        
|Liabilities and Shareholders Equity                       |                                                |                                                                                                                                                     |           |              |         |             |           |        
|Current Liabilities:                                       |                                                |                                                                                                                                                     |           |              |         |             |           |        
|                                                           | Accounts payable and accrued expenses          |                                                                                                                                                     |           | 30,852       |         |             |           | 30,901  |        
|                                                           | Short-term debt (Note 8)                       |                                                                                                                                                     |           | 2,787        |         |             |           | 2,641   |        
|                                                           | Accrued casualty and other liabilities         |                                                                                                                                                     |           | 1,945        |         |             |           | 2,047   |        
|                                                           | Liabilities related to discontinued operations |                                                                                                                                                     |           |             |         |             |           | 2,464   |        
|                                                           | Other accrued liabilities                      |                                                                                                                                                     |           | 39,029       |         |             |           | 12,343  |        
|                                                           |                                                |                                                                                                                                                     |           |              |         |             |           |         |        
|                                                           |                                                | Total current liabilities                                                                                                                           |           |              | 74,613  |             |           |         | 50,396  | 
|Deferred Income Taxes                                      |                                                |                                                                                                                                                     | 143,067   |              |         |             | 122,103   |        
|Long-Term Debt, net of current portion(Note 8)             |                                                |                                                                                                                                                     | 239,034   |              |         |             | 294,143   |        
|Accrued Casualty and Other Liabilities                     |                                                |                                                                                                                                                     | 10,659    |              |         |             | 11,278    |        
|Shareholders Equity:                                      |                                                |                                                                                                                                                     |           |              |         |             |           |        
|                                                           | Common Stock: (Note 2)                         |                                                                                                                                                     |           |              |         |             |           |         |        
|                                                           |                                                | Common stock; no par value; 150,000,000 shares authorized; 37,555,591 shares                                                                        |           |              | 76,080  |             |           |         | 68,888  | 
|                                                           |                                                | issued and 36,683,998 shares outstanding at September 30, 2003, and 37,436,515
shares issued and 36,637,431 shares outstanding at December 31, 2002 |           |              |         |             |           |         |         | 
|                                                           | Retained earnings                              |                                                                                                                                                     |           | 475,167      |         |             |           | 516,937 |        
|                                                           | Restricted stock deferred compensation         |                                                                                                                                                     |           | (5,410       | )       |             |           | (3,154  | )      
|                                                           | Treasury stock at cost (871,593 shares)        |                                                                                                                                                     |           | (11,422      | )       |             |           | (9,355  | )      
|                                                           |                                                |                                                                                                                                                     |           |              |         |             |           |        
|                                                           |                                                | Total shareholders equity                                                                                                                          |           |              | 534,415 |             |           |         | 573,316 | 
|                                                           |                                                |                                                                                                                                                     |           |              |         |             |           |        
|Total Liabilities and Shareholders Equity                 |                                                |                                                                                                                                                     | 1,001,788 |              |         |             | 1,051,236 |        
|                                                           |                                                |                                                                                                                                                     |           |              |         |             |           |        

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

See accompanying notes to unaudited condensed consolidated financial
statements.

3



---



##### 



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
|                                                                 |  |                    |            |                   
|                                                                 |  | 2003               |            | 2002               |  | 2003 |            | 2002
|                                                                 |  |                    |            |                    |  |      |            |     
|Operating revenues                                               |  |                    | 87,096     |                    |  |      | 58,192     |      |  |   | 235,370    |   |  |   | 179,024    |  
|Operating expenses                                               |  |                    | (85,812    | )                  |  |      | (48,156    | )    |  |   | (204,400   | ) |  |   | (144,561   | )
|                                                                 |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Operating profit                                                 |  |                    | 1,284      |                    |  |      | 10,036     |      |  |   | 30,970     |   |  |   | 34,463     |  
|Interest income                                                  |  |                    | 365        |                    |  |      | 89         |      |  |   | 759        |   |  |   | 212        |  
|Other income (Note 7)                                            |  |                    | 2,224      |                    |  |      | 1,748      |      |  |   | 7,417      |   |  |   | 8,483      |  
|Interest expense                                                 |  |                    | (4,137     | )                  |  |      | (5,137     | )    |  |   | (12,641    | ) |  |   | (15,077    | )
|                                                                 |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|                                                                 |  |                    | (1,548     | )                  |  |      | (3,300     | )    |  |   | (4,465     | ) |  |   | (6,382     | )
|(Loss) income before income taxes                                |  |                    | (264       | )                  |  |      | 6,736      |      |  |   | 26,505     |   |  |   | 28,081     |  
|Provision for income taxes                                       |  |                    | 102        |                    |  |      | (2,593     | )    |  |   | (10,204    | ) |  |   | (10,813    | )
|                                                                 |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|(Loss) income from continuing operations                         |  |                    | (162       | )                  |  |      | 4,143      |      |  |   | 16,301     |   |  |   | 17,268     |  
|Discontinued Operations:(Note 3)                                 |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Loss from operation of discontinued operations (net of taxes)    |  |                    | (93        | )                  |  |      | (152,514   | )    |  |   | (414       | ) |  |   | (164,088   | )
|Gain on disposition of discontinued operations (net of taxes)    |  |                    | 1,301      |                    |  |      | 988        |      |  |   | 1,328      |   |  |   | 988        |  
|                                                                 |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Income (loss) from discontinued operations                       |  |                    | 1,208      |                    |  |      | (151,526   | )    |  |   | 914        |   |  |   | (163,100   | )
|Net income (loss)                                                |  |                    | 1,046      |                    |  |      | (147,383   | )    |  |   | 17,215     |   |  |   | (145,832   | )
|                                                                 |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Earnings Per Share:                                              |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|(Loss) income from continuing operations - basic & diluted       |  | $                  | (0.00      | )                  |  | $    | 0.11       |      |  | $ | 0.44       |   |  | $ | 0.47       |  
|Loss from operation of discontinued operations  basic           |  |                    |           |                    |  | $    | (4.18      | )    |  | $ | (0.01      | ) |  | $ | (4.50      | )
|Loss from operation of discontinued operations  diluted         |  |                    |           |                    |  | $    | (4.16      | )    |  | $ | (0.01      | ) |  | $ | (4.48      | )
|Gain on disposition of discontinued operations - basic & diluted |  | $                  | 0.03       |                    |  | $    | 0.03       |      |  | $ | 0.04       |   |  | $ | 0.03       |  
|                                                                 |  |                    |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Net income (loss)  - basic                                       |  | $                  | 0.03       |                    |  | $    | (4.04      | )    |  | $ | 0.47       |   |  | $ | (4.00      | )
|Net income (loss)  - diluted                                     |  | $                  | 0.03       |                    |  | $    | (4.02      | )    |  | $ | 0.47       |   |  | $ | (3.98      | )
|Average shares outstanding  basic                               |  |                    | 36,509,557 |                    |  |      | 36,440,611 |      |  |   | 36,500,847 |   |  |   | 36,442,184 |  
|Average shares outstanding  diluted                             |  |                    | 36,509,557 |                    |  |      | 36,631,064 |      |  |   | 36,810,584 |   |  |   | 36,621,124 |  

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

See accompanying notes to unaudited condensed consolidated financial
statements.

4



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##### 



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

|                                                  |                                                                                |                                                   |          |                    |         |      |         |          |         |  
|------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------- | -------- | ------------------ | ------- | ---- | ------- | -------- | ------- | -
|                                                  |                                                                                |                                                   |          | Nine Months       
|                                                  |                                                                                |                                                   |          | Ended September 30
|                                                  |                                                                                |                                                   |          |                   
|                                                  |                                                                                |                                                   |          | 2003               |         | 2002
|                                                  |                                                                                |                                                   |          |                    |         |     
|Cash Flows from Operating Activities:             |                                                                                |                                                   |          |                    |         |      |         |         
|                                                  | Net income (loss)                                                              |                                                   |          | 17,215             |         |      |         | (145,832 | )      
|                                                  | Adjustments to reconcile net income to cash generated by operating activities: |                                                   |          |                    |         |      |         |          |        
|                                                  |                                                                                | Depreciation and amortization                     |          |                    | 35,931  |      |         |          | 49,012  |  
|                                                  |                                                                                | Restructuring charges and other costs             |          |                    |        |      |         |          | 5,474   |  
|                                                  |                                                                                | Payment of restructuring charges                  |          |                    |        |      |         |          | (4,512  | )
|                                                  |                                                                                | Asset and impairment charge                       |          |                    |        |      |         |          | 238,066 |  
|                                                  |                                                                                | FLX exit costs                                    |          |                    |        |      |         |          | 3,839   |  
|                                                  |                                                                                | Gain on sales and other disposition of properties |          |                    | (25,827 | )    |         |          | (10,870 | )
|                                                  |                                                                                | Non-cash gain on contract termination             |          |                    |        |      |         |          | (9,437  | )
|                                                  |                                                                                | Deferred taxes                                    |          |                    | 10,576  |      |         |          | (91,541 | )
|                                                  |                                                                                | Other                                             |          |                    | 2,360   |      |         |          | (577    | )
|                                                  |                                                                                |                                                   |          |                    |         |      |         |         
|                                                  |                                                                                |                                                   | 40,255   |                    |         |      | 33,622  |         
|Changes in operating assets and liabilities:      |                                                                                |                                                   |          |                    |         |      |         |         
|                                                  | Accounts receivable                                                            |                                                   |          | (5,873             | )       |      |         | 6,695    |        
|                                                  | Other current assets                                                           |                                                   |          | (5,244             | )       |      |         | (683     | )      
|                                                  | Other assets and deferred charges                                              |                                                   |          | 715                |         |      |         | 1,888    |        
|                                                  | Accounts payable                                                               |                                                   |          | (1,042             | )       |      |         | (17,650  | )      
|                                                  | Income taxes receivable                                                        |                                                   |          | 74,572             |         |      |         | 7,305    |        
|                                                  | Other current liabilities                                                      |                                                   |          | 22,993             |         |      |         | 17,106   |        
|                                                  | Accrued casualty and other long-term liabilities                               |                                                   |          | (860               | )       |      |         | (4,415   | )      
|                                                  |                                                                                |                                                   |          |                    |         |      |         |         
|                                                  |                                                                                |                                                   | 85,261   |                    |         |      | 10,246  |         
|Net cash generated by operating activities        |                                                                                |                                                   | 125,516  |                    |         |      | 43,868  |         
|Cash Flows from Investing Activities:             |                                                                                |                                                   |          |                    |         |      |         |         
|                                                  | Purchase of properties                                                         |                                                   |          | (77,349            | )       |      |         | (39,831  | )      
|                                                  | Proceeds from disposition of assets                                            |                                                   |          | 72,980             |         |      |         | 26,023   |        
|                                                  |                                                                                |                                                   |          |                    |         |      |         |         
|Net cash used in investing activities             |                                                                                |                                                   | (4,369   | )                  |         |      | (13,808 | )       
|Cash Flows from Financing Activities:             |                                                                                |                                                   |          |                    |         |      |         |         
|                                                  | Proceeds from exercise of options                                              |                                                   |          | 1,564              |         |      |         |         |        
|                                                  | Purchase of common stock                                                       |                                                   |          | (668               | )       |      |         | (68      | )      
|                                                  | Payments of mortgage debt                                                      |                                                   |          | (1,963             | )       |      |         | (1,827   | )      
|                                                  | Net payments of line of credit                                                 |                                                   |          | (53,000            | )       |      |         | (11,000  | )      
|                                                  | Payment of dividends                                                           |                                                   |          | (58,985            | )       |      |         | (2,742   | )      
|                                                  |                                                                                |                                                   |          |                    |         |      |         |         
|Net cash used in financing activities             |                                                                                |                                                   | (113,052 | )                  |         |      | (15,637 | )       
|Net Increase in Cash and Cash Equivalents         |                                                                                |                                                   | 8,095    |                    |         |      | 14,423  |         
|Cash and Cash Equivalents at Beginning of Period  |                                                                                |                                                   | 83,872   |                    |         |      | 14,089  |         
|                                                  |                                                                                |                                                   |          |                    |         |      |         |         
|Cash and Cash Equivalents at End of Period        |                                                                                |                                                   | 91,967   |                    |         |      | 28,512  |         
|                                                  |                                                                                |                                                   |          |                    |         |      |         |         
|Supplemental Disclosure of Cash Flow Information: |                                                                                |                                                   |          |                    |         |      |         |         
|                                                  | Cash received for income tax refunds                                           |                                                   |          | (74,216            | )       |      |         | (7,984   | )      
|                                                  |                                                                                |                                                   |          |                    |         |      |         |         
|                                                  | Cash paid for interest                                                         |                                                   |          | 13,386             |         |      |         | 14,001   |        
|                                                  |                                                                                |                                                   |          |                    |         |      |         |         

See accompanying notes to unaudited condensed consolidated financial
statements.

5



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##### 



FLORIDA EAST COAST INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1.General

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

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

Note 2.Recapitalization

On February 27, 2003, FECIs Board of Directors approved the submission of a
proposal to shareholders to amend the Companys Articles of Incorporation to
eliminate the Companys dual-class structure by reclassifying the Companys
Class A common stock and Class B common stock into a new single class of common
stock on a one-for-one basis. The reclassification was subsequently approved at
the Annual Meeting of Shareholders held on May 28, 2003. On September 10, 2003,
FECI and The St. Joe Company received a favorable ruling from the U.S. Internal
Revenue Service regarding FECIs reclassification of its Class A and Class B
common stock into a single class of common stock. The letter ruling confirmed
that the proposed reclassification would not have an adverse affect on the
tax-free status of the October 2000 spin-off of St. Joes equity interest in
FECI to St. Joes shareholders. FECI filed an amendment to its Articles of
Incorporation with the Secretary of State of Florida in order to effect the
reclassification on September 22, 2003. The condensed consolidated financial
statements reflect the reclassification for all periods presented. The single
class of common stock trades on the New York Stock Exchange under the ticker
symbol FLA.

Note 3.Discontinued Operations

Trucking

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

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

6



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##### 



|                                                                                                                                                                                           |  |                |   |                |  |      |        |      |  |  |      |   |  |  |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | - | -------------- |  | ---- | ------ | ---- |  |  | ---- | - |  |  | ------ | -
|                                                                                                                                                                                           |  | Three Months   |   | Nine Months   
|                                                                                                                                                                                           |  | Ended Sept. 30 |   | Ended Sept. 30
|                                                                                                                                                                                           |  |                |   |               
|(dollars in thousands)                                                                                                                                                                     |  | 2003           |   | 2002           |  | 2003 |        | 2002
|                                                                                                                                                                                           |  |                |   |                |  |      |        |     
|Summary of Operating Results of Discontinued Operations                                                                                                                                    |  |                |   |                |  |      |        |      |  |  |      |   |  |  |        |  
|Trucking revenues                                                                                                                                                                          |  |                |  |                |  |      | 6,497  |      |  |  |     |   |  |  | 22,940 |  
|Trucking expenses                                                                                                                                                                          |  |                |  |                |  |      | 7,913  |      |  |  | (259 | ) |  |  | 27,601 |  
|                                                                                                                                                                                           |  |                |   |                |  |      |        |      |  |  |      |   |  |  |        |  
|(Loss) income before income taxes                                                                                                                                                          |  |                |  |                |  |      | (1,416 | )    |  |  | 259  |   |  |  | (4,661 | )
|Income taxes                                                                                                                                                                               |  |                |  |                |  |      | 545    |      |  |  | (100 | ) |  |  | 1,794  |  
|                                                                                                                                                                                           |  |                |   |                |  |      |        |      |  |  |      |   |  |  |        |  
|(Loss) income from discontinued operations                                                                                                                                                 |  |                |  |                |  |      | (871   | )    |  |  | 159  |   |  |  | (2,867 | )
|                                                                                                                                                                                           |  |                |   |                |  |      |        |      |  |  |      |   |  |  |        |  
|(Loss) gain on disposition of discontinued operations
(net of taxes of $17 for the nine months ended
September 30, 2003 and $1,477 for the three and nine
months ended September 30, 2002) |  |                |  |                |  |      | (2,362 | )    |  |  | 27   |   |  |  | (2,362 | )
|                                                                                                                                                                                           |  |                |   |                |  |      |        |      |  |  |      |   |  |  |        |  

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

|                           |  |           |      |                   |  |       |      |        |  |  |      |   |  |  |       |  
|-------------------------- |  | --------- | ---- | ----------------- |  | ----- | ---- | ------ |  |  | ---- | - |  |  | ----- | -
|                           |  | Employee  |      |                   |  |       |      |        |  |  |      |   |  | 
|                           |  | Severance |      | Tractor/Trailer   |  |       |      |        |  |  |      |  
|(dollars in thousands)     |  | Costs     |      | Disposition Costs |  | Other |      | Totals
|                           |  |           |      |                   |  |       |      |       
|Accruals @ 12/31/02        |  |           | 694  |                   |  |       |     |        |  |  | 461  |   |  |  | 1,155 |  
|Additions & adjustments*   |  |           | (182 | )                 |  |       | 367  |        |  |  | (229 | ) |  |  | (44   | )
|Utilization                |  |           | (323 | )                 |  |       | (367 | )      |  |  | (130 | ) |  |  | (820  | )
|                           |  |           |      |                   |  |       |      |        |  |  |      |   |  |  |       |  
|Ending balance @ 9/30/03** |  |           | 189  |                   |  |       |     |        |  |  | 102  |   |  |  | 291   |  
|                           |  |           |      |                   |  |       |      |        |  |  |      |   |  |  |       |  

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

**-These amounts are included in Railways liabilities as of September 30,
2003.

Real Estate

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

Accordingly, this building is no longer classified as a discontinued operation
and it has been reclassified into continuing operations. All prior periods have
been reclassified to conform to the current presentation. Revenues of $0.4
million and $0.4 million for the quarters ended September 30, 2003 and 2002,
and $1.1 million and $1.2 million for the nine months ended September 30, 2003
and 2002, respectively, and expenses of $0.2 million and $0.2 million for the
quarters ended September 30, 2003 and 2002, and $0.6 million and $0.6 million
for the nine months ended September 30, 2003 and 2002, respectively, have been
reclassified to continuing operations. This building is currently stated at its
original net book value, which is considered to be at or below market value.

During the third quarter 2002, Flagler sold an industrial building totaling
approximately 300,000 sq. ft. located in its Beacon Station business park. On
July 1, 2003, Flagler sold its 50% interest in three 98,000-sq. ft. commercial
office buildings located in the Beacon Pointe Office Park in South Florida
previously held in partnership with Duke Realty Corporation. At September 30,
2003, Flagler had a contractual agreement to sell an industrial building
located in its Gran Park at SouthPark business park in Orlando, and such
building was considered held for sale under the provisions of SFAS 144.
Accordingly, each of these properties and interests are classified and
accounted for as discontinued operations, and all periods presented have been
restated for the discontinued operations of the properties and ownership
interests.

7



---



##### 



|                                                                                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  
|------------------------------------------------------------------------------------------------ |  | -------------- | ----- | -------------- |  | ---- | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                                                                                                 |  | Three Months   |       | Nine Months   
|                                                                                                 |  | Ended Sept. 30 |       | Ended Sept. 30
|                                                                                                 |  |                |       |               
|(dollars in thousands)                                                                           |  | 2003           |       | 2002           |  | 2003 |       | 2002
|                                                                                                 |  |                |       |                |  |      |       |     
|Summary of Operating Results of Discontinued Operations                                          |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  
|Flagler realty rental revenues                                                                   |  |                | 83    |                |  |      | 761   |      |  |  | 979   |   |  |  | 2,880 |  
|Flagler realty rental expenses                                                                   |  |                | 235   |                |  |      | 596   |      |  |  | 1,847 |   |  |  | 1,525 |  
|                                                                                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  
|(Loss) income before income taxes                                                                |  |                | (152  | )              |  |      | 165   |      |  |  | (868  | ) |  |  | 1,355 |  
|Income taxes                                                                                     |  |                | 59    |                |  |      | (64   | )    |  |  | 335   |   |  |  | (522  | )
|                                                                                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  
|(Loss) income from discontinued operations                                                       |  |                | (93   | )              |  |      | 101   |      |  |  | (533  | ) |  |  | 833   |  
|                                                                                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  
|Gain on disposition of discontinued operations (net of
taxes of $1,119 and $2,182, respectively) |  |                | 1,763 |                |  |      | 3,350 |      |  |  | 1,763 |   |  |  | 3,350 |  
|                                                                                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  

Telecommunications

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

|                                                                      |  |                |      |                |  |      |          |      |  |  |      |   |  |  |          |  
|--------------------------------------------------------------------- |  | -------------- | ---- | -------------- |  | ---- | -------- | ---- |  |  | ---- | - |  |  | -------- | -
|                                                                      |  | Three Months   |      | Nine Months   
|                                                                      |  | Ended Sept. 30 |      | Ended Sept. 30
|                                                                      |  |                |      |               
|(dollars in thousands)                                                |  | 2003           |      | 2002           |  | 2003 |          | 2002
|                                                                      |  |                |      |                |  |      |          |     
|Summary of Operating Results of Discontinued Operations               |  |                |      |                |  |      |          |      |  |  |      |   |  |  |          |  
|EPIK revenues                                                         |  |                |     |                |  |      | 4,842    |      |  |  |     |   |  |  | 14,915   |  
|EPIK expenses                                                         |  |                |     |                |  |      | 251,790  |      |  |  | 65   |   |  |  | 288,099  |  
|                                                                      |  |                |      |                |  |      |          |      |  |  |      |   |  |  |          |  
|Operating loss                                                        |  |                |     |                |  |      | (246,948 | )    |  |  | (65  | ) |  |  | (273,184 | )
|Other income                                                          |  |                |     |                |  |      | 191      |      |  |  |     |   |  |  | 9,681    |  
|                                                                      |  |                |      |                |  |      |          |      |  |  |      |   |  |  |          |  
|Loss before income taxes                                              |  |                |     |                |  |      | (246,757 | )    |  |  | (65  | ) |  |  | (263,503 | )
|Income taxes                                                          |  |                |     |                |  |      | 95,013   |      |  |  | 25   |   |  |  | 101,449  |  
|                                                                      |  |                |      |                |  |      |          |      |  |  |      |   |  |  |          |  
|Loss from discontinued operations                                     |  |                |     |                |  |      | (151,744 | )    |  |  | (40  | ) |  |  | (162,054 | )
|                                                                      |  |                |      |                |  |      |          |      |  |  |      |   |  |  |          |  
|Loss on disposition of discontinued operations (net of
taxes of $298) |  |                | (462 | )              |  |      |         |      |  |  | (462 | ) |  |  |         |  
|                                                                      |  |                |      |                |  |      |          |      |  |  |      |   |  |  |          |  

In the course of the strategic alternatives review conducted primarily in the
third quarter of 2002, the Company obtained 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 concluded that EPIKs long-lived assets had no material
value whether held for use or sold. Accordingly, in the third quarter of 2002,
the Company fully impaired the carrying value of EPIKs long-lived assets. On
November 22, 2002, the Company was approached by a party with a proposal to
purchase EPIK for contingent consideration if the Company provided $24 million
of funds for the purchasers use in connection with EPIK. After negotiation,
agreement was reached which included a commitment by the Company to provide
funds totaling $16.5 million, net, for the purchasers use in connection with
EPIK. The Company sold the stock of EPIK on December 3, 2002. The resulting
gain the Company recognized during the fourth quarter of 2002 from the
disposition of EPIK resulted from the difference between EPIKs negative book
value, $39.6 million, and the net cash provided for purchasers use, $16.5
million, other transaction fees and costs, $6.3 million, and income taxes, $6.5
million, as discussed in the Companys 8-K filed on December 17, 2002.

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

|                          |  |           |        |       |  |        |      |   |  |  |        |  
|------------------------- |  | --------- | ------ | ----- |  | ------ | ---- | - |  |  | ------ | -
|                          |  | Employee  |        |       |  |        |      |   |  | 
|                          |  | Severance |        |       |  |        |      |   |  | 
|(dollars in thousands)    |  | Costs     |        | Other |  | Totals
|                          |  |           |        |       |  |       
|Accruals @ 12/31/02       |  |           | 2,279  |       |  |        | 531  |   |  |  | 2,810  |  
|Additions & adjustments** |  |           | 608    |       |  |        | 152  |   |  |  | 760    |  
|Utilization               |  |           | (1,991 | )     |  |        | (683 | ) |  |  | (2,674 | )
|                          |  |           |        |       |  |        |      |   |  |  |        |  
|Ending balance @ 9/30/03  |  |           | 896    |       |  |        |     |   |  |  | 896    |  
|                          |  |           |        |       |  |        |      |   |  |  |        |  

8



---



##### 



**- Any additions and adjustments to the liabilities that resulted from
changes in estimates or final determinations are accounted for as gain or loss
on disposition of discontinued operations on the consolidated financial
statements. Additions primarily represent reimbursements to the buyer for
settlements with previous EPIK employees related to claims for payment under
certain employee agreements.

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

Note 4.Commitments and Contingencies

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

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

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

FECR is investigating sites where contaminants from its historic railroad
operations may have migrated off-site through the movement of groundwater or
contaminated soil. FECR, if required as a result of the investigation, will
develop an appropriate plan of remediation, with possible alternatives
including natural attenuation and groundwater pumping and treatment. Historic
railroad operations at the Companys main
rail facilities have resulted in soil and groundwater impacts. In consultation
with the Florida Department of Environmental Protection (FDEP), the Company
operates and maintains groundwater treatment systems at its primary facilities.

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

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

It is difficult to quantify future environmental costs as many issues relate to
actions by third parties or changes in environmental regulations. However,
based on information presently available, management

9



---



##### 



believes that the ultimate disposition of currently known matters will not have
a material effect on the financial position, liquidity or results of operations
of the Company.

During the second quarter, the Company discussed with Broward County (the
County) and a large home improvement retailer the possible lease to the
retailer of a substantial portion of the land at Port Everglades, Florida that
is subject to a long-term ground lease from the County to the Company. In this
regard, the County Commission authorized the County staff to pursue a proposal
to terminate the entire ground lease if the Company were to convey to the
County, at no cost, certain land improvements, a warehouse on the leased land
and a lease termination fee of $8 million. The Company did not accept this
proposal, which was subject to various contingencies and conditions that were
not subsequently fulfilled. However, negotiations have continued during the
third quarter of 2003.

The Companys ground lease covers 97 acres owned in fee by Broward County at
Port Everglades, which is located near Fort Lauderdale, Florida. The Companys
Railway is the exclusive rail-service provider to the Port. In acquiring the
ground lease in 2000, the Company intended to work with the County to develop
an intermodal transshipment yard and warehouses at the Port. The term of the
ground lease runs until 2033 and provides for base rent of $4 million per year,
which the Company records as operating expense, with six 10-year renewals at
the Companys option. The Company is also obligated to make an annual payment
in lieu of ad valorem taxes on the ground lease property to the City of
Hollywood, the amount of which is currently $0.2 million. The current net book
value of the ground lease, related land improvements, a lease deposit, and a
warehouse with tenant improvements that the Company built on the site is $10.2
million. The Company has provided the County with a bank letter of credit in
the amount of $10.0 million to secure its lease obligations, and the Company
could be required to pay up to an additional $9.4 million if the lease were
terminated due to the Companys default. The warehouse is fully leased to two
tenants.

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

During the third quarter of 2003, the Company continued to review its
alternatives with respect to this project and continued its negotiations with
the County to modify or terminate the land lease. Based on these developments,
the Company has recorded a charge of $16.4 million ($10.1 million after tax) in
the third quarter, reflecting managements estimate of the cost of ending the
land lease. While management believes its estimate is reasonable given
currently applicable facts and circumstances, in future periods the Company may
record adjustments to this charge, which may be material, dependent upon future
events.

Note 5.Earnings Per Share

The diluted weighted-average number of shares includes the net shares that
would be issued upon the exercise of in-the-money stock options using the
treasury stock method. Applying the treasury stock method, the in-the-money
stock options resulted in the dilution of 309,737 shares and 178,940 shares for
the nine-month periods ended September 30, 2003 and 2002, respectively.
Out-of-the-money shares were 2,147,569 shares and 2,230,585 shares at
September 30, 2003 and 2002, respectively.

Note 6.Dividends and Stock Repurchase

On August 28, 2003, the Company declared a dividend of $0.04 per share on its
outstanding common stock, payable on September 25, 2003, to shareholders of
record on September 11, 2003. Additionally, on August 28, 2003, the Company
declared a special dividend of $1.50 per share on its outstanding common stock,
payable on September 25, 2003, to shareholders of record on September 11, 2003.
In addition, the Board of Directors authorized the expenditure of up to $75
million to repurchase its outstanding common

10



---



##### 



stock through a program of open market purchases and privately negotiated
transactions.

Mature shares of stock held by directors and employees and surrendered to the
Company to repay loans or satisfy federal tax withholding obligations are shown
as additions to treasury stock based on the number of shares surrendered and
the market value at the time of surrender.

Note 7.Other Income

|                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  
|-------------------------------- |  | -------------- | ----- | -------------- |  | ---- | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                                 |  | Three Months   |       | Nine Months   
|                                 |  | Ended Sept. 30 |       | Ended Sept. 30
|                                 |  |                |       |               
|(dollars in thousands)           |  | 2003           |       | 2002           |  | 2003 |       | 2002
|                                 |  |                |       |                |  |      |       |     
|Pipe & wire crossings/signboards |  |                | 640   |                |  |      | 350   |      |  |  | 2,517 |   |  |  | 4,249 |  
|Fiber lease income               |  |                | 1,686 |                |  |      | 1,519 |      |  |  | 4,981 |   |  |  | 4,701 |  
|Other (net)                      |  |                | (102  | )              |  |      | (121  | )    |  |  | (81   | ) |  |  | (467  | )
|                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  
|                                 |  |                | 2,224 |                |  |      | 1,748 |      |  |  | 7,417 |   |  |  | 8,483 |  
|                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  

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

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

Note 8.Debt

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

During 2001, Flagler issued $247 million of mortgage notes with $160 million
due July 1, 2011 and $87 million due October 1, 2008. At September 30, 2003,
$241.8 million was outstanding on these notes. These notes are collateralized
by certain buildings and properties of Flagler. Blended interest and principal
repayment on the notes is payable monthly based on a fixed 7.39% and 6.95%
weighted-average interest
rate, respectively, for each note offering, on the outstanding principal amount
of the mortgage notes and assuming a thirty-year amortization period. The net
proceeds in 2001 were used to repay existing indebtedness under the Companys
revolving credit facility. At September 30, 2003, the Company considers the
estimated fair market value of the mortgage notes to be $262 million.

Note 9.Stock-Based Compensation

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

11



---



##### 



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

|                                                                                                                                                              |                       |      |                |      |                |      |          |       |   |  |        |      |  |  |          |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ---- | -------------- | ---- | -------------- | ---- | -------- | ----- | - |  | ------ | ---- |  |  | -------- | ----- | -
|                                                                                                                                                              |                       |      | Three Months   |      | Nine Months   
|                                                                                                                                                              |                       |      | Ended Sept. 30 |      | Ended Sept. 30
|                                                                                                                                                              |                       |      |                |      |               
|(dollars in thousands, except per share amounts)                                                                                                              |                       | 2003 |                | 2002 |                | 2003 |          | 2002 
|                                                                                                                                                              |                       |      |                |      |                |      |          |      
|Net income (loss) - as reported                                                                                                                               |                       |      | 1,046          |      |                |      | (147,383 | )     |   |  | 17,215 |      |  |  | (145,832 | )    
|Deduct: Total stock-based employee compensation
expense determined under the fair value based method for
all stock option awards (net of related tax effects) |                       |      | (778           | )    |                |      | (1,266   | )     |   |  | (1,893 | )    |  |  | (3,469   | )    
|                                                                                                                                                              |                       |      |                |      |                |      |          |       |   |  |        |      |  |  |          |      
|Pro forma net income (loss)                                                                                                                                   |                       |      | 268            |      |                |      | (148,649 | )     |   |  | 15,322 |      |  |  | (149,301 | )    
|                                                                                                                                                              |                       |      |                |      |                |      |          |       |   |  |        |      |  |  |          |      
|Earnings per share:                                                                                                                                           |                       |      |                |      |                |      |          |       |   |  |        |      |  |  |          |      
|                                                                                                                                                              | Basic  as reported   |      | $              | 0.03 |                |      | $        | (4.04 | ) |  | $      | 0.47 |  |  | $        | (4.00 | )
|                                                                                                                                                              | Basic  pro forma     |      | $              | 0.01 |                |      | $        | (4.08 | ) |  | $      | 0.42 |  |  | $        | (4.10 | )
|                                                                                                                                                              | Diluted  as reported |      | $              | 0.03 |                |      | $        | (4.02 | ) |  | $      | 0.47 |  |  | $        | (3.98 | )
|                                                                                                                                                              | Diluted  pro forma   |      | $              | 0.01 |                |      | $        | (4.06 | ) |  | $      | 0.42 |  |  | $        | (4.08 | )

During the third quarter, the Compensation Committee of the Board of Directors
granted 104,685 shares of restricted stock to the executive management team and
certain other members of management who previously were awarded annual grants
of stock options. Total compensation expense for the grants, if fully vested,
would be $3.2 million, recognized ratably over a four-year vesting period.

Note 10.Realty Land Sales and Associated Costs

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

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

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

Note 11.Real Estate Joint Ventures

On January 24, 2003, the Company acquired four commercial buildings for $23.3
million, three of which were previously 50%-owned and held in joint ventures
with a third party. The total purchase price has been allocated to the acquired
land, building, identifiable intangibles and liabilities assumed based on their
estimated fair values at the date of acquisition. The acquisition of these
joint venture interests resulted in a change from the equity method of
accounting to consolidation of the operating results of the buildings
previously held in partnership into the operating results of the Company.
Operating revenues and expenses from these buildings are now included in
Flaglers realty rental and services revenues and expenses and were $0.9
million and $2.6 million of revenues, and $0.6 million and $1.7 million of
expenses for the three and nine months ended September 30, 2003, respectively.

Flagler had investments in 50%-owned joint ventures of $0 million and $17.1
million at September 30, 2003 and December 31, 2002, respectively, the business
of which is the development and leasing of commercial real estate. On July 1,
2003, Flagler sold its investment in these joint ventures for $22.3

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million for
a gain of $2.9 million. As discussed in Note 3, the results of these
investments are now classified as discontinued operations for all periods
presented.

Note 12.Segment Information

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

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

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

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

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

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

13



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Information by industry segment:

|                                                              |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |         |        |  
|------------------------------------------------------------- | --------------------------------------- | ---------------------------------- | ------ | -------------- | ------ | -------------- | -------- | ---------------------- | ------ | ---- | ------- | ------- | ------ |  | -------- | ------- | ------ | -
|                                                              |                                         |                                    |        |                |        |                |          | (dollars in thousands) |        |      |         |        
|                                                              |                                         |                                    |        |                |        |                |          | (unaudited)            |        |      |         |        
|                                                              |                                         |                                    |        | Three Months   |        | Nine Months   
|                                                              |                                         |                                    |        | Ended Sept. 30 |        | Ended Sept. 30
|                                                              |                                         |                                    |        |                |        |               
|                                                              |                                         |                                    |        | 2003           |        | 2002           |          | 2003                   |        | 2002
|                                                              |                                         |                                    |        |                |        |                |          |                        |        |     
|Operating Revenues:                                           |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|                                                              | Railway operations                      |                                    |        | 44,729         |        |                |          | 39,963                 |        |      |         | 134,227 |        |  |          | 122,572 |       
|                                                              | Realty:                                 |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |         |       
|                                                              |                                         | Flagler realty rental and services |        |                | 16,192 |                |          |                        | 14,583 |      |         |         | 48,314 |  |          |         | 45,932 |  
|                                                              |                                         | Flagler realty sales               |        |                | 19,028 |                |          |                        | 1,397  |      |         |         | 40,722 |  |          |         | 5,184  |  
|                                                              |                                         | Other rental                       |        |                | 877    |                |          |                        | 1,068  |      |         |         | 2,406  |  |          |         | 2,752  |  
|                                                              |                                         | Other sales                        |        |                | 6,270  |                |          |                        | 1,208  |      |         |         | 9,701  |  |          |         | 2,676  |  
|                                                              |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|                                                              | Total realty                            |                                    |        | 42,367         |        |                |          | 18,256                 |        |      |         | 101,143 |        |  |          | 56,544  |       
|                                                              | Total revenues (segment)                |                                    |        | 87,096         |        |                |          | 58,219                 |        |      |         | 235,370 |        |  |          | 179,116 |       
|                                                              |                                         | Intersegment revenues              |        |                |       |                |          |                        | (27    | )    |         |         |       |  |          |         | (92    | )
|                                                              |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|                                                              | Total revenues (consolidated)           |                                    |        | 87,096         |        |                |          | 58,192                 |        |      |         | 235,370 |        |  |          | 179,024 |       
|Operating Expenses:                                           |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|                                                              | Railway operations                      |                                    |        | 33,969         |        |                |          | 30,229                 |        |      |         | 103,408 |        |  |          | 92,243  |       
|                                                              | Realty:                                 |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |         |       
|                                                              |                                         | Flagler realty rental and services |        |                | 13,288 |                |          |                        | 12,951 |      |         |         | 42,454 |  |          |         | 37,940 |  
|                                                              |                                         | Flagler realty sales               |        |                | 16,260 |                |          |                        | 921    |      |         |         | 27,479 |  |          |         | 2,522  |  
|                                                              |                                         | Other rental                       |        |                | 18,907 |                |          |                        | 1,237  |      |         |         | 21,774 |  |          |         | 3,544  |  
|                                                              |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|                                                              | Total realty                            |                                    |        | 48,455         |        |                |          | 15,109                 |        |      |         | 91,707  |        |  |          | 44,006  |       
|                                                              | Corporate general & administrative      |                                    |        | 3,388          |        |                |          | 2,845                  |        |      |         | 9,285   |        |  |          | 8,404   |       
|                                                              |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|                                                              | Total expenses (segment)                |                                    |        | 85,812         |        |                |          | 48,183                 |        |      |         | 204,400 |        |  |          | 144,653 |       
|                                                              |                                         | Intersegment expenses              |        |                |       |                |          |                        | (27    | )    |         |         |       |  |          |         | (92    | )
|                                                              |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|                                                              | Total expenses (consolidated)           |                                    |        | 85,812         |        |                |          | 48,156                 |        |      |         | 204,400 |        |  |          | 144,561 |       
|Operating Profit (Loss):                                      |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|                                                              | Railway operations                      |                                    |        | 10,760         |        |                |          | 9,734                  |        |      |         | 30,819  |        |  |          | 30,329  |       
|                                                              | Realty                                  |                                    |        | (6,088         | )      |                |          | 3,147                  |        |      |         | 9,436   |        |  |          | 12,538  |       
|                                                              | Corporate general & administrative      |                                    |        | (3,388         | )      |                |          | (2,845                 | )      |      |         | (9,285  | )      |  |          | (8,404  | )     
|                                                              |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|                                                              | Segment & consolidated operating profit |                                    |        | 1,284          |        |                |          | 10,036                 |        |      |         | 30,970  |        |  |          | 34,463  |       
|Interest income                                               |                                         |                                    | 365    |                |        |                | 89       |                        |        |      | 759     |         |        |  | 212      |        
|Other income                                                  |                                         |                                    | 2,224  |                |        |                | 1,748    |                        |        |      | 7,417   |         |        |  | 8,483    |        
|Interest expense                                              |                                         |                                    | (4,137 | )              |        |                | (5,137   | )                      |        |      | (12,641 | )       |        |  | (15,077  | )      
|                                                              |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|                                                              |                                         |                                    | (1,548 | )              |        |                | (3,300   | )                      |        |      | (4,465  | )       |        |  | (6,382   | )      
|(Loss) income before income taxes                             |                                         |                                    | (264   | )              |        |                | 6,736    |                        |        |      | 26,505  |         |        |  | 28,081   |        
|Provision for income taxes                                    |                                         |                                    | 102    |                |        |                | (2,593   | )                      |        |      | (10,204 | )       |        |  | (10,813  | )      
|                                                              |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|(Loss) income from continuing operations                      |                                         |                                    | (162   | )              |        |                | 4,143    |                        |        |      | 16,301  |         |        |  | 17,268   |        
|Discontinued Operations:                                      |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|Loss from operation of discontinued
operations (net of taxes) |                                         |                                    | (93    | )              |        |                | (152,514 | )                      |        |      | (414    | )       |        |  | (164,088 | )      
|Gain on disposition of discontinued
operations (net of taxes) |                                         |                                    | 1,301  |                |        |                | 988      |                        |        |      | 1,328   |         |        |  | 988      |        
|                                                              |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        
|Net Income (Loss)                                             |                                         |                                    | 1,046  |                |        |                | (147,383 | )                      |        |      | 17,215  |         |        |  | (145,832 | )      
|                                                              |                                         |                                    |        |                |        |                |          |                        |        |      |         |         |        |  |          |        

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

14



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Note 13.Stock Purchase Loans

Certain directors, officers and senior management acquired stock pursuant to
grants made by the Compensation Committee in 2000 and executed promissory notes
therefor. During the quarter, most of the loans were repaid. As of September
30, 2003, only one loan remained outstanding which was subsequently repaid. At
September 30, 2003, the current indebtedness was $0.05 million. The then
outstanding note bore interest, compounded annually, at a rate of 5.9% (refer
to the Companys proxy statements dated April 23, 2002 and April 28, 2003 for
more information). Pursuant to these loans, directors and officers purchased
48,099 Class A common shares of the Company at prices ranging from $34.13 to
$37.81 per share. The Company has accepted cash or tendered shares, valued at
the market price on date of tender, in repayment for such loans.

Note 14.The St. Joe Company

Flagler Development Company, a wholly owned subsidiary, owns, develops, leases
and manages commercial and industrial properties throughout Florida. Effective
as of January 1, 1998, The St. Joe Company and Flagler entered into a
management agreement, pursuant to which Flagler appointed St. Joe as its agent
to provide property management, property development and construction
coordination services for Flaglers real estate business. Prior to October 9,
2000, St. Joe owned 54% of the Companys stock, which it distributed to its
shareholders on that date. St. Joe continued, during the third quarter of 2003,
to provide property management, leasing and development services for certain
Flagler properties under contracts which expired on October 9, 2003. Under the
revised agreement, St. Joe was required to pay Flagler $6 million in three
annual installments commencing on October 9, 2000. Flagler paid St. Joe and
certain of its affiliates the following amounts during the third quarter of
2003 and 2002, respectively: property management services of $0.5 million and
$0.7 million, development fees of $0.1 million and $0 million, construction
coordination fees of $0.1 million and $0.1 million, and leasing commissions of
$0.4 million and $0.3 million.

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Item 2.

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

Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
include the Companys present expectations or beliefs concerning future events.
These statements may be identified by the use of words like plan, expect,
aim, believe, project, anticipate, intend, estimate, will,
should, could, and other expressions that indicate future events and
trends. The Company cautions that such statements are necessarily based on
certain assumptions, which are subject to risks and uncertainties that could
cause actual results to materially differ from those contained in these
forward-looking statements. Such forward-looking statements may include,
without limitation, statements that the Company does not expect that lawsuits,
environmental costs, commitments, including future contractual obligations,
contingent liabilities, completing negotiations that result in the ending of
the 30-year ground lease in a manner satisfactory to both parties, financing
availability, labor negotiations or other matters will have a material adverse
effect on its consolidated financial condition, statements concerning future
capital needs and sources of such capital funding, statements concerning future
intentions with respect to the payment of dividends, execution of a share
repurchase program and other potential capital distributions, number of shares
to be repurchased, availability of cash to fund the stock repurchase, future
growth potential of the Companys lines of business, performance of the
Companys product offerings, other similar expressions concerning matters that
are not historical facts, and projections relating to the Companys financial
results. The Company cautions that such statements are necessarily based on
certain assumptions, which are subject to risks and uncertainties that could
cause actual results to materially differ from those contained in these
forward-looking statements. Important factors that could cause such differences
include, but are not limited to, the changing general economic conditions
(particularly in the state of Florida, the southeast US and the Caribbean) as
they relate to economically sensitive products in freight service and building
rental activities; ability to manage through economic recessions or downturns
in customers business cycles; industry competition; possible future changes in
the Companys structure, lines of business, business and investment strategies,
and related implementation; legislative or regulatory changes; technological
changes; volatility of fuel prices (including volatility caused by military
actions); changes in depreciation rates resulting from future railway
right-of-way and equipment life studies; the ability of the Company to complete
its financing plans, settle future contractual obligations as estimated in time
and amount (including a satisfactory ending of the 30-year ground lease with
Broward County) and conclude labor negotiations in a satisfactory way; changes
in insurance markets, including increases in insurance premiums and
deductibles; the availability and costs of attracting and retaining qualified
independent third party contractors; liability for environmental remediation
and changes in environmental laws and regulations; the ultimate outcome of
environmental investigations or proceedings and other types of claims and
litigation; natural events such as weather conditions, floods, earthquakes and
forest fires; discretionary government decisions affecting the use of land and
delays resulting from weather conditions and other natural occurrences that may
affect construction or cause damage to assets; the ability of the buyers to
terminate contracts to purchase real estate from the Company prior to the
expiration of inspection periods; failure or inability of third parties to
fulfill their commitments or to perform their obligations under agreements;
costs and availability of land and construction materials; buyers ability to
close transactions; the Companys future taxable income and other factors that
may affect the availability and timing of utilization of the Companys deferred
tax assets; uncertainties, changes or litigation related to tax laws,
regulations and the application thereof that could limit the tax benefits of
the EPIK sale or of other possible transactions involving the Company; ability
of the Company to execute and complete a share repurchase program; the
Companys ability to pay dividends, repurchase shares or to make other
distributions to shareholders; and other risks inherent in the real estate and
other businesses of the Company.

16



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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.

Results of Operations

Consolidated Results
Third Quarter and Nine Months

The Company reported consolidated revenues of $87.1 million for the third
quarter 2003, compared to $58.2 million in the third quarter 2002. The Company
reported a loss of $0.2 million from continuing operations and income of $4.1
million for the quarters ended September 30, 2003 and 2002, respectively. The
Company reported net income of $1.0 million, or $0.03 per diluted share,
compared with a net loss of $147.4 million, or $4.02 per diluted share, in the
third quarter 2002.

For the nine months ended September 30, 2003, FECI reported consolidated
revenues of $235.4 million, compared to $179.0 million for the same period in
2002. The Company reported income from continuing operations of $16.3 million
and $17.3 million for the nine months ended September 30, 2003 and 2002,
respectively. The Company reported net income of $17.2 million, or $0.47 per
diluted share, for the nine months ended September 30, 2003, compared to a net
loss of $145.8 million, or $3.98 per diluted share, for the prior year period.

Railway
Third Quarter

Railway segments operating revenues increased 11.9% or $4.7 million to $44.7
million for 2003 versus $40.0 million for 2002. In late 2002, FECR began
managing the dray operations as a result of discontinuing the trucking
division. This traffic increased FECRs revenues $2.7 million in 2003 over
2002. Aggregate traffic increased $2.2 million or 17.6% to $14.7 million in
2003 versus $12.5 million in 2002. Increases were also realized in food and
kindred products of $0.2 million. Intermodal traffic increased $0.5 million or
3.2% in 2003. Offsetting these increases was a decrease in automotive traffic
of $0.9 million. Included in these increases, freight revenues benefited $0.3
million in 2003 due to fuel surcharges.

Operating expenses increased $3.8 million to $34.0 million for 2003, compared
with $30.2 million for third quarter 2002. In late 2002, FECR began managing
the dray operations for intermodal shipments to the Railway, increasing
expenses in the third quarter of 2003 by $2.8 million over 2002. Fuel expense
increased $0.5 million from 2002 due to the increased price for diesel fuel.
Depreciation expense increased $0.4 million with higher capital programs.
Expenses from derailments increased $0.3 million due to mainline and yard
derailments.

Railway forward purchases fuel to manage the risk of fuel price increases. As
of September 30, 2003, Railway had forward purchase contracts of 5.2 million
gallons for delivery from October 2003 to September 2004 for an average
purchase price of $0.75 per gallon before taxes and freight. This represents
56% of the estimated consumption for the remainder of 2003 and 39% for the
first nine months of 2004.

The Railways continuing right-of-way and equipment life study is expected
to conclude during 2003 or early 2004. 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.

Nine Months

Railway segments operating revenues were up $11.6 million at $134.2 million
for 2003 versus $122.6

17



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million for 2002. In late 2002, FECR began managing the dray operations as a result of
discontinuing the trucking division. This traffic increased FECRs 2003 first
nine months revenues $7.8 million over 2002. Other increases were from
additional aggregate rock traffic increasing $3.3 million in 2003 due to the
increase in construction demand throughout the state of Florida. Intermodal
revenues increased $0.4 million from 2002. Included in these increases,
revenues increased $1.1 million in 2003 due to fuel surcharges.

Operating expenses increased $11.2 million to $103.4 million for 2003, compared
with $92.2 million for the first nine months of 2002. In late 2002, FECR began
managing the dray operations for intermodal shipments to the Railway,
increasing expenses in the first nine months $8.0 million over 2002. Fuel costs
increased $1.7 million with the higher fuel prices. Depreciation costs
increased $1.6 million from 2002 with higher capital programs. Insurance costs
increased $0.5 million in 2003 due to higher premiums. Equipment rents and car
hire costs (net) increased $0.4 million in 2003 due to additional leases and
transportation costs for hoppers and gondolas for the increased aggregate
business, and the lower per diem expenses on railway equipment off-line.
Property taxes increased $0.3 million due to an increase in property tax
assessments.

Realty
Third Quarter

Flaglers rental revenues increased $1.6 million or 11.0% quarter-over-quarter
from $14.6 million to $16.2 million. Revenues from operating properties
increased $1.9 million to $16.0 million. Additional revenue from properties
acquired in January 2003 ($1.1 million) and a build-to-suit completed in the
third quarter 2003 ($0.1 million) contributed $1.2 million of the increase,
same store revenues increased $0.4 million, and $0.2 million related to
increased revenue from newer projects due to increased occupancy. Income from
equity investments decreased $0.2 million due to the acquisition of the Beacon
Station partnership interests from Duke Realty in January 2003.

Flagler held 60 finished buildings with 6.6 million sq. ft. and occupancy of
87% at quarter end. Same store properties include 5.5 million sq. ft. and
occupancy of 87%, compared to 84% in prior year. Flagler has six projects with
934,000 sq. ft. in various stages of development (343,000 sq. ft.  under
construction; 591,000 sq. ft.  predevelopment) at quarter end. Projects under
construction include a 230,000-sq. ft. build-to-suit project, and a 113,000-sq.
ft. office project that is 60% preleased.

Flaglers sales revenues increased from $1.4 million in third quarter 2002 to
$19.0 million in third quarter 2003. This increase primarily results from the
third quarter 2003 sale of 78 acres of land at Flagler Center to Citicorp for
$14.4 million.

Flaglers operating expenses increased $0.3 million or 2.6% from $13.0 million
to $13.3 million in third quarter 2003 versus third quarter 2002. Properties
acquired and constructed in 2003 contributed $0.7 million of the increase,
including $0.5 million of depreciation and amortization increases. Existing
properties operating expense decreased $0.1 million in the third quarter 2003,
compared to the prior year.

Flaglers cost of sales increased $15.4 million from $0.9 million to $16.3
million primarily the result of the above mentioned land sale at Flagler
Center. In accounting for this sale, the Company fully burdened its cost with
the parcels proportionate share of Flagler Centers estimated infrastructure
costs, including the estimated cost of an interchange at I-95. The cost was not
reduced by future anticipated reimbursements based on incremental property
taxes not yet due, which the Company expects to receive pursuant to an
agreement with the City of Jacksonville that is intended to reimburse the
Company over time its cost of constructing the interchange, plus interest.

During the second quarter, the Company discussed with Broward County (the
County) and a large home improvement retailer the possible lease to the
retailer of a substantial portion of the land at Port Everglades, Florida that
is subject to a long-term ground lease from the County to the Company. In this
regard, the County Commission authorized the County staff to pursue a proposal
to terminate the entire ground lease if the Company were to convey to the
County, at no cost, certain land improvements, a warehouse on the leased land
and a lease termination fee of $8 million. The Company did not accept this

18



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proposal, which was subject to various contingencies and conditions that were
not subsequently fulfilled. However, negotiations have continued during the
third quarter of 2003.

The Companys ground lease covers 97 acres owned in fee by Broward County at
Port Everglades, which is located near Fort Lauderdale, Florida. The Companys
Railway is the exclusive rail-service provider to the Port. In acquiring the
ground lease in 2000, the Company intended to work with the County to develop
an intermodal transshipment yard and warehouses at the Port. The term of the
ground lease runs until 2033 and provides for base rent of $4 million per year,
which the Company records as operating expense, with six 10-year renewals at
the Companys option. The Company is also obligated to make an annual payment
in lieu of ad valorem taxes on the ground lease property to the City of
Hollywood, the amount of which is currently $0.2 million. The current net book
value of the ground lease, related land improvements, a lease deposit, and a
warehouse with tenant improvements that the Company built on the site is $10.2
million. The Company has provided the County with a bank letter of credit in
the amount of $10.0 million to secure its lease obligations, and the Company
could be required to pay up to an additional $9.4 million if the lease were
terminated due to the Companys default. The warehouse is fully leased to two
tenants.

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

During the third quarter of 2003, the Company continued to review its
alternatives with respect to this project and continued its negotiations with
the County to modify or terminate the land lease. Based on these developments,
the Company has recorded a charge of $16.4 million ($10.1 million after tax) in
the third quarter, reflecting managements estimate of the cost of ending the
land lease. While management believes its estimate is reasonable given
currently applicable facts and circumstances, in future periods the Company may
record adjustments to this charge, which may be material, dependent upon future
events.

Nine Months

Flaglers rental revenues increased $2.4 million from $45.9 million in 2002 to
$48.3 million in 2003. Included in 2002 revenues are net termination fees of
$1.9 million, compared to $0.1 million in 2003. Before termination fees, the
increase from year-over-year is $4.2 million or 9.5%. Before termination fees,
revenues from operating properties increased $4.8 million, with $3.4 million of
the increase attributable to properties acquired in January 2003 ($3.3 million)
and a build-to-suit project completed in the third quarter 2003 ($0.1 million).
Same store revenues increased $0.2 million (before termination fees) with
occupancy of 87% at September 30, 2003, compared to occupancy of 84% at
September 30, 2002. Newer properties contributed a $1.2 million increase
related primarily to increased occupancy; however, income from equity
investments decreased $0.6 million related to the purchase of the Beacon
Station partnership interests from Duke Realty in January 2003.

Flagler held 60 finished buildings with 6.6 million sq. ft., and occupancy of
87% as of September 30, 2003. Same store properties include 5.5 million sq.
ft. at 87% occupancy at September 30, 2003, compared to 84% during the prior
year.

Flaglers sales revenues increased to $40.7 million in 2003 from $5.2 million
in 2002. Real estate sales in the nine months ended September 30, 2003 included
the Baptist Hospital sale ($9.5 million), Ft. Pierce K-4 ($5.6 million),
Weston-Duke Realty ($2.4 million), Citicorp ($14.4 million) and other parcel
sales.

Flaglers operating expenses increased $4.6 million or 11.9% from $37.9 million
during the nine months ended September 30, 2002 to $42.5 million during nine
months ended September 30, 2003. Properties acquired and constructed in 2003
contributed $2.1 million of the increase, including $1.4 million of

19



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additional
depreciation and amortization. Existing properties operating expenses
increased $1.8 million mainly due to increased insurance costs ($0.5 million)
and real estate taxes ($1.5 million). Corporate overhead expenses
increased $0.6 million primarily related to additional staffing related costs,
bad debt expenses and information technology costs.

Flaglers cost of sales increased $25.0 million from $2.5 million to $27.5
million related to increased land sales activity in the nine months ended
September 30, 2003.

Results from Discontinued Operations

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

During the third quarter 2002, Flagler sold an industrial building totaling
approximately 300,000 sq. ft. located in its Beacon Station Business Park. On
July 1, 2003, Flagler sold its 50% interest in three 98,000-sq. ft. commercial
office buildings located in the Beacon Pointe Office Park in South Florida
previously held in partnership with Duke Realty Corporation.

During the third quarter 2003, Flagler entered into a contract for the sale of
an approximately 133,000 sq. ft. industrial building located in its Gran Park
at SouthPark business park in Orlando. This building meets the criteria as a
held-for-sale property at September 30, 2003 and, therefore, the results of
operations of this property have also been reclassified to discontinued
operations for all periods presented.

The results of these operations are presented as discontinued operations as
follows:

|                                                                                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  
|------------------------------------------------------------------------------------------------ |  | -------------- | ----- | -------------- |  | ---- | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                                                                                                 |  | Three Months   |       | Nine Months   
|                                                                                                 |  | Ended Sept. 30 |       | Ended Sept. 30
|                                                                                                 |  |                |       |               
|(dollars in thousands)                                                                           |  | 2003           |       | 2002           |  | 2003 |       | 2002
|                                                                                                 |  |                |       |                |  |      |       |     
|Summary of Operating Results of Discontinued Operations                                          |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  
|Flagler realty rental revenues                                                                   |  |                | 83    |                |  |      | 761   |      |  |  | 979   |   |  |  | 2,880 |  
|Flagler realty rental expenses                                                                   |  |                | 235   |                |  |      | 596   |      |  |  | 1,847 |   |  |  | 1,525 |  
|                                                                                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  
|(Loss) income before income taxes                                                                |  |                | (152  | )              |  |      | 165   |      |  |  | (868  | ) |  |  | 1,355 |  
|Income taxes                                                                                     |  |                | 59    |                |  |      | (64   | )    |  |  | 335   |   |  |  | (522  | )
|                                                                                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  
|(Loss) income from discontinued operations                                                       |  |                | (93   | )              |  |      | 101   |      |  |  | (533  | ) |  |  | 833   |  
|                                                                                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  
|Gain on disposition of discontinued operations (net of
taxes of $1,119 and $2,182, respectively) |  |                | 1,763 |                |  |      | 3,350 |      |  |  | 1,763 |   |  |  | 3,350 |  
|                                                                                                 |  |                |       |                |  |      |       |      |  |  |       |   |  |  |       |  

As discussed and detailed in Note 3 to the Consolidated Financial Statements,
during the third quarter of 2002, the Company adopted a plan to discontinue and
ceased operations of its regional long-haul trucking operation. Additionally,
the Company, during the third quarter of 2002, fully impaired the carrying
value of EPIKs long-lived assets. Subsequently, in the fourth quarter of 2002,
the Company sold EPIK to a third party. Accordingly, these events and the
operating results for these operations are shown as discontinued operations for
all periods presented in conformity with SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.

Corporate Expenses
Third Quarter and Nine Months

Corporate expenses for the third quarter 2003 were $3.4 million, compared to
$2.8 million for the third quarter 2002. Corporate expenses for the nine months
ended September 30, 2003 and 2002 were $9.3 million and $8.4 million,
respectively. The increase quarter-over-quarter and year-over-year primarily
relates to costs associated with the reclassification of the common stock (see
Note 2) and increased equity incentive compensation expenses. The
reclassification of common stock resulted in additional legal and
administrative fees of $0.3 million in the quarter ended September 30, 2003.
During the third quarter of 2002, restricted stock awards (pursuant to which
restrictions lapse pro rata over four years) were granted to senior executives.
The stock grants also provide for accelerated lapsing of restrictions based

20



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on the Companys performance to pre-established targets. In the first quarter
of 2003, the Compensation Committee of the Board of Directors approved
performance acceleration of 25% of the grant. These grants resulted in
additional recognition of compensation expense of $0.4 million for the third
quarter of 2003.

Interest Expense

Third Quarter and Nine Months

Interest expense for the third quarter and first nine months of 2003 was $4.1
million and $12.6 million, respectively. This compares with interest expense of
$5.1 million and $15.1 million for the third quarter and first nine months of
2002, respectively. The lower interest expense resulted primarily from
decreased borrowings on the revolver.

Other Income

Third Quarter and Nine Months

Other income for the third quarter and first nine months of 2003 was $2.2
million and $7.4 million, respectively, compared to $1.7 million and $8.5
million for the third quarter and first nine months of 2002, respectively. Pipe
and wire crossing income in the first nine months of 2002 included $1.9 million
of income from additional pipe and wire crossing agreements.

Provision for Income Taxes

Third Quarter and Nine Months

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

Financial Condition, Liquidity and Capital Resources

Third Quarter and Nine Months

Net cash generated by operating activities was $125.5 million and $43.9 million
for the nine months ended September 30, 2003 and 2002, respectively. The
year-to-year fluctuation in net cash generated by operating activities reflects
a $74.6 million income tax refund received during the second quarter of 2003.
Net cash generated by operating activities is expressed net of gains on asset
disposals, primarily building and land sales, which also fluctuate. Asset
dispositions for the nine months ended September 30, 2003 and 2002 generated
pretax gains of $25.8 million and $10.9 million, respectively.

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

During the nine months ended September 30, 2003 and 2002, respectively, the
Company invested approximately $60 million and $15 million at Flagler. For the
nine months ended September 30, 2003 and 2002, respectively, the Companys
capital investments at FECR were approximately $16 million and $21 million.

During the third quarter of 2003, the Company announced that its Board of
Directors had declared a special dividend on its Class A and Class B common
stock of $1.50 per share, as well as the Companys $0.04 per share quarterly
dividend. Total dividend payments for the third quarter of 2003 were $56.6
million, compared to $1.5 million and $0.09 million in the second and first
quarters of 2003. In addition, the

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Board of Directors authorized the
expenditure of up to $75 million to repurchase its outstanding common
stock through a program of open market purchases and privately negotiated
transactions. The Company expects to finance the stock repurchase primarily
from available cash balances. At September 30, 2003, the Company had not
repurchased stock pursuant to this authorization.

At September 30, 2003, the Company had in place a $200 million revolving credit
facility pursuant to an agreement, as amended from time to time, between the
Company and certain banking institutions (the Credit Facility Agreement). The
description herein of the revolving credit facility is qualified in its
entirety by reference to the Credit Facility Agreement, which is incorporated
as Exhibit 10(b) to the Companys Reports on Form 10-K for years ended December
31, 2000, 2001 and 2002. On February 7, 2003, the Credit Facility Agreement was
extended for an additional year to March 31, 2005 and amended to reduce the
facilitys size to $200 million, increase the stock repurchase and special
dividend limit from $50 million to $150 million (which may be increased in 2004
to $200 million if certain financial ratio tests are met), increase the
non-recourse mortgage financing limit from $250 million to $325 million, and
make other miscellaneous modifications. At September 30, 2003, the Company had
$0 million drawn on the revolving credit facility. Pursuant to the Credit
Facility Agreement, the Company has agreed, among other things, to maintain
certain financial ratios. The Company believes the most restrictive of such
ratios is the Group Debt/EBITDA ratio (as defined in the Credit Facility
Agreement). The Credit Facility Agreement provides that at September 30, 2003,
the Companys Group Debt/EBITDA ratio shall be no greater than 2.75. At
September 30, 2003, the Companys actual Group Debt/EBITDA
ratio was 0.01.
Pursuant to the Credit Facility Agreement, the required Group Debt/EBITDA ratio
is 2.75 through December 31, 2003, and 2.50 from January 1, 2004 to March 31,
2005, all as more particularly set forth in the Credit Facility Agreement.
Although no assurances can be given as to the Companys future compliance with
the Group Debt/EBITDA ratio covenant or other financial covenants, the Company
has complied with the terms of the Credit Facility Agreement in the past and
expects to continue to comply with them in the future.

OTHER MATTERS

Critical Accounting Policies

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

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

Income Tax Provisions  FECIs net deferred tax liability was $117.3 million
and $106.7 million at September 30, 2003 and December 31, 2002, respectively.
Included in these net liabilities is a federal tax asset of approximately $26
million and $37 million, respectively, associated with net operating loss
carry forwards. The net deferred tax liability is estimated based on the
expected future tax consequences of items recognized in the financial
statements. Management must use judgment when estimating the future timing
and deductibility of expenses and loss carry forwards in the Companys tax
returns. A valuation allowance is required to be recorded if management
expects that it is more likely than not that its deferred tax assets will not
be realized. As of September 30, 2003 and December 31, 2002, FECI has no
valuation allowance since it expects to realize its deferred tax assets. This
expectation is primarily based upon FECIs expectation that future operations
will be sufficiently profitable to utilize the operating loss carry forwards,
as well as the existence of various tax, business and other planning
strategies available to the Company. However, the Company cannot guarantee
that

22



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it will realize this tax asset or that future valuation allowances will not
be required. Failure to utilize the tax asset could materially affect the
Companys financial results and financial position.

Revenue Recognition  Realty Rental Revenues  Revenues from realty rentals are
primarily contractual base rents from leases of commercial property. The
Company recognizes revenues from these base rents evenly over the lease term in
accordance with SFAS No. 13, Accounting for Leases. SFAS No. 13 requires
rental income from an operating lease be recognized on a straight-line basis
over the non-cancelable lease term. Accordingly, total contractual minimum
lease payments, including scheduled rent increases, are recognized as rental
revenue evenly over the lease term. Accrued revenues from contractually
scheduled rent increases in excess of amounts currently due amounted to $11.9
million and $9.3 million at September 30, 2003 and December 31, 2002,
respectively, which is reported in other assets. The Company monitors this
asset for collection risk and establishes reserves for any amounts deemed not
collectible. However, amounts collected in future periods may vary from the
Companys expectations.

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

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

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

23



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Changes in Internal Control over Financial Reporting

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

PART II

Item 1.

LEGAL PROCEEDINGS

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

Item 2.

CHANGES IN SECURITIES AND USE OF PROCEEDS

Effective September 22, 2003, the Company amended its Articles of Incorporation
to reclassify its Class A common stock and Class B common stock into a single
class of common stock. Prior to the reclassification, the holders of Class A
common stock elected 20% of the members of the Companys board of directors,
and the holders of Class B common stock elected 80% of the members of the
Companys board of directors. The holders of Class A common stock and the
holders of Class B common stock are now holders of a single class of common
stock and vote together for the election of all directors.

Prior to the reclassification, directors could only be removed by the holders
of the class of common stock that appointed such director. A director may now
be removed by a vote of shareholders voting as a single class.

As to all other matters on which shareholders are entitled to vote, the
reclassification had no impact on the voting power of holders of common stock.

Prior to the reclassification, the Articles of Incorporation required that the
size of the board be in multiples of five. The size of the board of directors
shall be fixed from time to time by the board of directors in accordance with
the Companys By-Laws.

In addition, the Shareholder Rights Agreement was amended to make the rights
applicable to the new common stock and to delete references to the Class A
common stock and the Class B common stock.

Each new share of common stock includes an identical associated preferred stock
purchase right that will trade with each share. These rights will become
exercisable upon the acquisition by a person or affiliated group of 39% or more
of the outstanding shares of new common stock, or upon the commencement or
announcement of a tender offer which, if consummated, would result in the
acquisition of 39% or more of the outstanding shares of the new common stock.

Holders of a majority of the outstanding shares of Class A common stock and
Class B common stock each voting separately as a class and together, approved
the reclassification on May 28, 2003.

24



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Item 5.

OTHER INFORMATION

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

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

|                  |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |       |  
|----------------- | ---------------------------- | ----- | ---- | ----- | ---- | -------- | ------- | -------- | ---- | -------- | ---- | -------- | ------- |  | ------ | ------ |  |  | ------ | ------ |  |  | ---- | ----- | -
|                  |                              |       | 2003 |       | 2002 |          | Percent |          | 2003 |          | 2002 |          | Percent
|Commodity         |                              | Units |      | Units |      | Variance |         | Revenues |      | Revenues |      | Variance
|                  |                              |       |      |       |      |          |         |          |      |          |      |         
|Rail carloads     |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |      
|                  | Crushed stone                |       |      | 31.5  |      |          |         | 27.6     |      |          |      | 14.1     |         |  |        | 14,691 |  |  |        | 12,491 |  |  |      | 17.6  |  
|                  | Construction materials       |       |      | 1.5   |      |          |         | 1.4      |      |          |      | 7.1      |         |  |        | 808    |  |  |        | 815    |  |  |      | (0.9  | )
|                  | Vehicles                     |       |      | 4.7   |      |          |         | 5.9      |      |          |      | (20.3    | )       |  |        | 3,744  |  |  |        | 4,669  |  |  |      | (19.8 | )
|                  | Foodstuffs                   |       |      | 2.9   |      |          |         | 2.8      |      |          |      | 3.6      |         |  |        | 2,151  |  |  |        | 1,919  |  |  |      | 12.1  |  
|                  | Chemicals                    |       |      | 0.9   |      |          |         | 0.9      |      |          |      |         |         |  |        | 1,004  |  |  |        | 991    |  |  |      | 1.3   |  
|                  | Paper                        |       |      | 1.4   |      |          |         | 1.6      |      |          |      | (12.5    | )       |  |        | 1,412  |  |  |        | 1,556  |  |  |      | (9.3  | )
|                  | Other                        |       |      | 3.7   |      |          |         | 3.4      |      |          |      | 8.8      |         |  |        | 2,172  |  |  |        | 1,885  |  |  |      | 15.2  |  
|                  |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |       |  
|                  | Total carload                |       |      | 46.6  |      |          |         | 43.6     |      |          |      | 6.9      |         |  |        | 25,982 |  |  |        | 24,326 |  |  |      | 6.8   |  
|Intermodal        |                              |       | 62.1 |       |      |          | 63.8    |          |      |          | (2.7 | )        |         |  | 15,379 |        |  |  | 14,897 |        |  |  | 3.2  |      
|                  |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |       |  
|                  | Total freight units/revenues |       |      | 108.7 |      |          |         | 107.4    |      |          |      | 1.2      |         |  |        | 41,361 |  |  |        | 39,223 |  |  |      | 5.4   |  
|                  |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |       |  
|Drayage           |                              |       | 13.0 |       |      |          |        |          |      |          |     |          |         |  | 2,664  |        |  |  |       |        |  |  |     |      
|                  |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |       |  
|Ancillary revenue |                              |       |     |       |      |          |        |          |      |          |     |          |         |  | 704    |        |  |  | 740    |        |  |  | (4.9 | )    
|                  |                              |       |      |       |      |          |         |          |      |          |      |          |         |  |        |        |  |  |        |        |  |  |      |       |  

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

RAILWAY OPERATING EXPENSES
(dollars in thousands)
(unaudited)

|                                  |  |                |        |                |  |  |        |  
|--------------------------------- |  | -------------- | ------ | -------------- |  |  | ------ | -
|                                  |  | Three Months   |        | Three Months  
|                                  |  | Ended Sept. 30 |        | Ended Sept. 30
|                                  |  |                |        |               
|                                  |  | 2003           |        | 2002          
|                                  |  |                |        |               
|Compensation & benefits           |  |                | 12,229 |                |  |  | 12,812 |  
|Fuel                              |  |                | 3,228  |                |  |  | 2,739  |  
|Equipment rents (net)             |  |                | 826    |                |  |  | 688    |  
|Car hire (net)                    |  |                | (1,433 | )              |  |  | (1,203 | )
|Depreciation                      |  |                | 4,925  |                |  |  | 4,542  |  
|Purchased services                |  |                | 2,301  |                |  |  | 2,300  |  
|Repairs to/by others (net)        |  |                | (1,189 | )              |  |  | (635   | )
|Load/unload                       |  |                | 1,808  |                |  |  | 1,784  |  
|Casualty & insurance              |  |                | 1,389  |                |  |  | 1,035  |  
|Property taxes                    |  |                | 1,363  |                |  |  | 1,185  |  
|Materials                         |  |                | 2,296  |                |  |  | 2,012  |  
|General & administrative expenses |  |                | 2,376  |                |  |  | 2,011  |  
|Drayage                           |  |                | 2,833  |                |  |  |       |  
|Other                             |  |                | 1,017  |                |  |  | 959    |  
|                                  |  |                |        |                |  |  |        |  
|Total operating expenses          |  |                | 33,969 |                |  |  | 30,229 |  
|                                  |  |                |        |                |  |  |        |  

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

25



---



##### 



REALTY SEGMENT REVENUES
(dollars in thousands)
(unaudited)

|                                                  |                                           |                                        |        |                |        |                |        |        |        | 
|------------------------------------------------- | ----------------------------------------- | -------------------------------------- | ------ | -------------- | ------ | -------------- | ------ | ------ | ------ | 
|                                                  |                                           |                                        |        | Three Months   |        | Three Months  
|                                                  |                                           |                                        |        | Ended Sept. 30 |        | Ended Sept. 30
|                                                  |                                           |                                        |        |                |        |               
|                                                  |                                           |                                        |        | 2003           |        | 2002          
|                                                  |                                           |                                        |        |                |        |               
|Rental revenues  Flagler                         |                                           |                                        | 13,987 |                |        |                | 12,156 |       
|Rental income  straight-line rent adjustments    |                                           |                                        | 891    |                |        |                | 841    |       
|Operating expense recoveries                      |                                           |                                        | 834    |                |        |                | 894    |       
|Rental revenues  undeveloped land                |                                           |                                        | 212    |                |        |                | 252    |       
|Equity pickups                                    |                                           |                                        |       |                |        |                | 203    |       
|Other rental revenues                             |                                           |                                        | 268    |                |        |                | 237    |       
|                                                  |                                           |                                        |        |                |        |                |        |       
|                                                  | Total rental revenue  Flagler properties |                                        |        | 16,192         |        |                |        | 14,583 |       
|Rental revenues  other realty operations         |                                           |                                        | 877    |                |        |                | 1,068  |       
|                                                  |                                           |                                        |        |                |        |                |        |       
|                                                  |                                           | Total rental revenues                  |        |                | 17,069 |                |        |        | 15,651 | 
|Building and land sales  Flagler                 |                                           |                                        | 19,028 |                |        |                | 1,397  |       
|Building and land sales  other realty operations |                                           |                                        | 6,270  |                |        |                | 1,208  |       
|                                                  |                                           |                                        |        |                |        |                |        |       
|                                                  |                                           | Total building and land sales revenues |        |                | 25,298 |                |        |        | 2,605  | 
|                                                  |                                           |                                        |        |                |        |                |        |       
|                                                  | Total realty segment revenues             |                                        |        | 42,367         |        |                |        | 18,256 |       
|                                                  |                                           |                                        |        |                |        |                |        |       

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

REALTY SEGMENT EXPENSES
(dollars in thousands)
(unaudited)

|                                             |                                            |                                                         |                                                 |        |                |        |                |        |       |       | 
|-------------------------------------------- | ------------------------------------------ | ------------------------------------------------------- | ----------------------------------------------- | ------ | -------------- | ------ | -------------- | ------ | ----- | ----- | 
|                                             |                                            |                                                         |                                                 |        | Three Months   |        | Three Months  
|                                             |                                            |                                                         |                                                 |        | Ended Sept. 30 |        | Ended Sept. 30
|                                             |                                            |                                                         |                                                 |        |                |        |               
|                                             |                                            |                                                         |                                                 |        | 2003           |        | 2002          
|                                             |                                            |                                                         |                                                 |        |                |        |               
|Real estate taxes  developed                |                                            |                                                         | 1,583                                           |        |                |        | 1,562          |       
|Repairs & maintenance  recoverable          |                                            |                                                         | 630                                             |        |                |        | 537            |       
|Services, utilities, management costs        |                                            |                                                         | 3,136                                           |        |                |        | 2,778          |       
|                                             |                                            |                                                         |                                                 |        |                |        |                |       
|                                             |                                            | Total expenses subject to recovery  Flagler properties |                                                 |        | 5,349          |        |                |        | 4,877 |      
|Real estate taxes  Flagler undeveloped land |                                            |                                                         | 545                                             |        |                |        | 938            |       
|Repairs & maintenance  non-recoverable      |                                            |                                                         | 373                                             |        |                |        | 204            |       
|Depreciation
& amortization - Flagler        |                                            |                                                         | 5,515                                           |        |                |        | 5,473          |       
|SG&A
- non-recoverable - Flagler             |                                            |                                                         | 1,506                                           |        |                |        | 1,459          |       
|                                             |                                            |                                                         |                                                 |        |                |        |                |       
|                                             |                                            | Total
 non-recoverable expenses  Flagler properties   |                                                 |        | 7,939          |        |                |        | 8,074 |      
|                                             |                                            |                                                         |                                                 |        |                |        |                |       
|                                             | Total rental expenses  Flagler properties |                                                         |                                                 | 13,288 |                |        |                | 12,951 |      
|Real
estate taxes  other undeveloped land   |                                            |                                                         | 714                                             |        |                |        | 105            |       
|Depreciation
& amortization - other          |                                            |                                                         | 41                                              |        |                |        | 10             |       
|SG&A
- non-recoverable  other               |                                            |                                                         | 18,152                                          |        |                |        | 1,122          |       
|                                             |                                            |                                                         |                                                 |        |                |        |                |       
|                                             |                                            |                                                         | Total rental expenses  other realty operations |        |                | 18,907 |                |        |       | 1,237 | 
|                                             |                                            |                                                         |                                                 |        |                |        |                |       
|                                             | Total rental expenses                      |                                                         |                                                 | 32,195 |                |        |                | 14,188 |      
|Realty sales expenses                        |                                            |                                                         | 16,260                                          |        |                |        | 921            |       
|                                             |                                            |                                                         |                                                 |        |                |        |                |       
|Total operating expenses                     |                                            |                                                         | 48,455                                          |        |                |        | 15,109         |       
|                                             |                                            |                                                         |                                                 |        |                |        |                |       

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

26



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##### 



Item 6.

EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

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

(b)  Reports on Form 8-K

1.     On July 24, 2003, under Item 9 on Form 8-K, the Registrant furnished
information about the Companys real estate holdings that were made available
in a document entitled Supplemental Real Estate Information Package on the
Companys website http://www.feci.com.

2.     The Registrant furnished information under Item 9 on Form 8-K on July 24,
2003, reporting information the Registrant elected to disclose through Form
8-K. Florida East Coast Industries, Inc. issued a press release on this date
describing its results of operations for the second quarter ended June 30,
2003. A copy of the press release was attached as Exhibit 99 to this report.

3.     The Registrant furnished information under Item 9, Regulation FD
Disclosure, on Form 8-K on August 4, 2003, reporting information the
Registrant elected to disclose through Form 8-K. The information concerned
presentations to be made by Mr. Robert W. Anestis, Chairman, President and
Chief Executive Officer of Florida East Coast Industries, Inc., to various
investors at locations in San Francisco, California on August 4 and 5, 2003.

4.     The Registrant furnished information under Item 9, Regulation FD
Disclosure, on Form 8-K on September 2, 2003, reporting the Registrant had
issued a press release announcing a $1.50 per share special dividend, share
repurchase program and declaration of a quarterly dividend. A copy of the press
release was attached as Exhibit 99 to this report.

5.     The Registrant furnished information under Item 9, Regulation FD
Disclosure, on Form 8-K on September 10, 2003, reporting the Registrant had
issued a press release announcing that FECI and The St. Joe Company had
received a favorable ruling from the U.S. Internal Revenue Service regarding
FECIs reclassification of its Class A and Class B common stock into a single
class of common stock without affecting St. Joes tax-free status of the
October 2000 spin-off of St. Joes equity interest in FECI to St. Joes
shareholders. A copy of the press release was attached as Exhibit 99 to this
report.

6.     The Registrant furnished information under Item 9, Regulation FD
Disclosure, on Form 8-K on September 22, 2003, reporting the Registrant had
issued a press release announcing that FECI had completed the reclassification
of all its Class A and Class B common stock into a single class of common
stock. A copy of the press release was attached as Exhibit 99 to this report.

27



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##### 



SIGNATURES

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

|               |  |                                                 
|-------------- |  | ------------------------------------------------
|               |  | FLORIDA EAST COAST INDUSTRIES, INC.             
|               |  |                                                 
|               |  | (Registrant)                                    
|               |  |                                                 
|Date: 10/21/03 |  | /s/ Mark A. Leininger                           
|               |  |                                                 
|               |  | Mark A. Leininger, Vice President and Controller
|               |  |                                                 
|Date: 10/21/03 |  | /s/ Richard G. Smith                            
|               |  |                                                 
|               |  | Richard G. Smith, Executive Vice President      
|               |  | and Chief Financial Officer                     



INDEX TO EXHIBITS

|             |  |                                                                                                                        
|------------ |  | -----------------------------------------------------------------------------------------------------------------------
|S-K ITEM 601 |  | DOCUMENTS                                                                                                              
|             |  |                                                                                                                        
|3.(i)        |  | Second Amended and Restated Articles of Incorporation                                                                  
|             |  |                                                                                                                        
|3.(ii)       |  | Amended and Restated By-Laws                                                                                           
|             |  |                                                                                                                        
|3.(iii)      |  | Amended and Restated Articles of Amendment Relating to
Designation of Series A Participating Cumulative Preferred
Stock
|             |  |                                                                                                                        
|4            |  | Amended and Restated Rights Agreement dated as of
September 22, 2003*                                                  
|             |  |                                                                                                                        
|31.1-31.2    |  | Section 302 Certifications                                                                                             
|             |  |                                                                                                                        
|32.1         |  | Section 906 Certification                                                                                              



---

* The Amended and Restated Rights Agreement
dated as of September 22, 2003 was filed as an exhibit to
Form 8-A/A with the Securities and Exchange Commission
on September 22, 2003.


28