UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

OR

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

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 ( )

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.

FLORIDA EAST COAST INDUSTRIES, INC.

PART I

FINANCIAL INFORMATION

INDEX

1

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

See accompanying notes to consolidated financial statements (unaudited).

2

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

(Prior year’s results have been reclassified to conform to current year’s presentation, including discontinued operations.)

See accompanying notes to consolidated financial statements (unaudited).

3

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

See accompanying notes to consolidated financial statements (unaudited).

4

FLORIDA EAST COAST INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. General

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all accruals and adjustments considered necessary to present fairly the Company’s financial position as of March 31, 2004 and December 31, 2003, and the results of operations and cash flows for the three-month periods ended March 31, 2004 and 2003. Results for interim periods are not necessarily indicative of the results to be expected for the year. The consolidated balance sheet as of December 31, 2003 included herein has been derived from the Company’s audited consolidated financial statements for the year ended December 31, 2003. 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, 2003 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 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” (SFAS 144), and all periods presented have been restated accordingly.

5

As a result of the discontinuance, certain liabilities were accrued related to this exit plan. A roll-forward of the liabilities through March 31, 2004 is as follows:

*-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 March 31, 2004.

Real Estate

In accordance with SFAS 144, 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 statement of income as discontinued operations, net of applicable income taxes.

Discontinued operations include the gain on the sale and the related operations of an office building in 2004, and the operations from the sale of an industrial building and Flagler’s 50% interest in three buildings held in partnership with Duke Realty during 2003.

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.

6

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 March 31, 2004 is as follows:

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

Also, FECI is a guarantor on certain leases (primarily office space) and could be contingently liable if EPIK were to default on certain lease obligations. Estimates for these guarantees were approximately $2.5 million at the time of the sale. These amounts could be subject to change in subsequent periods and are estimated to be $0.9 million at March 31, 2004.

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, LLC. 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

7

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 (MIA) in a lawsuit filed on or about April 11, 2001 by Miami-Dade County in the Miami-Dade County 11th Judicial Circuit Court. In regard to FECR, Miami-Dade County generally alleges that FECR is or was the owner of sites at or near MIA and that the past acts of an FECR lessee or others contaminated the soil and/or groundwater at those sites, which allegedly impacted MIA property. The County generally seeks damages for past and future remediation costs relating to MIA’s property. The lawsuit was not served on FECR; however, in January 2003 FECR in conjunction with a cooperating parties group made up of named PRPs filed a Notice of Appearance with the court. At the request of those in the cooperating parties group and Miami-Dade County, the court issued an order staying all proceedings for 120 days while the parties worked to resolve the matter without further litigation. Successive orders extending the stay have been issued by the court and FECR has continued during that time to work toward resolving this matter. 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 operations.

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.

On February 24, 2004, the Broward County Commission approved the negotiated termination of a long-term ground lease between the County and the Company. This termination agreement was subsequently executed and the transaction closed on March 15, 2004.

The ground lease covered 97 acres owned in fee by Broward County at Port Everglades, which is located near Fort Lauderdale, Florida. The County and the Company have now terminated the entire lease. In consideration for the early termination, the Company (a) conveyed title to certain land improvements and a warehouse on the leased property and (b) paid to Broward County $5.4 million reduced by additional rental payments made by the Company from November 2003 until closing and some other minor adjustments, the net additional payment being $3.7 million. During the third quarter of 2003, the Company recorded a charge of $16.4 million ($10.1 million after tax), reflecting management’s estimate of the cost of terminating the ground lease. Management believes its estimate is reasonable given currently applicable facts and circumstances.

Under the original ground lease, the Company was obligated under a related agreement between the County, the City of Hollywood and the Company to make minimum annual payments of $0.2 million in-lieu-of taxes to the City of Hollywood through the lease term (the amount of the payment is based on the extent of improvements on the leased property). In connection with the termination of the ground lease, the Company has indemnified the County from claims by the City (including defense costs) against the County relating to the City’s entitlement to the payments in-lieu-of taxes and has secured that indemnification with a letter of credit in the amount of $8.8 million. A dispute exists between the Company and the City regarding the effects of the termination of the lease on the in-lieu-of-tax payment obligations. The Company contends that the City is not entitled to further payments upon termination and the City contends it is entitled to a lump sum payment of $10 million upon termination. The Company intends to defend against this claim vigorously. In future periods, the Company may record adjustments to its reserves based on the outcome of the dispute with the City.

8

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 665,797 shares and 209,019 shares at March 31, 2004 and 2003, respectively. “Out-of-the-money” shares were 1,433,854 shares and 2,237,480 shares at March 31, 2004 and 2003, respectively.

Note 6. Dividends and Stock Repurchase

On February 26, 2004, the Company declared a dividend of $.040 per share on all issued and outstanding common stock, payable March 25, 2004 to shareholders of record March 11, 2004. The determination of the amount of future cash dividends, if any, to be declared and paid by the Company will depend upon, among other things, the Company’s financial condition, funds from operations, level of capital expenditures, future business prospects and other factors deemed relevant by the Board of Directors. In addition, on August 28, 2003, the Board of Directors authorized the expenditure of up to $75 million to repurchase the Company’s outstanding common stock through a program of open market purchases and privately negotiated transactions. At March 31, 2004, $2.9 million of stock had been repurchased through this program.

Note 7. Other Income

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

At March 31, 2004, the Company had 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 20-50 basis points. The borrowings under the credit agreement are secured by the capital securities of FECR. 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. 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 March 31, 2004, the Company’s Group Debt/EBITDA ratio shall be no greater than 2.50. At March 31, 2004, the Company’s actual Group Debt/EBITDA ratio was 0.01. Pursuant to the Credit Facility Agreement, the required Group Debt/EBITDA ratio is 2.50 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.

9

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. On February 7, 2003, the Company extended its revolving bank credit facility for an additional year to March 31, 2005. In tandem with the extension, the Company and its banks made amendments to the facility that included a reduction in the aggregate amount of the commitments from $300 million to $200 million, the elimination of the Global Debt to EBITDA covenant, which included the results of EPIK, an increase in the stock repurchase and special dividend limit to $150 million (which may be increased in 2004 to $200 million if certain financial ratio tests are met), an increase in the non-recourse mortgage financing limit from $250 million to $325 million, and other miscellaneous modifications. At March 31, 2004, 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 March 31, 2004, $240.5 million was outstanding on these notes. These notes are collateralized by certain buildings and properties of Flagler. Blended interest and principal repayment on the notes is payable monthly based on a fixed 7.39% and 6.95% weighted-average interest rate, respectively, for each note offering, on the outstanding principal amount of the mortgage notes and assuming a thirty-year amortization period. The net proceeds in 2001 were used to repay existing indebtedness under the Company’s revolving credit facility. At March 31, 2004, the Company considers the estimated fair market value of the mortgage notes to be $273.2 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.

In a transaction (the “Transaction”) initiated at the request of the Board of Directors, the Company cancelled vested, in-the-money stock options (the “Options”) to acquire 144,000 shares of the Company’s common stock held by the Company’s Chief Executive Officer (“CEO”). The embedded value of the Options (fair market value less strike price) was $2 million. The embedded value, less applicable tax withholding, was paid in common stock. The CEO was issued 36,407 shares (valued at $35.06, which was the closing price on February 27, 2004). The stock, together with applicable withholdings, represents the pre-tax embedded value. Because the original stock option award was cancelled and the Company replaced this award with FECI common stock, in accordance with FASB Interpretation No. 44, the Company was required to recognize compensation expense in the amount of $2 million with respect to the Transaction. The Board recognized the need for the CEO to address the near-term maturity of the Options and preferred that he do so without the current market sale of 144,000 shares and that he also increase his outright ownership in the Company. As a part of this arrangement, the CEO has agreed, by the conclusion of 2005, to accumulate and maintain a position of outright ownership in the Company’s stock of at least 75,000 shares.

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” (SFAS 123), to stock-based employee compensation:

10

Note 10. Realty Land Sales and Associated Cost

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 and when collection of the sales proceeds is assured. During the current period, all sales proceeds were received in cash at closing.

The book basis of pending building and land sales 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 building and land sales, particularly less significant dispositions, meet the criteria described above. At March 31, 2004, a large land parcel is included in this category.

The Company capitalizes all infrastructure costs (including costs of infrastructure assets deeded to governmental authorities) into the basis of the properties benefiting from such infrastructure and allocates these costs to individual parcels on a relative fair value basis as required by Statement of Financial Accounting Standard No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects.”

Note 11. Segment Information

The Company follows Statement of Financial Accounting Standards No. 131, “Disclosure about Segments of an Enterprise and Related Information” (SFAS 131). SFAS 131 provides guidance for reporting information about operating segments and other geographic information based on a management approach. The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies. Under the provisions of SFAS 131, the Company has two reportable operating segments, both within the same geographic area. These are the railway and realty segments.

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

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

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

11

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.

Information by industry segment:

(Prior year’s results have been reclassified to conform to current year’s presentation, including discontinued operations.)

*-For the years presented, there are no intersegment revenues and expenses.

12

Note 12. The St. Joe Company

St. Joe Company and affiliates provided certain real estate services to the Company under service agreements, which expired in October 2003. These services included property management, development management and construction coordination and leasing services. Flagler now has operational responsibility for these services. However, Codina, a St. Joe affiliate, continues to provide development and leasing services at Flagler’s South Florida properties. Amounts paid to St. Joe and affiliates for these services for the three months ended March 31, 2004 and 2003, respectively, were as follows: property management services of $0 million and $0.7 million, development fees of $0.2 million and $0 million, construction coordination fees of $0 million and $0.1 million and leasing commissions of $0.1 million and $0.8 million.

13

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. Such forward-looking statements may include, without limitation, statements that the Company does not expect that lawsuits, review of open tax years by the IRS, environmental costs, commitments, including future contractual obligations, contingent liabilities, financing availability, labor negotiations or other matters will have a material adverse effect on its consolidated financial condition, statements concerning future capital needs and sources of such capital funding, statements concerning future intentions with respect to the payment of dividends, 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 customers’ 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; changes in the ability of the Company to complete its financing plans, changes in interest rates, settle future contractual obligations as estimated in time and amount and conclude labor negotiations in a satisfactory way; changes in insurance markets, including increases in insurance premiums and deductibles; the availability and costs of attracting and retaining qualified independent third party contractors; liability for environmental remediation and changes in environmental laws and regulations; the ultimate outcome of environmental investigations or proceedings and other types of claims and litigation; natural events such as weather conditions, floods, earthquakes and forest fires; discretionary government decisions affecting the use of land and delays resulting from weather conditions and other natural occurrences that may affect construction or cause damage to assets; the ability of 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’ inability or unwillingness to close transactions, particularly where buyers only forfeit deposits upon failure to close; the inability of the Company to resolve or successfully defend litigation, including the claims asserted by the City of Hollywood; 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.

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.

14

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
First Quarter

FECI reported consolidated revenues of $71.6 million for the first quarter of 2004 compared to $75.8 million in the first quarter of 2003, a decrease of 5.5%. The Company reported income from continuing operations of $5.9 million and $7.0 million for the quarters ended March 31, 2004 and 2003, respectively. Consolidated revenues decreased in 2004 by $4.2 million due to decreased land sales ($9.8 million) in 2004 (the decrease primarily results from the sale of a large parcel at Flagler Center in 2003) offset by improved revenues at FECR ($4.3 million) and from Flagler’s realty rental and services’ revenue ($1.4 million). 2004 income from continuing operations decreased by $1.1 million compared to 2003, primarily as the result of the above-mentioned revenue net decrease plus an increase ($2.1 million) in corporate general and administrative expenses (specifically stock-based compensation costs) for the quarter. The Company reported net income of $8.3 million, or $0.22 per diluted share, compared with net income of $6.9 million, or $0.19 per diluted share, in the first quarter of 2003. Net income for 2004 included a gain on disposition of $2.3 million related to the sale of a building in March 2004.

Railway
First Quarter

FECR’s traffic volume and revenues for the three months ended March 31, 2004 and 2003, respectively, are shown below. Also, FECR’s quarterly operating expenses are presented below.

TRAFFIC
Three Months Ended March 31
(dollars and units in thousands)

(Prior year’s results have been reclassified to conform to current year’s presentation. Previously, drayage revenues were shown separately but are now classified for all periods in intermodal revenues, given their integrated relationship.)

15

RAILWAY OPERATING EXPENSES

(Prior year’s results have been reclassified to conform to current year’s presentation. Previously, drayage expenses were shown separately but are now classified for all periods in their related natural category expense item.)

FECR’s management team continued its focus on improving profitability during the first quarter 2004. Carload revenues increased $2.0 million in first quarter 2004 over 2003, an increase of 7.7%. FECR continues to transport record levels of aggregate business, increasing revenues 18.7% or $2.4 million in 2004 over first quarter 2003. Foodstuff and kindred revenues increased $0.2 million or 7.1% in first quarter 2004 over 2003 due to additional production from one key customer. After several years of decline in intermodal revenue, the first quarter of 2004 continued to show growth as the third consecutive quarter with year-to-year growth, with the first quarter having $19.6 million in revenue, an increase of $2.2 million or 12.8%. Leading the way was a resurgence in the parcel/LTL and domestic truckload segments, new customers, improved pricing, as well as continued strength on the “Hurricane Train” service, an Atlanta-based intermodal service introduced in 2001. During second quarter 2003, south- and northbound moves, which had been priced separately for a certain interchange carrier, were combined under a single unit move. This pricing change is reflected in first quarter 2004’s intermodal revenues and units as a single unit move. In the first quarter 2004, FECR, in conjunction with CSX, announced the “Nighthawk,” a new intermodal service from North Bergen, NJ and Baltimore, MD to Miami. This service extends FECR’s reach by partnering with its connecting carriers in these important transportation corridors.

Operating expenses increased $2.0 million in the first quarter of 2004 over 2003. Labor expenses increased $0.3 million due to general wage increases and increased costs of health care. Outside contractor delivery costs to move product from the customers’ facilities to the rail ramp increased $0.5 million in first quarter of 2004 due to higher volumes. Materials and supplies increased $0.5 million due to additional repairs to the locomotives, freight cars and cranes. Depreciation increased $0.2 million in 2004.

FECR forward purchases fuel to manage the risk of fuel price increases. As of March 31, 2004, FECR had forward purchase contracts of 3.8 million gallons for delivery from April 2004 to February 2005, for an average purchase price of $0.7611 per gallon before taxes and freight. This represents 27% of the estimated consumption for the remainder of 2004, at an average purchase price of $0.7514 and represents 18% of the estimated consumption for the first two months of 2005, for an average purchase price of $0.8250.

During 2003, FECR commenced an engineering- and economics-based study of its principal right-of-way and equipment assets to develop a multi-year preventive maintenance and replacement plan and associated estimates of the assets’ remaining lives. The study is expected to be completed in 2004 and may result in changes in FECR’s maintenance and capital spending and in the estimated remaining useful lives of its property, plant and equipment, which may affect future depreciation rates and expense.

16

Realty
First Quarter

REALTY SEGMENT REVENUES

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

REALTY SEGMENT EXPENSES

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

Results from Continuing Operations

Flagler’s rental revenues increased $1.4 million or 8.5% from $15.8 million in 2003 to $17.2 million in 2004. Revenues from operating properties increased $1.5 million. Same store occupancy increased to 88% at first quarter-end 2004, compared to 2003 quarter-end occupancy of 85%. Same store revenues increased $0.9 million over the prior year, which includes the impact of a $0.4 million net termination fee

17

received in 2004. Revenues generated by properties acquired in 2003 increased $0.2 million. Deerwood North 300, which opened in January 2004, contributed an additional $0.3 million in “new store” revenue in 2004.

Flagler held 59 finished buildings with 6.5 million square feet and occupancy of 89% at March 31, 2004. Same store properties include 5.9 million square feet and 88% occupancy at quarter-end 2004, compared to 85% at quarter-end 2003. Flagler has seven projects with 1,057,000 sq. ft. in various stages of development (113,000 sq. ft. in the lease-up phase; 490,000 sq. ft. under construction; 454,000 sq. ft. in pre-development) at quarter end. Projects under construction include a 239,000-sq. ft. build-to-suit.

Flagler’s sales revenue decreased from $12.3 million in 2003 to $4.0 million in 2004. First quarter of 2003 included the sale of the Baptist Hospital site in Flagler Center for $9.5 million. Other sales decreased $1.6 million quarter-over-quarter due to decreased land sales activity at FECR.

Flagler’s operating expenses increased $1.2 million or 8.0% from $14.3 million to $15.5 million year-over-year. Repairs and maintenance increased $0.2 million mainly associated with building repair work at Flagler Station. Depreciation and amortization expense increased $1.3 million in 2004 (same store — $0.8 million, new in 2003 — $0.1 million, Deerwood North 300 — $0.1 million, corporate — $0.3 million). The increase in same store depreciation and amortization includes a $1.4 million write-off of net book value related to the renovation of Flagler’s Class “A” office properties at duPont Center in Jacksonville, FL. Overhead expenses decreased by $0.4 million during 2004. Other rental expenses decreased from $1.1 million in first quarter 2003 to $0.8 million in first quarter 2004 due to reduced expenses associated with the Port Everglades land lease.

Flagler’s cost of land sales decreased $6.4 million from $8.6 million to $2.2 million due to related land sale activity.

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.

Discontinued operations include the operations of an industrial building sold in 2003, and Flagler’s 50% interest in three buildings held in partnership with Duke Realty during 2003. On March 31, 2004, Flagler sold a 60,000-sq. ft. build-to-suit office building for $12.6 million for a pre-tax gain of $3.7 million, or $2.3 million, net of applicable taxes. The operating results of these properties, as well as the gain on sale are included in discontinued operations for all periods presented.

Corporate Expenses

Corporate general and administrative expenses were $5.0 million and $2.9 million for the first quarters of 2004 and 2003, respectively. Increases primarily relate to costs associated with increased stock compensation expense. In a transaction (the “Transaction”) initiated at the request of the Board of

18

Directors, the Company cancelled vested, in-the-money stock options (the “Options”) to acquire 144,000 shares of the Company’s common stock held by the Company’s Chief Executive Officer (“CEO”). The embedded value of the Options (fair market value less strike price) was $2 million. The embedded value, less applicable tax withholding, was paid in common stock. The CEO was issued 36,407 shares (valued at $35.06, which was the closing price on February 27, 2004). The stock, together with applicable withholdings, represents the pre-tax embedded value. Because the original stock option award was cancelled and the Company replaced this award with FECI common stock, in accordance with FASB Interpretation No. 44, the Company was required to recognize compensation expense in the amount of $2 million with respect to the Transaction. The Board recognized the need for the CEO to address the near-term maturity of the Options and preferred that he do so without the current market sale of 144,000 shares and that he also increase his outright ownership in the Company. As a part of this arrangement, the CEO has agreed, by the conclusion of 2005, to accumulate and maintain a position of outright ownership in the Company’s stock of at least 75,000 shares.

Interest Expense

Interest expense for the quarter was $3.9 million compared to $4.3 million in the first quarter of 2003. The lower interest expense resulted primarily from no borrowings on the revolver during 2004.

Other Income

Other income was $2.7 million and $2.3 million for the first quarters of 2004 and 2003, respectively. The quarter-over-quarter increase resulted from additional utility crossing agreements.

Income Tax

Income tax expenses represent an effective rate of 38.5% for the first quarters 2004 and 2003, respectively.

Financial Condition, Liquidity and Capital Resources

Net cash generated by operating activities was $9.7 million and $8.4 million in the three months ended March 31, 2004 and 2003, respectively. The year-to-year fluctuation in net cash generated by operating activities primarily reflects increased net income and depreciation offset by normal changes in operating assets and liabilities.

During the three months ended March 31, 2004 and 2003, respectively, the Company invested approximately $13 million and $32 million at Flagler. 2003 included the purchase of three buildings previously held in a joint partnership for $23.3 million. For the three months ended March 31, 2004 and 2003, the Company’s capital investments at FECR were approximately $6 million and $3 million.

Proceeds from disposition of assets were $17.6 million and $14.9 million for the quarters ended March 31, 2004 and 2003, respectively. The majority of these proceeds were from the sale of a building and a large parcel of land by Flagler in the quarters, respectively.

Net cash used in financing activities was $45.0 million for the quarter ended March 31, 2003. Financing activities for the quarter ended March 31, 2004 provided minimal cash. Finance activities during 2003 included, primarily, repayments ($44.0 million) for borrowings on the line of credit.

At March 31, 2004, the Company had 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 20-50 basis points. The borrowings under the credit agreement are secured by the capital securities of FECR. 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. 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

19

that at March 31, 2004, the Company’s Group Debt/EBITDA ratio shall be no greater than 2.50. At March 31, 2004, the Company’s actual Group Debt/EBITDA ratio was 0.01. Pursuant to the Credit Facility Agreement, the required Group Debt/EBITDA ratio is 2.50 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.

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. On February 7, 2003, the Company extended its revolving bank credit facility for an additional year to March 31, 2005. In tandem with the extension, the Company and its banks made amendments to the facility that included a reduction in the aggregate amount of the commitments from $300 million to $200 million, the elimination of the Global Debt to EBITDA covenant, which included the results of EPIK, an increase in the stock repurchase and special dividend limit to $150 million (which may be increased in 2004 to $200 million if certain financial ratio tests are met), an increase in the non-recourse mortgage financing limit from $250 million to $325 million, and other miscellaneous modifications. At March 31, 2004, 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 March 31, 2004, $240.5 million was outstanding on these notes. These notes are collateralized by certain buildings and properties of Flagler. Blended interest and principal repayment on the notes is payable monthly based on a fixed 7.39% and 6.95% weighted-average interest rate, respectively, for each note offering, on the outstanding principal amount of the mortgage notes and assuming a thirty-year amortization period. The net proceeds in 2001 were used to repay existing indebtedness under the Company’s revolving credit facility. At March 31, 2004, the Company considers the estimated fair market value of the mortgage notes to be $273.2 million.

The Company believes its access to liquidity via cash generated from operations and the existing Credit Agreement and/or external financing will be sufficient to support needs in future years. The Company plans on maintaining a revolving credit facility in support of its general corporate needs. The Company’s current intent is to extend or renew the existing credit agreement before it matures on March 31, 2005.

At March 31, 2004, FECI had $7.4 million of deposits and escrowed funds included in cash and cash equivalents related to pending land sales and potential real estate 1031 like-kind exchanges.

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, real estate infrastructure costs and contingencies 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 March 31, 2004, 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.

20

Income Tax Provisions — FECI’s net deferred tax liability was $133.6 million at March 31, 2004 and $129.5 million at December 31, 2003, respectively. In 2002, the Company had a federal deferred tax asset of approximately $38 million associated with net operating loss carry forwards. During the course of 2003, all of the federal net operating loss was utilized; however, at December 31, 2003, the Company estimated a $2.0 million alternative minimum tax (AMT) liability for the 2003 tax year that will produce an AMT credit carry forward which is expected to offset future federal tax liabilities. At December 31, 2002, the Company had a state deferred tax asset of approximately $11 million relating to net operating loss carry forwards. This state deferred tax asset was partially utilized during 2003, with approximately $8 million remaining at December 31, 2003. 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, loss and credit 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 March 31, 2004 and December 31, 2003, FECI has no valuation allowance since it expects to realize its deferred tax assets. This expectation is primarily based upon FECI’s expectation that future operations will be sufficiently profitable to utilize the operating loss carry forwards, as well as the existence of various tax, business and other planning strategies available to the Company. However, the Company cannot guarantee that it will realize this tax asset or that future valuation allowances will not be required. Failure to utilize the tax asset could materially affect the Company’s financial results and financial position. Federal tax years through 1999 have been closed with the Internal Revenue Service (IRS). Federal tax years 2000-2002 are currently under review by the IRS. Management believes its income tax provision reserves at March 31, 2004 to be adequate for the settlement, if any, of disputed tax positions taken by the Company for these years. Historically, settlements for disputed tax positions that have effected the total tax provision provided for in the income statement has been primarily interest charges on timing differences between years.

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 13, “Accounting for Leases” (SFAS 13). SFAS 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 $13.5 million at March 31, 2004 and $12.8 million at December 31, 2003, 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 governmental 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 No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects” (SFAS 67).

In connection with infrastructure assets constructed by the Company and deeded to governmental authorities, certain governmental 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 governmental authority from the applicable properties over a stipulated period of time. Prior to and at the date of deeding the infrastructure asset to the governmental 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 being, therefore, payable. The Company does not recognize expected future tax reimbursements even though they may be probable and estimable, until they become fixed and determinable.

Contingencies — It is the Company’s policy to reserve for certain contingencies consisting primarily of various claims and lawsuits resulting from its operations. In the opinion of management, appropriate

21

reserves have been made for the estimated liability that may result from disposition of such matters. Management’s opinion and ultimately the reserve recorded in the financial statements are based on known facts and circumstances. In certain circumstances, management uses the services of outside counsel to help evaluate the facts and circumstances and gives consideration to their professional judgment in establishing the appropriate reserve. The ultimate resolution of these contingencies may be for an amount greater or less than the amount estimated by management.

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 pages 38 and 39 of the Company’s 2003 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-15(e) and 15d-15(e). Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2004.

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 or 15d-15 that occurred during the Registrant’s first fiscal quarter 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, USE OF PROCEEDS AND
ISSUER PURCHASES OF EQUITY SECURITIES

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.

22

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.

On August 28, 2003, the Board of Directors authorized the expenditure of up to $75 million to repurchase the Company’s outstanding common stock through a program of open market purchases and privately negotiated transactions. The following table sets forth the repurchases (which were zero shares) made during the three months ended March 31, 2004:

Item 5.

OTHER INFORMATION

Selection of Director Candidates

In May 2003, the Board of Directors of the Company created a Nominating and Corporate Governance Committee. The directors who serve on the Committee are all “independent” for purposes of the New York Stock Exchange listing standards. Among other things, the Committee is responsible for developing a slate of director nominees for full board approval. The Committee’s goal is to assemble a board that brings to the Company a collection of skills and experience, which is qualified to develop and execute the strategy and business of the Company. The Committee oversees an evaluation of current members of the board in light of the needs of the Company’s business and considers the appropriate size of the board. The Committee strives to balance the benefits of continuity of knowledge, skills and experience derived from current board members with periodic injection of new talent and perspectives.

The Committee may utilize a search firm to help identify candidates who meet the qualifications. The Committee may also receive suggestions from other board members and management. Additionally, the Committee considers qualified candidates for directors suggested by shareholders, including nominations made pursuant to the Company’s Articles of Incorporation. Shareholders may suggest qualified

23

candidates for director by writing to the Chair of the Committee or the Corporate Secretary at Florida East Coast Industries, Inc., One Malaga Street, St. Augustine, FL 32084.

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 February 11, 2004, 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. On February 11, 2004, under Item 12 on Form 8-K, the Registrant furnished information concerning the Company’s results of operations for its fourth quarter and year ended December 31, 2003. A copy of the press release was attached as Exhibit 99 to this report.

3. On February 12, 2004, under Item 9 on Form 8-K, the Registrant furnished information that Mr. Robert W. Anestis, Chairman, President and Chief Executive Officer of Florida East Coast Industries, Inc. would make presentations to various investors at the Deutsche Bank Global Transportation Conference and to Morgan Keegan representatives on February 12 and 13, 2004, highlighting the Company’s consolidated and subsidiaries’ business accomplishments.

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.

24

INDEX TO EXHIBITS

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

#This document, as amended through February 26, 2004, is filed as an exhibit to Form 10-Q with the Securities and Exchange Commission on April 29, 2004.

**These documents, dated effective as of September 22, 2003, were filed as exhibits to Form 8-A/A with the Securities and Exchange Commission on September 22, 2003.

##These documents, dated February 18, 2004, are filed as exhibits to Form 10-Q with the Securities and Exchange Commission on April 29, 2004.

###This document, dated February 26, 2004, is filed as an exhibit to Form 10-Q with the Securities and Exchange Commission on April 29, 2004.

####This document, dated February 26, 2004, is filed as an exhibit to Form 10-Q with the Securities and Exchange Commission on April 29, 2004.

25