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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

Commission File Number 001-08728

Florida East Coast Industries, Inc.

Registrant’s telephone number, including area code — (904) 829-3421

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   x    No   o

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

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FLORIDA EAST COAST INDUSTRIES, INC.

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FLORIDA EAST COAST INDUSTRIES, INC.

(See accompanying notes to consolidated condensed financial statements.)

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FLORIDA EAST COAST INDUSTRIES, INC.

(See accompanying notes to consolidated condensed financial statements.)

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FLORIDA EAST COAST INDUSTRIES, INC.

(See accompanying notes to consolidated condensed financial statements.)

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FLORIDA EAST COAST INDUSTRIES, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. General

In the opinion of management, the accompanying unaudited consolidated condensed financial statements reflect all accruals and adjustments considered necessary to present fairly the Company’s financial position as of September 30, 2002 and December 31, 2001, and the results of operations and cash flows for the three-month and nine-month periods ended September 30, 2002 and 2001. Results for interim periods are not necessarily indicative of the results to be expected for the year. These interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission.

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

Note 2. Discontinued Operations

Flagler Development

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

Trucking Operations

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

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

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Net Assets of Discontinued Operations

Note 3. Telecommunications’ Asset Impairment

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

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

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

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Note 4. Commitments and Contingencies

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

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

The Company is participating, together with several other potentially responsible parties (PRPs), in the remediation of a site in Jacksonville, Florida, pursuant to an agreement with the United States Environmental Protection Agency (USEPA). The site previously accepted waste oil from many businesses. The Company has accrued its estimated share of the total estimated cleanup costs for the site. Based upon management’s evaluation, the Company does not expect to incur additional amounts, even though the Company may have joint and several liability.

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

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

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

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

Note 5. Earnings Per Share

The diluted weighted-average number of shares includes the net shares that would be issued upon the exercise of “in the money” stock options using the treasury stock method.

Note 6. Dividends

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

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Note 7. Other Income

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

Note 8. Debt

The Company maintains a $300 million revolving credit agreement with certain financial institutions, for which the Company presently pays (quarterly) commitment fees, as applicable under the agreement, at a range of 20-50 basis points. The borrowings under the credit agreement are secured by the capital securities of FECR, Florida Express Carriers, Inc. (FLX) and the Class A shares of EPIK. The Company’s revolving credit agreement contains various covenants which, among other things, require the maintenance of certain financial ratios related to fixed charge coverage and maximum leverage; establish minimum levels of net worth; establish limitations on indebtedness, certain types of payments, including dividends, liens and investments; and limit the use of proceeds of asset sales. Some of the above covenants provide specific exclusion of EPIK’s financial results, as well as exclusion of certain financing and investing activities at Flagler. Borrowings under the credit agreement bear interest at variable rates linked to the LIBOR Index. Interest on borrowings is due and payable on the “rollover date” for each draw. Outstanding borrowings can be paid at any time by the borrower, or at the conclusion of the facility’s term (March 31, 2004). At September 30, 2002, there were $28 million of direct borrowings outstanding under the facility at an average interest rate of approximately 2.57%.

During 2001, Flagler issued $247 million of mortgage notes with $160 million due July 1, 2011 and $87 million due October 1, 2008. At September 30, 2002, $244.4 million was outstanding on these notes. These notes are collateralized by certain buildings and properties of Flagler. Blended interest and principal repayment on the notes is payable monthly based on a fixed 7.39% and 6.95% weighted-average interest rate, respectively, for each note offering, on the outstanding principal amount of the mortgage notes and assuming a thirty-year amortization period. The net proceeds in 2001 were used to repay existing indebtedness under the Company’s revolving credit facility.

Note 9. Restructuring Charges and Other Costs

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

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

Note 10. Segment Information

The Company follows Statement of Financial Accounting Standards No. 131, “Disclosure about Segments of an Enterprise and Related Information” (SFAS 131). Under the provisions of SFAS 131, the Company has three reportable operating segments, all within the same geographic area, as follows: railway segment, realty segment and the telecommunications segment.

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

The Company’s railway subsidiary generates revenues from leases to other telecommunications companies for the installation of fiber optic and other facilities on the railroad right-of-way, which are included in the telecommunications segment. Also, the railway subsidiary generates revenues and expenses from the rental, leasing, and sale of buildings and properties that are ancillary to the railroad’s operations. These revenues and expenses are included in the realty segment.

The Company evaluates the railway segment’s performance based on operating profit or loss from operations before other income and income taxes. Also, the Company evaluates FECR on EBITDA from railway operations and for the legal entity as a whole. Operating profit is operating revenue less directly traceable costs and expenses. EBITDA is defined as operating profit before net interest expense, income taxes, depreciation and amortization. The Company evaluates the realty segment based on EBITDA and operating profit. The Company evaluates the telecommunications segment’s performance, specifically EPIK’s, based on EBITDA.

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

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

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Information by industry segment:

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EBITDA by industry segment: (b)