Railamerica Inc/DE · 10-K · For 12/31/02

Filed On 3/27/03, 9:18am ET   ·   Accession Number 1169232-3-2313   ·   SEC File 0-20618

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Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         78    467K 
 2: EX-10.86    Amendment No. 1 to Credit Agreement                   65     51K 
 3: EX-10.87    Deferred Compensation Plan                            27     88K 
 4: EX-10.88    Adoption Agreement                                    27     60K 
 5: EX-21       Subsidiaries of Registrant                             3     21K 
 6: EX-23.1     Consent of Pricewaterhousecoopers LLP                  1      6K 
 7: EX-99.1     Peo Certification                                      1      6K 
 8: EX-99.2     Pfo Certification                                      1      6K 

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U.S. SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549

----------

 FORM 10-K

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

For the fiscal year ended December 31, 2002 Commission File Number 0-20618

----------

 RAILAMERICA, INC.
(Exact name of registrant as specified in its charter)

          DELAWARE                                        65-0328006
 (State or Other Jurisdiction                            (IRS Employer
           of Incorporation)                              Identification Number)

5300 BROKEN SOUND BLVD, N.W.                                        
 BOCA RATON, FLORIDA                                     33487
(Address of principal executive offices)                        (Zip Code)      

Registrant's telephone number, including area code: (561) 994-6015

 Securities Registered Pursuant to Section 12(b) of the Act:

     TITLE OF EACH CLASS               NAME OF EACH EXCHANGE ON WHICH REGISTERED
     -------------------               -----------------------------------------

Common Stock, $.001 Par Value                    New York Stock Exchange        
Common Stock Purchase Rights                     New York Stock Exchange        

Securities Registered Pursuant to Section 12(g) of the Act: None

Check 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 |_|                                                         

Check if there is no disclosure of delinquent filers in response to Item 405 of 
Regulation S-K contained in this form, and no disclosure will be contained, to  
the best of registrant's knowledge, in definitive proxy or information          
statements incorporated by reference in Part III of this Form 10-K or any       
amendment to this Form 10-K. |_|                                                

Check whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2) Yes |X| No |_|                                                      

The aggregate market value of the voting stock held by non-affiliates of the    
registrant as of June 30, 2002 computed by reference to the average bid and     
asked prices of registrant's common stock reported on the New York Stock        
Exchange on such date was $335.8 million.                                       

The number of shares outstanding of registrant's Common Stock, $.001 par value  
per share, as of March 20, 2003 was 31,797,083.                                 

DOCUMENTS INCORPORATED BY REFERENCE                                             

  The information required by Part III (Items 10, 11, 12 and 13) will be
incorporated by reference from the registrant's Definitive Proxy Statement to be
filed with the Commission pursuant to Regulation 14A.                           

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 TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

PART I                                                                          

Item 1.   Business                                                            3 
Item 2.   Properties                                                         13 
Item 3.   Legal Proceedings                                                  16 
Item 4.   Submission of Matters to a Vote of Security Holders                17 

PART II                                                                         

Item 5.   Market for Common Equity and Related Stockholder Matters           17 
Item 6.   Selected Financial Data                                            18 
Item 7.   Management's Discussion and Analysis                               21 
Item 7a.  Market Risk                                                        34 
Item 8.   Financial Statements                                               35 
Item 9.   Changes in and Disagreements with Accountants on Accounting           
             and Financial Disclosure                                       35

PART III                                                                        

Item 10.  Directors and Executive Officers of the Registrant                 36 
Item 11.  Executive Compensation                                             36 
Item 12.  Security Ownership of Certain Beneficial Owners and Management     36 
Item 13.  Certain Relationships and Related Transactions                     36 
Item 14.  Controls and Procedures                                            36 

PART IV                                                                         

Item 15.  Exhibits and Reports on Form 8-K                                   37 

Signatures                                                                   40 

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   This Form 10-K contains certain "forward-looking" statements within the
meaning of The Private Securities Litigation Reform Act of 1995 and information 
relating to RailAmerica, Inc. and its subsidiaries that are based on the beliefs
of our management and that involve known and unknown risks and uncertainties.   
When used in this report, the terms "anticipate," "believe," "estimate,"        
"expect" and "intend" and words or phrases of similar import, as they relate to 
us or our subsidiaries or our management, are intended to identify              
forward-looking statements. These statements reflect the current risks,         
uncertainties and assumptions related to various factors including, without     
limitation, currency risk, competitive factors, general economic conditions,    
customer relations, fuel costs, the interest rate environment, governmental     
regulation and supervision, the inability to successfully integrate acquired    
operations, the ability to successfully market and sell non-core properties and 
assets, the ability to service debt, one-time events and other factors described
under the heading "Factors affecting our operating results, business prospects  
and market price of stock" and elsewhere in this report and in other filings    
made by us with the Securities and Exchange Commission. Based upon changing     
conditions, should any one or more of these risks or uncertainties materialize, 
or should any underlying assumptions prove incorrect, actual results may vary   
materially from those described in this report as anticipated, believed,        
estimated or intended. We undertake no obligation to update, and we do not have 
a policy of updating or revising, these forward-looking statements. Except where
the context otherwise requires, the terms "we," "us," or "our" refer to the     
business of RailAmerica, Inc. and its consolidated subsidiaries.                

PART I                                                                          

ITEM 1. BUSINESS                                                                

GENERAL                                                                         

    We are the largest owner and operator of short line freight railroads in
North America and a leading owner and operator of regional freight railroads in 
Australia and Chile. We own, lease or operate a diversified portfolio of 49     
railroads with approximately 12,900 miles of track located in the United States,
Australia, Canada, Chile and Argentina. Through our diversified portfolio of    
rail lines, we operate in numerous geographic regions with varying              
concentrations of commodities hauled.                                           

In January 2003, we announced our intention to sell our 55% equity  
interest in our Chilean railroad operation, Ferronor. As a result, Ferronor has 
been presented as a discontinued operation in our financial statements.         

   We were incorporated in Delaware on March 31, 1992 as a holding company
for two pre-existing railroad companies. Our principal executive office is      
located at 5300 Broken Sound Blvd, N.W., Boca Raton, Florida 33487, and our     
telephone number at that location is (561) 994-6015.                            

  Our Internet website address is www.railamerica.com. We make available
free of charge on or through our website our Annual Reports on Form 10-K,       
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments  
to these reports, as soon as reasonably practicable after we electronically file
such material with, or furnish such material to, the Securities and Exchange    
Commission (SEC). We also make available on our website other reports filed with
the SEC under the Securities Exchange Act of 1934, as amended, including proxy  
statements and reports filed by officers and directors under Section 16(a) of   
that Act. These reports may be found by selecting the option entitled "SEC      
FILINGS" in the "INVESTOR RELATIONS" section on our website. Information        
contained in or connected to our website is not part of this report.            

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During the past six years, we have grown significantly through the  
following acquisitions:                                                         

    o     In February 1997, we acquired a 55% equity interest in
            Ferronor, a Chilean regional railroad, for $7.2 million.

         o     In April 1999, we acquired Freight Australia, an Australian
regional railroad, for $103 million.        

        o     In July 1999, we acquired RaiLink, Inc., a holding company
                that owned or had equity interests in 11 Canadian railroads,
for $49.8 million.                          

            o     In September 1999, we acquired the Toledo, Peoria, and Western
Railroad, for $17.4 million.                

            o     In February 2000, we acquired RailTex, Inc., a holding company
                that owned 25 railroads in the United States and Canada, for
$294.2 million.                             

           o     In January 2002, we acquired StatesRail, Inc. ("StatesRail"),
                  a holding company of 8 railroads in the United States, for $90
million.                                    

           o     In January 2002, we acquired ParkSierra Corp. ("ParkSierra"),
                  a holding company of 3 railroads in the United States, for $48
million.                                    

BUSINESS STRATEGY                                                               

INCREASE REVENUE THROUGH FOCUSED MARKETING EFFORTS AND RELIABLE RAIL
SERVICE. In North America and Australia, we strive to increase our revenues     
through focused marketing efforts and cost effective and reliable service. In   
North America, we work with customers, industrial development organizations and 
our Class I interchange partners to develop transportation solutions to meet the
needs of our customers. We specialize in developing customer-driven solutions   
for logistical issues, with local and regional marketing representatives working
directly with customers to ensure that rail transportation services meet their  
needs. The operating focus of our North American railroads is on meeting and    
exceeding the customer's expectations by providing frequent, dependable rail    
service at reasonable rates. In Australia, we market our services to potential  
customers across the continent, primarily in eastern Australia, as the open     
access rules allow us to operate over the track owned by other transportation   
companies. To supplement grain revenue, we are aggressively seeking to diversify
our commodity base and regions served. We have recently signed new long-term    
contracts based in New South Wales that should add $50 million in revenue over  
the next three to five years and are in the process of soliciting transportation
contracts from coal shippers in the Hunter Valley region and other potential    
customers.                                                                      

  REDUCE DEBT TO INDUSTRY AVERAGE. At December 31, 2002, our net debt to
total capitalization, excluding accumulated other comprehensive loss, was 63%.  
Our goal is to reduce this amount to 50% by the end of 2004. We intend to       
accomplish this through our recently announced $100 million asset               
rationalization plan, retention of earnings and generation of free cash flow.   
Our asset rationalization plan includes the sale of our 55% equity interest in  
Ferronor, our Chilean railroad, as well as the sale of other non-strategic and  
non-core assets in North America and Australia.                                 

     CONTINUE TO GROW THROUGH SELECTIVE ACQUISITIONS. Since 1997, we have made
seven significant acquisitions of railroad companies, which owned or had equity 
interests in 50 railroads for total consideration in excess of $600 million. All
of these railroads have been successfully integrated into our operations and in 
total have added in excess of 11,000 miles of track to our operations and in    
excess of $400 million in revenues.                                             

   In North America, we seek acquisition candidates that enable us to form
geographic clusters of short lines, thereby affording economies of scale as well
as marketing and operating synergies. We also seek properties where operating   
efficiencies can be realized from professional management techniques and asset  
rationalization, thereby enabling the target railroad to reduce operating costs 
and improve service. The resultant competitive pricing and better service,      
coupled with a focused sales and marketing effort, typically yields customer    
loyalty and increased carloads.                                                 

Acquisition opportunities in North America generally come from three
sources. First, certain Class I railroads have stated an intent to sell certain 
branch lines over the next several years. We believe, based on our strong       
operating performance and relationships with the Class I railroads, we are a    
logical choice to acquire some of these properties. Second, as the short line   
industry itself continues to consolidate, we believe we are in an excellent     
position to acquire other short lines or groups of short lines because of our   
industry reputation, demonstrated access to capital, breadth of geographic      
coverage and ability to efficiently evaluate and negotiate prospective          
transactions. Third, as industrial companies divest of their railroad operations
we believe our cost-effective and customer oriented approach makes us a strong  
candidate to acquire some of these railroads.                                   

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We continue to monitor acquisition candidates in economically and   
politically stable international markets as a result of an increasing number of 
governments seeking to privatize their national rail systems.                   

In acquiring rail properties, we compete with other short line and  
regional railroad operators, some of which have greater financial resources than
we do. Competition for rail properties is based primarily upon price, operating 
history and financing capability. We believe our established reputation as a    
successful acquirer and operator of short line rail properties, combined with   
our managerial resources, effectively positions us to take advantage of future  
acquisition opportunities.                                                      

NORTH AMERICAN RAILROADS                                                        

      We currently own, lease or operate 46 rail properties in North America, of
which 45 are short line railroads that provide transportation services for both 
on-line customers and Class I railroads that interchange with our rail lines.   
Short line railroads are typically less than 350 miles long, serve a particular 
class of customers in a small geographic area and interchange with Class I      
railroads. Short line rail operators primarily serve customers on their line by 
transporting products to and from the Class I interchanges. Each of our North   
American rail lines is typically the only rail carrier directly serving its     
customers. The ability to haul heavy and large quantities of freight as part of 
a long-distance haul makes our rail services generally a more effective,        
lower-cost alternative to other modes of transportation, including motor        
carriers. In addition to our 45 short line railroads, we operate one tourist    
railroad.                                                                       

     UNITED STATES. We own, lease or operate 37 short line rail properties and
one tourist railroad in the United States with approximately 6,500 miles of     
track. Our properties are geographically diversified and operate in 26 states.  
We have clusters of rail properties in the Southeastern, Southwestern,          
Midwestern, Great Lakes, New England and Pacific Coast regions of the United    
States. We believe that this cluster strategy provides economies of scale and   
helps achieve operational synergies.                                            

   CANADA. We own, lease or operate 8 short line rail properties in Canada
with approximately 1,800 miles of track. Our Canadian properties are            
geographically diversified and operate in five provinces and the Northwest      
territories.                                                                    

INDUSTRY OVERVIEW                                                               

     The U.S. railroad industry is dominated by major Class I railroads, which
operated approximately 98,000 miles of track in 2001. In addition to large      
railroad operators, there were more than 560 short line and regional railroads, 
which operated approximately 45,000 miles of track in 2001.                     

 The railroad industry is subject to regulations of various government
agencies, primarily the Surface Transportation Board, or STB. For regulatory    
purposes, the STB classifies railroads into three groups: Class I, Class II and 
Class III, based on annual operating revenue. For 2001, the Class I railroads   
had operating revenues of at least $266.7 million, Class II railroads had       
revenues of $21.3 million to $266.6 million, and Class III railroads had        
revenues of less than $21.3 million (these thresholds are adjusted annually for 
inflation).                                                                     

In compiling data on the U.S. railroad industry, the Association of 
American Railroads, or AAR, uses the STB's revenue threshold for Class I        
railroads. Regionals are railroads operating at least 350 miles of rail line    
and/or having revenues between $40 million and the Class I revenue threshold.   
Locals are railroads falling below the Regional criteria, plus switching and    
terminal railroads.                                                             

2001 INDUSTRY OVERVIEW

    Number of                      2001 Revenues
Type of Railroad    Carriers     Miles Operated    (in billions)   % of Revenues
----------------    ---------    --------------    -------------   -------------
Class I                  8           97,631            $33.5            91.5%   
Regional                34           17,439              1.6             4.4    
Local                  529           27,563              1.5             4.1    
                   ---          -------            -----           -----
Total                571          142,633            $36.6           100.0% 
                   ===          =======            =====           =====

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    As a result of deregulation in 1980, Class I railroads have been able to
concentrate on core, long-haul routes, while divesting many of their low-density
branch lines to smaller and more cost-efficient freight railroad operators such 
as our company. Divesting branch lines allows Class I railroads to increase     
traffic density, improve railcar utilization and avoid rail line abandonment.   
Because of the focus by short line railroads on increasing traffic volume       
through increased customer service and more efficient operations, traffic volume
on short line railroads frequently increases after divestiture by Class I       
operators. Consequently, these transactions often result in net increases in the
divesting carriers' freight traffic because much of the business originating or 
terminating on branch lines feeds into divesting carriers' core routes.         

SALES AND MARKETING                                                             

We focus on providing rail service to our customers that is easily  
accessible, reliable and cost-effective. In many cases, we believe customer     
service and sales and marketing at railroads that we have acquired have been    
neglected by the previous owners. We purchased several of our rail lines from   
Class I railroads. Due to the size of the Class I railroads and their           
concentration on long-haul traffic, we believe the Class I operators typically  
have not effectively marketed to customers on these branch line operations.     

Following commencement of operations, our railroads generally have  
attracted increased rail shipments from existing customers and obtained traffic 
from new customers who had not previously shipped by rail or had ceased rail    
shipments. We believe our ability to generate additional traffic is enhanced by 
our marketing efforts which are aimed at identifying and responding quickly to  
the individual business needs of customers along our rail lines. As part of our 
marketing efforts, we often schedule more frequent rail service, help customers 
negotiate price and service levels with interchange partners and assist         
customers in obtaining the quantity and type of rail equipment required for     
their operations. We also provide non-scheduled train service on short notice to
accommodate customers' special or emergency needs.                              

 Our decentralized management structure is an important element of our
marketing strategy. We give significant discretion with respect to sales and    
marketing activities to our North American regional marketing managers. Each    
regional marketing manager works closely with personnel of our railroads and    
with other members of senior management to develop marketing plans to increase  
shipments from existing customers and to develop business from new customers. We
also work with the marketing staffs of the connecting Class I carriers to       
develop an appropriate array of rail-oriented proposals to meet customers' needs
and with industrial development organizations to locate new rail users. We      
consider all of our employees to be customer service representatives and        
encourage them to initiate and maintain regular contact with shippers.          

  Rail traffic may be categorized as interline, local or bridge traffic.
Interline traffic either originates or terminates with customers located along a
rail line and is interchanged with other rail carriers. Local traffic both      
originates and terminates on the same rail line and does not involve other      
carriers. Bridge traffic passes over the line from one connecting rail carrier  
to another.                                                                     

Interline and local traffic generated 87%, 84% and 86% of our total 
freight revenue in 2002, 2001, and 2000, respectively. We believe that high     
levels of interline and local traffic provide us with greater stability of      
revenues because this traffic represents shipments to or from customers located 
along our lines and cannot be easily diverted to other rail carriers, unlike    
bridge traffic.                                                                 

Our railroads compete directly with other modes of transportation,  
principally motor carriers and, to a lesser extent, ship and barge operators.   
The extent of this competition varies significantly among our railroads.        
Competition is based primarily upon the rate charged and the transit time       
required, as well as the quality and reliability of the service provided, for an
origin-to-destination package. To the extent other carriers are involved in     
transporting a shipment, we cannot control the cost and quality of service. Cost
reductions achieved by major rail carriers over the past several years have     
generally improved their ability to compete with alternate modes of             
transportation.                                                                 

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     The following table summarizes freight revenue by type of traffic carried
by our North American railroads in 2002, 2001 and 2000 in dollars and as a      
percent of total freight revenue.                                               

 NORTH AMERICA
 FREIGHT REVENUE
(DOLLARS IN THOUSANDS)

                                                                [Download Table]

                    2002                   2001                   2000        
             ------------------     ------------------     ------------------ 
                 $          %           $          %           $          %   
             --------     -----     --------     -----     --------     ----- 
                                                                              
Interline    $235,408      81.5%    $165,821      76.5%    $146,184      72.0%
Local          16,924       5.9%      16,044       7.4%      27,404      13.5%
Bridge         36,430      12.6%      34,901      16.1%      29,396      14.5%
             --------     -----     --------     -----     --------     ----- 
             $288,762     100.0%    $216,766     100.0%    $202,984     100.0%
             ========     =====     ========     =====     ========     ===== 

All of our short line properties interchange traffic with Class I   
railroads. The following table summarizes our significant connecting carriers in
2002, 2001 and 2000 by freight revenues and carloads as a percentage of total   
interchanged (interline and bridge) traffic.                                    

 NORTH AMERICA
INTERCHANGED TRAFFIC

                                                        [Enlarge/Download Table]

                                              2002                  2001                  2000        
                                      --------------------  --------------------  --------------------
                                      Revenues    Carloads  Revenues    Carloads  Revenues    Carloads
                                      --------    --------  --------    --------  --------    --------
                                                                                                      
Union Pacific Railroad                  30.2%       28.3%     22.2%       23.2%     24.0%       21.8% 
Canadian National Railway               22.2%       19.9%     30.4%       26.1%     24.7%       24.7% 
CSX Transportation                      15.4%       13.4%     16.0%       12.9%     18.9%       15.0% 
Burlington Northern Santa Fe Railway    13.3%       14.5%      6.2%        5.9%      8.5%        7.3% 
Canadian Pacific Railway                 8.7%       11.3%     12.8%       16.6%     10.3%       16.6% 
Norfolk Southern                         4.6%        5.3%      5.6%        6.9%      7.2%        7.3% 
All other railroads                      5.6%        7.3%      6.8%        8.4%      6.4%        7.3% 
                                       -----       -----     -----       -----     -----       -----  
                                       100.0%      100.0%    100.0%      100.0%    100.0%      100.0% 
                                       =====       =====     =====       =====     =====       =====  

     Charges for interchanged traffic are generally billed to the customers by
the connecting carrier and cover the entire transportation of a shipment from   
origin to destination, including the portion that travels over our lines. Our   
revenues from this traffic are generally collected through fees paid directly to
us by the connecting carriers rather than by customers on our lines and are     
payable regardless of whether the connecting carriers are able to collect from  
the customers. The fees payable by connecting carriers are set forth in         
contracts entered into by each of our railroads with their respective connecting
carriers and are generally subject to periodic adjustments.                     

    In 2002, we served approximately 1,600 customers in North America. These
customers shipped and/or received a wide variety of products. Although most of  
our North American railroads have a well-diversified customer base, several of  
the smaller rail lines have one or two dominant customers. In 2002, our 10      
largest North American customers accounted for approximately 27% of North       
American transportation revenue, as compared to 25% of North American           
transportation revenue in 2001.                                                 

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The following table sets forth by number and percentage the carloads
hauled by our North American railroads during the years ended December 31, 2002,
2001 and 2000.                                                                  

 CARLOADS CARRIED BY COMMODITY GROUP

                                                        [Enlarge/Download Table]

                                           2002                 2001                2000        
                                    ------------------   -----------------   ------------------ 
        COMMODITY GROUP             Carloads       %     Carloads      %     Carloads       %   
---------------------------------   --------     -----   -------     -----   --------     ----- 
                                                                                                
Agricultural & Farm Products          95,005       8.5%   80,835       9.1%    76,593       9.0%
Autos                                 43,843       4.0%   45,962       5.2%    47,900       5.7%
Chemicals                             84,935       7.6%   66,915       7.5%    66,827       8.0%
Coal                                 128,540      11.5%   95,433      10.7%    71,945       8.6%
Food Products                         62,471       5.6%   40,988       4.6%    39,313       4.7%
Intermodal                            39,538       3.5%   42,253       4.7%    30,134       3.6%
Lumber & Forest Products             124,025      11.1%   88,351       9.9%    90,102      10.7%
Metals                                80,117       7.3%   52,184       5.8%    61,049       7.3%
Metallic/Non-metallic Ores            55,260       5.0%   45,658       5.1%    36,780       4.4%
Minerals                              45,995       4.1%   19,424       2.2%    16,393       2.0%
Paper Products                        94,528       8.5%   64,914       7.3%    59,124       7.0%
Petroleum Products                    47,252       4.3%   28,593       3.2%    26,840       3.2%
Railroad Equipment/Bridge Traffic    186,388      16.7%  200,565      22.5%   192,323      22.9%
Other                                 26,028       2.3%   19,243       2.2%    24,128       2.9%
                                   ---------     -----   -------     -----    -------     ----- 
Total                              1,113,925     100.0%  891,318     100.0%   839,451     100.0%
                                   =========     =====   =======     =====    =======     ===== 

EMPLOYEES                                                                       

   Currently, we have approximately 1,600 full-time railroad employees and
125 full-time corporate employees in North America. Approximately 760 of these  
employees are subject to collective bargaining agreements.                      

SAFETY                                                                          

We endeavor to conduct safe railroad operations for the benefit and 
protection of employees, customers and the communities served by our railroads. 
Our safety program, led by the Vice President of Safety and Operating Practices,
involves all of our employees and is administered by each Regional Vice         
President. Operating personnel are trained and certified in train operations,   
hazardous materials handling, personal safety and all other areas subject to    
governmental rules and regulations. Each U.S. employee involved in train        
operations is subject to pre-employment and random drug testing whether or not  
required by federal regulation. We believe that each of our North American      
railroads complies in all material respects with federal, state, provincial and 
local regulations. Additionally, each railroad is given flexibility to develop  
more stringent safety rules based on local requirements or practices. We also   
participate in committees of the AAR, governmental and industry sponsored safety
programs including Operation Lifesaver (the national grade crossing awareness   
program) and the American Short Line and Regional Railroad Association Safety   
Committee.                                                                      

REGULATION                                                                      

UNITED STATES. Our subsidiaries in the United States are subject to 
various safety and other laws and regulations by numerous government agencies,  
including (1) regulation by the STB, and the Federal Railroad Administration, or
FRA, (2) labor related statutes including the Railway Labor Act, Railroad       
Retirement Act, the Railroad Unemployment Insurance Act, and the Federal        
Employer's Liability Act, and (3) some limited regulation by agencies in the    
states in which we do business.                                                 

     The STB, established by the ICC Termination Act of 1995, has jurisdiction
over, among other matters, the construction, acquisition, or abandonment of rail
lines, the consolidation or merger of railroads, the assumption of control of   
one railroad by another railroad, the use by one railroad of another railroad's 
tracks through lease, joint use or trackage rights, the rates charged for their 
transportation services, and the service provided by rail carriers.             

As a result of the 1980 Staggers Rail Act, railroads have received  
considerable rate and market flexibility including the ability to obtain        
wholesale exemptions from numerous provisions of the Interstate Commerce Act.   
The Staggers Rail Act allowed the deregulation of all containerized and truck   
trailer traffic handled by railroads. Requirements for the creation of new short
line railroads or the expansion of existing short line railroads were           
substantially expedited and simplified under the                                

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exemption process. On regulated traffic, railroads and shippers are permitted to
enter into contracts for rates and provision of transportation services without 
the need to file tariffs. Moreover, on regulated traffic, the Staggers Rail Act 
allows railroads considerable freedom to raise or lower rates without objection 
from captive shippers. While the ICC Termination Act retained maximum rate      
regulation on traffic over which railroads have exclusive control, the new law  
relieved railroads from the requirements of filing tariffs and rate contracts   
with the STB on all traffic other than agricultural products.                   

      The FRA regulates railroad safety and equipment standards, including track
maintenance, handling of hazardous shipments, locomotive and rail car inspection
and repair requirements, and operating practices and crew qualifications.       

   CANADA. Our Canadian railroad subsidiaries are subject to regulation by
various governmental departments and regulatory agencies at the federal or      
provincial level depending on whether the railroad in question falls within     
federal or provincial jurisdiction. A Canadian railroad generally falls within  
the jurisdiction of federal regulation if the railroad crosses provincial or    
international borders or if the Parliament of Canada has declared the railroad  
to be a federal work or undertaking and in selected other circumstances. Any    
company which proposes to construct or operate a railway in Canada which falls  
within federal jurisdiction is required to obtain a certificate of fitness under
the Canada Transportation Act, or CTA. Under the CTA, the sale of a federally   
regulated railroad line is not subject to federal approval, although a process  
of advertising and negotiating may be required in connection with any proposed  
discontinuance of a federal railway. Federal railroads are governed by federal  
labor relations laws.                                                           

   Short line railroads located within the boundaries of a single province
which do not otherwise fall within the federal jurisdiction are regulated by the
laws of the province in question, including laws as to licensing and labor      
relations. Most of Canada's ten provinces have enacted new legislation, which is
more favorable to the operation of short line railroads than previous provincial
laws. Many of the provinces require as a condition of licensing under the short 
line railroads acts that the licensees comply with federal regulations          
applicable to safety and other matters and remain subject to inspection by      
federal railway inspectors. Under some provincial legislation, the sale of a    
provincially regulated railroad line is not subject to provincial approval,     
although a process of advertising and negotiating may be required in connection 
with any proposed discontinuance of a provincial railway.                       

      Acquisition of additional railroad operations in Canada, whether federally
or provincially regulated, may be subject to review by the Investment Canada    
Act, or ICA, a federal statute which applies to every acquisition of a Canadian 
business or establishment of a new Canadian business by a non-Canadian. Whether 
or not an acquisition is subject to review under the ICA is dependent on the    
book value of the assets of the Canadian business being acquired. Acquisitions  
that are subject to review must, before their completion, satisfy the Minister  
responsible for administering the ICA that the acquisition is of net benefit to 
Canada.                                                                         

      Any contemplated acquisitions may also be subject to the provisions of the
Competition Act federal antitrust legislation of general application. The       
Competition Act contains merger control provisions which apply to certain       
acquisitions. As a result, acquisitions exceeding specified asset and/or revenue
thresholds may be subject to pre-merger notification and subsequent substantive 
review prior to their completion.                                               

FREIGHT AUSTRALIA                                                               

  We own Freight Australia, a regional freight railroad operating in and
around the State of Victoria, Australia. Freight Australia was purchased from   
the Government of the State of Victoria, Australia on April 30, 1999 for total  
consideration of approximately $103 million. Freight Australia operates over    
3,150 miles of track under a 45 year lease from the State of Victoria.          

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INDUSTRY OVERVIEW                                                               

The demographics and geography of Australia dictate that the freight
transport business is characterized by long distances and low volumes of        
freight. Industrial flows tend to relate to production cycles and agricultural  
product flows are seasonal and driven by export shipping schedules. Generally,  
the pattern of surface freight movement in Australia comprises:                 

     o     bulk materials and grains from inland areas, usually to the closest
port or processing plant                                

     o     inputs to the resources industries from coastal industrial centers,
ports and cities to the interior                        

      o     general freight from coastal industrial centers, ports and cities to
the interior, and                                       

     o     interstate freight, comprising manufactured goods, steel, paper and
     general freight between capital cities, and to and from major
industrial centers.                                     

    In recent years, the Australian rail freight sector's share of the total
freight market has been maintained despite growth in road transport, largely    
because of the growth in Australia's coal and mineral exports. Over a period of 
30 years, rail movements of these commodities have increased almost eightfold.  

     Major changes have taken place in the rail industry over the last decade,
partly as a result of the privatization of government-owned railways and the    
entry of private sector participants in accordance with the competitive         
neutrality provisions of the national Competition Principles Agreement. The     
private sector has taken an increasingly larger role through outsourcing of     
non-core activities by railway operators.                                       

   The railway network in Australia contains approximately 25,000 miles of
track, of which approximately 21,000 miles is track used for general and bulk   
freight and passenger services. The remaining 4,000 miles are private sector    
owned and operated, and principally serve Australia's mining and primary        
production industries.                                                          

SALES AND MARKETING                                                             

Freight Australia focuses on providing door-to-door rail service to 
customers that is easily accessible, reliable and cost-effective since truck and
other rail operators are the principle competition. Due to surplus assets and   
the open access to trackage outside of Victoria, we have been able to market to 
customers across the Australian continent effectively.                          

 Following commencement of operations, Freight Australia has attracted
increased rail shipments from existing customers and obtained traffic from new  
customers who had not previously shipped by rail or had ceased rail shipments.  
We believe that our ability to generate additional traffic is enhanced by our   
marketing efforts, which are aimed at identifying and responding quickly to the 
individual business needs of customers along the rail lines. As part of our     
marketing efforts, we often schedule more frequent rail service. Freight        
Australia also provides non-scheduled train service on short notice to          
accommodate customers' special or emergency needs.                              

 Our decentralized management structure is an important element of our
marketing strategy. We give significant discretion with respect to sales and    
marketing activities to our marketing managers. Each marketing manager works    
closely with personnel in other departments to develop marketing plans to       
increase shipments from existing customers and to develop business from new     
customers. We consider all of our employees to be customer service              
representatives and encourage them to initiate and maintain regular contact with
shippers.                                                                       

Freight Australia's customers span a variety of industries, with    
particular emphasis on companies in the Australian agricultural industry for    
whom we carry bulk grain and other agricultural products. One customer, AWB     
Limited, represented 25% of Freight Australia's transportation revenue for the  
year ended 2002, 28% for the year ended 2001 and 25% for the year ended 2000.   
Additionally, track access fees from V/Line Passenger represented 15% of Freight
Australia's operating revenue in 2002, 13% in 2001, and 15% in 2000.            

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The following table sets forth by dollar amount (in thousands) and  
percentage Freight Australia's transportation and infrastructure revenue for the
years ended December 31, 2002, 2001 and 2000.                                   

                                                        [Enlarge/Download Table]

                                                          2002                2001                2000       
                                                   -----------------   -----------------   ----------------- 
                                                     US$                 US$                 US$             
                                                   Amount        %     Amount        %     Amount        %   
                                                   -------     -----   -------     -----   -------     ----- 
                                                                                                             
Agricultural products                              $36,913        40%  $46,265        47%  $45,440        46%
Track access fees                                   18,074        20%   15,367        16%   16,309        16%
Intermodal containers                               12,950        14%    9,742        10%   13,148        13%
Fast Track parcel service                            6,924         8%    8,235         8%    8,210         8%
Bulk (i.e., cement, gypsum,                                                                                  
  stone, logs)                                       9,174        10%   10,595        11%    9,932        11%
Interstate                                           7,626         8%    8,428         8%    5,954         6%
                                                   -------     -----   -------     -----   -------     ----- 
  Total transportation and infrastructure revenue  $91,661     100.0%  $98,632     100.0%  $98,993     100.0%
                                                   =======     =====   =======     =====   =======     ===== 

Freight Australia competes directly with other railroads in the open
access Australian railway network as well as with other modes of transportation,
principally motor carriers and, to a lesser extent, ship operators. Competition 
is based primarily upon the rate charged and the transit time required, as well 
as the quality and reliability of the service provided, for an                  
origin-to-destination package. To the extent other carriers are involved in     
transporting a shipment, we cannot control the cost and quality of service. Cost
reductions achieved by Freight Australia over the past several years have       
generally improved its ability to compete with alternate modes of               
transportation.                                                                 

EMPLOYEES                                                                       

      Freight Australia currently has approximately 705 employees. Most of these
employees are subject to collective bargaining agreements.                      

SAFETY                                                                          

   Freight Australia endeavors to conduct safe railroad operations for the
benefit and protection of employees, customers and communities we serve.        
Operating personnel are trained and certified in train operations, hazardous    
materials handling, personal safety and all other areas subject to governmental 
rules and regulations. Each employee involved in train operations is subject to 
pre-employment and random drug testing whether or not required by federal or    
state regulation. We believe that Freight Australia complies in all material    
respects with federal, state and local regulations. Freight Australia holds Rail
Safety Accreditation in accordance with Australian Standards Regulations 4292 in
Victoria, New South Wales, and South Australia. We also participate in several  
governmental and industry sponsored safety programs.                            

REGULATION                                                                      

      Freight Australia is subject to regulation in the State of Victoria by the
Office of the Regulator-General. The Office of the Regulator-General, known as  
ORG, was established by the Office of the Regulator-General Act. The purpose of 
the ORG is to create a regulatory framework for regulated industries which      
promotes and safeguards competition and fair and efficient market conduct or, if
there is no competitive market, promotes the simulation of competitive market   
conduct and the prevention of misuse of monopoly power. These objectives were   
expanded by the Victorian Government in the Rail Corporations Act 1996 to ensure
that rail users have fair and reasonable access to declared railway services.   

    The Rail Corporations Act 1996, known as RCA, regulates the operation of
the State of Victoria's passenger trains and trams and rail network. Part 2A of 
the RCA outlines an access regime, which potentially applies to railways and    
rail infrastructure and gives power to the ORG to regulate access to relevant   
services. At present, however, no rail transport services have been declared to 
be subject to the regime. If there were any, ORG could set the terms and        
conditions of access.                                                           

   The Secretary to the Department of Infrastructure may take disciplinary
action against an accredited (licensed to provide certain services) railroad if 
the railroad has failed to comply with the requirements of accreditation or has 
permitted an unsafe practice or acted negligently. Disciplinary action, which   
the Secretary may take, includes disqualifying the railroad from                

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holding an accreditation for a period specified by the Secretary, suspension of 
the accreditation, early expiry of the accreditation and immediate or future    
cancellation of the accreditation.                                              

    The Transport Act contains detailed provisions authorizing the Secretary
of the Department of the Infrastructure to carry out inspections and giving     
inspectors powers to enter and inspect premises (including, testing equipment   
and seizing property if appropriate). All actions must be reasonably necessary  
to determine compliance with the Transport Act. A search warrant or prior       
written consent of the occupier is necessary for entry into premises.           

  The Secretary must conduct safety audits of every person accredited at
least once every twelve months, to ensure that the accredited person is         
complying with the requirements of accreditation. The Secretary may charge the  
accredited person a fee for the safety audit service, subject to the limits set 
out in the relevant regulations. An accredited person has a duty to inquire into
accidents and incidents.                                                        

FERRONOR                                                                        

Ferronor owns and operates the only north-south railroad in northern
Chile, extending from La Calera near Santiago, where it connects with Chile's   
southern railway, Ferrocarril del Pacifico, S.A., to its northern terminus at   
Iquique, approximately 120 miles south of the Peruvian border. It also operates 
several east-west branch lines that link a number of iron, copper and mineral   
salt mines and production facilities with several Chilean Pacific port cities.  
Ferronor also serves Argentina and Bolivia through traffic interchanged with the
Belgrano Cargas Railroad and the Antofagasta (Chile)-Bolivia Railway. In        
addition, commencing in 2002, Ferronor began operating the Potrerillos Railway, 
a customer-owned 57 mile freight railroad. In January 2003, we announced our    
intention to sell our 55% equity interest in Ferronor. As a result, Ferronor has
been presented as a discontinued operation in our financial statements.         

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ITEM 2. PROPERTIES                                                              

NORTH AMERICAN RAILROAD PROPERTIES                                              

The following table sets forth information with respect to the North American   
railroad properties that we owned as of March 22, 2003:                         

                                                        [Enlarge/Download Table]

                                     DATE OF    TRACK                                           PRINCIPAL         
        RAILROAD                   ACQUISITION  MILES     STRUCTURE     LOCATION               COMMODITIES        
        --------                   -----------  -----     ---------     --------               -----------        
                                                                                                                  
Alabama and Gulf Coast Railway      Jan. 2002    141   Owned,           Alabama,        Forest and paper products,
                                                       Trackage rights  Florida         chemicals, food products  

Arizona & California Railroad       Jan. 2002    297   Owned,           Arizona,        Cement, asphalt, forest   
                                                       Trackage rights  California      products, steel           

Arizona Eastern Railway             Jan. 2002    135   Owned            Arizona         Copper cathode and related
                                                                                        materials                 

California Northern Railroad        Jan. 2002    255   Leased,          California      Oil/gas transmission pipe,
                                                       Trackage rights                  minerals, beer, food      
                                                                                        products, grains          

Cape Breton & Central Nova          Feb. 2000    245   Owned            Nova Scotia     Coal, paper, chemicals    
Scotia Railway                                                                                                    

Carolina Piedmont Railroad          Feb. 2000     49   Owned            South Carolina  Chemicals, metal          
                                                                                        products, clay,  food     
                                                                                        products                  

Cascade and Columbia River          Sept. 1996   130   Owned;           Washington      Lumber & wood products,   
Railroad                                               Trackage rights                  minerals, agricultural    
                                                                                        products                  

Central Oregon & Pacific            Feb. 2000    449   Owned; Leased;   Oregon,         Lumber & wood products,   
Railroad                                               Trackage rights  California      paper, chemicals          

Central Railroad of Indiana         Feb. 2000     81   Owned            Indiana, Ohio   Chemicals, minerals, clay,
                                                                                        food products             

Central Railroad of                 Feb. 2000     73   Leased;          Indiana         Farm and food products,   
Indianapolis                                           Trackage rights                  chemicals, metals         

Central Western                     July 1999     21   Owned            Alberta         Agricultural products     

Connecticut Southern                Feb. 2000     78   Owned;           Connecticut     Lumber & wood products,   
                                                       Trackage rights                  paper products, chemicals,
                                                                                        bridge traffic            

Dallas Consolidated                 Feb. 2000    294   Leased           Texas           Farm & food products,     
(Dallas, Garland &                                                                      paper products, railroad  
Northeastern Railroad and                                                               equipment, chemicals,     
Texas Northeastern Railroad)                                                            autos                     

E&N Railway                         Jan. 1999     61   Owned            British         Paper products, minerals, 
                                                 120   Leased           Columbia        chemicals                 

Eastern Alabama Railway             Jan. 2002     25   Owned            Alabama         Minerals                  

Goderich-Exeter Railway             Feb. 2000    159   Owned;           Ontario         Auto parts, farm          
                                                       Leased                           products, chemicals       

Huron and Eastern Railway           March 1986   171   Owned;           Michigan        Agricultural products     
                                     May 1988          leased;                                                    
                                                       Trackage rights                                            

Ohio Consolidated                   Feb. 2000    577   Owned;           Michigan,       Autos, bridge traffic     
(Indiana & Ohio Railway and                            Leased           Ohio, Indiana   agricultural products,    
 Indiana & Ohio Central Railroad)                                                       chemicals, pulpboard      

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                                                        [Enlarge/Download Table]

                                         DATE OF    TRACK                                           PRINCIPAL           
        RAILROAD                       ACQUISITION  MILES     STRUCTURE     LOCATION               COMMODITIES          
        --------                       -----------  -----     ---------     --------               -----------          
                                                                                                                        
Indiana Southern Railroad               Feb. 2000    176   Owned;           Indiana         Coal, farm products,        
                                                           Trackage rights                  chemicals                   

Kiamichi Railroad                       Jan. 2002    230   Owned,           Arkansas,       Steel, coal, aggregates,    
                                                           Trackage rights  Oklahoma,       cement, food items, forest  
                                                                            Texas           products, paper products    

Kyle Railroad                           Jan. 2002    692   Owned            Colorado,       Agricultural products, coal,
                                                                            Kansas,         asphalt, aggregates         
                                                                            Nebraska                                    

Lahaina, Kaanapali & Pacific Railroad   Jan. 2002      6   Owned            Hawaii          Tourists                    

Lakeland & Waterways                    July 1999    120   Owned            Alberta         Forest products,            
                                                                                            agricultural products,      
                                                                                            petroleum coke, bridge      
                                                                                            traffic                     

Mackenzie Northern                      July 1999    650   Owned            Alberta,        Fuel, forest products,      
                                                                            Northwest       agricultural products,      
                                                                            Territory       chemicals                   

Michigan Consolidated                   Feb. 2000    118   Owned            Michigan        Agricultural products,      
(Mid-Michigan Railroad,                                                                     auto parts, fertilizer      
Grand Rapids Eastern                                                                                                    
Railroad, and Michigan                                                                                                  
Shore Railroad)                                                                                                         

Missouri & Northern                     Feb. 2000    527   Owned; leased;   Missouri,       Coal, farm products,        
Arkansas Railroad                                          trackage rights  Arkansas,       food products,              
                                                                            Kansas          minerals, roofing material  

New England Central                     Feb. 2000    343   Owned;           Vermont, New    Lumber & wood products,     
Railroad                                                   Leased           Hampshire,      paper products, plastic,    
                                                                            Massachusetts,  coal, copper, bridge        
                                                                            Connecticut     traffic                     

Ottawa Valley Railway                   July 1999    389   Leased           Ontario         Bridge traffic, acid,       
                                                                                            copper concentrates,        
                                                                                            chemicals                   

Otter Tail Valley Railroad              Oct. 1996     72   Owned            Minnesota       Coal, agricultural          
                                                                                            products, fertilizer        

Puget Sound and Pacific Railroad        Jan. 2002    150   Owned,           Washington      Forest products, chemicals, 
                                                           Trackage rights                  grains, fertilizers, metal  
                                                                                            products                    

Saginaw Valley Railway                  Jan. 1991     57   Owned            Michigan        Agricultural products,      
                                        Apr. 1998                                           fertilizer , stone          

San Diego & Imperial                    Feb. 2000    124   Trackage rights  California,     Petroleum, paper            
Valley Railroad                                                             Mexico          products, non-metallic      
                                                                                            ores, lumber                

San Joaquin Valley Railroad             Jan. 2002    341   Owned,           California      Consumer products, citrus   
                                                           Trackage rights                  and food products, paper    
                                                                                            products, metals, petro-    
                                                                                            chemical products           

San Pedro & Southwestern Railroad       Jan. 2002     78   Owned            Arizona         Lime, nitrogen, fertilizer  

South Carolina Central                  Feb. 2000     97   Owned            South Carolina  Chemicals, metals, coal,    
Railroad                                                                                    paper products, waste       

Southern Ontario Railway                July 1999     54   Leased           Ontario         Fuel, metals,               
                                                                                            agricultural products       

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                                                        [Enlarge/Download Table]

                              DATE OF     TRACK                                        PRINCIPAL       
        RAILROAD            ACQUISITION   MILES     STRUCTURE  LOCATION               COMMODITIES      
        --------            -----------   -----     ---------  --------               -----------      
                                                                                                       
Toledo, Peoria and Western   Sept. 1999    369   Owned;        Indiana,        Intermodal, agricultural
Railroad                                         Trackage      Illinois, Iowa  products, fertilizers,  
                                                 rights                        chemicals               

Ventura County Railroad      Aug. 1998      13   Leased        California      Automobiles, chemicals, 
                                                                               paper products          

Virginia Consolidated        Feb. 2000     211   Leased;       Virginia,       Coal, lumber, metals    
(Chesapeake & Albermarle                         Owned         North Carolina                          
Railroad, North Carolina                                                                               
& Virginia Railroad, and                                                                               
Virginia Southern                                                                                      
Railroad)                                                                                              

West Texas & Lubbock         Nov. 1995     104   Owned         Texas           Fertilizer, chemicals,  
Railroad                                                                       cotton products, scrap  
                                                                               iron, steel             

                                         -----                                                         
Total track miles                        8,282                                                         
                                         =====                                                         

AUSTRALIAN RAILROAD PROPERTIES                                                  

     On April 30, 1999, through our wholly owned subsidiary Freight Australia,
we prepaid a 45-year lease to operate 3,150 miles of track in the State of      
Victoria, Australia. Freight Australia's principal commodity is agricultural    
products for use in southwestern Australia as well as export markets.           

CHILEAN RAILROAD PROPERTIES                                                     

In Chile, Ferronor owns and/or operates approximately 1,500 miles of
track, extending from La Calera in the south, to its northern terminus at       
Iquique. It also operates several east-west branch lines that link a number of  
iron, copper and mineral salt mines and production facilities with several      
Chilean Pacific port cities. Ferronor also serves Argentina and Bolivia through 
traffic interchanged with the Belgrano Cargas Railroad and the Antofagasta      
(Chile)-Bolivia Railway. In 2002, Ferronor commenced operating the Potrerillos  
Railway, a customer-owned 57 mile railroad.                                     

NORTH AMERICAN ROLLING STOCK                                                    

The following tables summarize the current composition of our North 
American railroad equipment fleet.                                              

                                            FREIGHT CARS
TYPE                                       OWNED           LEASED          TOTAL
----                                       -----        ------------       -----
Covered hopper cars                          147           2,425           2,572
Open top hopper cars                          91             262             353
Box cars                                     103           2,302           2,405
Flat cars                                    214           1,122           1,336
Tank cars                                      6               0               6
Gondolas                                       3             383             386
Passenger car                                 17               0              17
                                           -----           -----           -----
                                             581           6,494           7,075
                                           =====           =====           =====

                                           LOCOMOTIVES
HORSEPOWER/UNIT                            OWNED           LEASED          TOTAL
---------------                            -----        ------------       -----
Over 2000                                    102             248             350
1500 to 2000                                  61              55             116
Under 1500                                    10              19              29
                                           -----           -----           -----
                                             173             322             495
                                           =====           =====           =====

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INTERNATIONAL ROLLING STOCK                                                     

    The following tables summarize the current composition of our Australian
and Chilean railroad equipment fleet. We own all of our international equipment 
fleet.                                                                          

                                          FREIGHT CARS
TYPE                                       CHILE         AUSTRALIA         TOTAL
----                                       -----       ------------        -----
Covered hopper cars                            0           1,111           1,111
Open top hopper cars                         223              88             311
Box cars                                     145             275             420
Intermodal containers                         87             685             772
Tank cars                                     34              79             113
Flat cars                                      0             217             217
Gondolas                                      65              73             138
                                           -----           -----           -----
                                             554           2,528           3,082
                                           =====           =====           =====

                                           LOCOMOTIVES
HORSEPOWER/UNIT                            CHILE         AUSTRALIA         TOTAL
---------------                            -----       ------------        -----
Over 2000                                      0              32              32
1500 to 2000                                   2              25              27
Under 1500                                    40              50              90
                                           -----           -----           -----
                                              42             107             149
                                           =====           =====           =====

Based on current and forecasted traffic levels on our railroads,    
management believes that our present equipment, combined with the availability  
of other rail cars and/or locomotives for hire, is adequate to support our      
operations. We believe that our insurance coverage with respect to our property 
and equipment is adequate.                                                      

ADMINISTRATIVE OFFICES AND OTHER                                                

We own a 59,500 square foot office building, located in Boca Raton, 
Florida, where our executive offices are located. Of this space, approximately  
12,600 square feet are leased to third parties. In addition, we lease           
approximately 21,000 square feet of office space in San Antonio, Texas for      
$500,000 annually. The lease expires December 31, 2005.                         

 Freight Australia's administrative office is in Melbourne, Australia.
Freight Australia leases approximately 20,000 square feet of space from the     
Victorian Government for $200,000 annually. The lease expires May 31, 2004.     

  Ferronor's administrative office is in Coquimbo, Chile, where Ferronor
owns a three-story 21,600 square foot office building.                          

ITEM 3. LEGAL PROCEEDINGS                                                       

    In the ordinary course of conducting our business, we become involved in
various legal actions and other claims some of which are currently pending.     
Litigation is subject to many uncertainties and we may be unable to accurately  
predict the outcome of individual litigated matters. Some of these matters      
possibly may be decided unfavorably to us. It is the opinion of management that 
the ultimate liability, if any, with respect to these matters will not be       
material. Other than ordinary routine litigation incidental to our business, no 
other litigation exists.                                                        

In 2000, certain parties filed property damage claims totaling      
approximately $32.5 million against RaiLink Ltd. And RaiLink Canada Ltd.,       
wholly-owned subsidiaries of RailAmerica, Inc., and others in connection with   
fires that allegedly occurred in 1998. We are vigorously defending these claims 
and have insurance coverage to approximately $13.0 million to cover these       
claims. It is the opinion of management that the ultimate liability, if any,    
with respect to these matters will fall                                         

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within the insurance coverage and that these claims will not have a material    
adverse effect on our financial position, results of operations or cash flows.  

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                     

     No matters were submitted to a vote of security holders during the fourth
quarter of 2002.                                                                

PART II                                                                         

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                

   Our common stock began trading on the New York Stock Exchange (NYSE) on
January 2, 2002 under the symbol "RRA". Prior to January 2, 2002, our common    
stock traded on the Nasdaq National Market (Nasdaq) under the symbol "RAIL". Set
forth below is high and low price information for the common stock as reported  
on the Nasdaq and NYSE for each period presented.                               

           2001                             High Sales Price     Low Sales Price
      --------------                        ----------------     ---------------

  First Quarter                              $10.250             $ 7.500
  Second Quarter                              13.750               9.563
  Third Quarter                               14.250              10.050
  Fourth Quarter                              15.250               9.750
                                             -------             -------

           2002                             High Sales Price     Low Sales Price
      --------------                        ----------------     ---------------

  First Quarter                              $14.640             $ 9.230
  Second Quarter                              11.310               8.500
  Third Quarter                               10.850               6.900
  Fourth Quarter                               8.200               6.500
                                             -------             -------

           2003                             High Sales Price     Low Sales Price
      --------------                        ----------------     ---------------

  First Quarter (through March 24)           $  7.65             $  4.44
                                             -------             -------

As of March 24, 2003, there were 553 holders of record of the common
stock. We have never declared or paid a dividend on our common stock. Our senior
credit agreement and the indenture governing our senior subordinated notes limit
our ability to pay dividends.                                                   

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ITEM 6. SELECTED FINANCIAL DATA                                                 

     The results of our continuing operations for the years ended December 31,
2002, 2001 and 2000 include the results of certain railroads from the dates they
were acquired as follows: StatesRail, effective January 4, 2002; ParkSierra,    
effective January 8, 2002; RailTex, effective February 1, 2000; Freight         
Australia, effective April 30, 1999; RaiLink, effective August 1, 1999; and TPW,
effective September 1, 1999. The income statement data for the years ended      
December 31, 2002, 2001 and 2000 and the balance sheet data at December 31, 2002
and 2001 are derived from, and are qualified by reference to, audited financial 
statements included elsewhere in this report and should be read in conjunction  
with those financial statements and the notes thereto. The income statement data
set forth below for the periods ended December 31, 1999 and 1998 and the balance
sheet data as of December 31, 2000, 1999 and 1998 are derived from our financial
statements not included (in thousands, except operating and per share data).    
Ferronor has been presented as a discontinued operation.                        

                                                        [Enlarge/Download Table]

                                                                        AS OF AND FOR THE                      
                                                                     YEAR ENDED DECEMBER 31,                   
                                               --------------------------------------------------------------- 
                                                  2002          2001          2000         1999         1998   
                                               ----------    ----------    ----------    --------    --------- 
                                                                                                               
INCOME STATEMENT DATA                                                                                          
   Operating revenue                           $  428,243    $  347,546    $  334,615    $109,845    $  23,212 
   Operating income                                70,505        71,225        67,438      21,463        1,269 
Income (loss) from continuing operations            5,263        15,792         8,359       4,585       (1,467)
Basic earnings (loss) per common share from                                                                    
   continuing operations                       $     0.16    $     0.72    $     0.43    $   0.32    $   (0.15)
Diluted earnings (loss) per common share from                                                                  
   continuing operations                       $     0.16    $     0.66    $     0.42    $   0.32    $   (0.15)
Weighted average common shares - Basic             32,047        21,510        18,040      11,090        9,553 
Weighted average common shares - Diluted           32,620        25,350        18,267      11,665        9,553 

BALANCE SHEET DATA                                                                                             
Total assets                                   $1,106,553    $  891,168    $  839,703    $443,929    $ 130,964 
Long-term obligations, including                                                                               
  current maturities                              387,321       301,687       358,856     162,827       66,327 
Subordinated debt                                 141,331       144,988       141,411     122,449           -- 
Redeemable convertible preferred stock                 --            --         6,613       8,830           -- 
Stockholders' equity                              278,903       220,959       123,434      69,467       34,760 

OPERATING DATA                                                                                                 
Freight carloads                                1,314,794     1,113,028     1,042,987     300,412       49,519 
Track mileage                                      12,800        11,000        11,000       8,400        2,400 
Number of full time employees                       2,676         2,180         2,230       1,707          652 

FACTORS AFFECTING OUR OPERATING RESULTS, BUSINESS PROSPECTS AND MARKET PRICE OF 
STOCK                                                                           

Substantial Debt and Debt Service. As of December 31, 2002, we had  
substantial indebtedness, and, as a result, we incur significant interest       
expense. The degree to which we are leveraged could have important consequences,
including the following:                                                        

      -     our ability to obtain additional financing in the future for capital
       expenditures, potential acquisitions, and other purposes may be
          limited or financing may not be available on terms favorable to us
or at all;                                              

      -     a substantial portion of our cash flows from operations must be used
          to pay our interest expense and repay our debt, which would reduce
            the funds that would otherwise be available to us for our operations
and future business opportunities; and                  

   -     fluctuations in market interest rates will affect the cost of our
   borrowings to the extent not covered by interest rate hedge
      agreements because the interest under our credit facilities is
payable at variable rates.                              

A default could result in acceleration of our indebtedness. If this 
occurs, our business and financial condition may be materially adversely        
affected.                                                                       

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   While as of December 31, 2002, we had no borrowings under our revolving
credit facility, this facility allows us to borrow a total of $100 million and  
we may borrow up to an additional $100 million of term debt in connection with  
acquisitions if we meet specified conditions.                                   

    Covenant Restrictions. Our credit facilities and the indenture governing
our senior subordinated notes contain numerous covenants imposing restrictions  
on our ability to, among other things:                                          

-     incur more debt;                                              

-     pay dividends, redeem or repurchase our stock or make other   
distributions;                                          

-     make acquisitions or investments;                             

-     use assets as security in other transactions;                 

-     enter into transactions with affiliates;                      

-     merge or consolidate with others;                             

-     dispose of assets or use asset sale proceeds;                 

-     create liens on our assets; and                               

-     extend credit.                                                

    In addition, our credit facilities also contain financial covenants that
require us to meet a number of financial ratios and tests. Our failure to comply
with the obligations in our credit facilities and indenture could result in an  
event of default under the credit facilities or the indenture, which, if not    
cured or waived, could permit acceleration of the indebtedness or our other     
indebtedness, or result in the same consequences as a default in payment as     
described in the previous risk factor.                                          

     Fuel Costs. Fuel costs were approximately 6.9% of our historical revenues
for the year ended December 31, 2002, 8.1% for the year ended December 31, 2001 
and 8.7% for the year ended December 31, 2000. Fuel prices and supplies are     
influenced significantly by international political and economic circumstances. 
If a fuel supply shortage or unusual price volatility were to arise for any     
reason, higher fuel prices would materially affect our operating results. While 
we elected to hedge approximately 35% of our anticipated North American fuel    
needs for 2003, 65% of those needs remain unhedged.                             

  Acquisitions and Integration. We have acquired many railroads since we
commenced operations in 1992 and intend to continue to maintain an acquisition  
program. Acquisitions result in greater administrative burdens and operating    
costs and, to the extent financed with debt, additional interest costs. The     
process of integrating our acquired businesses may be disruptive to our business
and may cause an interruption of, or a loss of momentum in, our business.       

     If these disruptions and difficulties occur, they may cause us to fail to
realize the cost savings, revenue enhancements and other benefits that we       
currently expect to result from that integration and may cause material adverse 
short- and long-term effects on our operating results and financial condition.  

    Financing for acquisitions may come from several sources, including cash
on hand and proceeds from the incurrence of indebtedness or the issuance of     
additional common stock, preferred stock, convertible debt or other securities. 
The issuance of any additional securities could result in dilution to our       
stockholders.                                                                   

   Foreign Operations. We have railroad operations in Australia, Chile and
Canada. We may also consider acquisitions in other foreign countries. The risks 
of doing business in foreign countries include:                                 

-     adverse changes in the economy of those countries;            

-     exchange rate fluctuations;                                   

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-     adverse effects of currency exchange controls;                

    -     restrictions on the withdrawal of foreign investment and earnings;

-     government policies against ownership of businesses by        
non-nationals;                                          

-     the potential instability of foreign governments; and         

-     economic uncertainties including, among others, risk of       
            renegotiation or modification of existing agreements or arrangements
     with governmental authorities, exportation and transportation
      tariffs, foreign exchange restrictions and changes in taxation
structure.                                              

  Reliance on Australian Agriculture. Factors that negatively affect the
agricultural industry in the regions in which Freight Australia operates could  
have a material adverse effect on our results of operations and financial       
condition. These factors include drought or other weather conditions, export and
domestic demand and total world supply, and fluctuations in agricultural prices.
For the year ended December 31, 2001 approximately 45% of Freight Australia's   
revenues and for the year ended December 31, 2002 approximately 39% of Freight  
Australia's revenues were derived from the agricultural industry. Our 2002      
results of operations were significantly adversely impacted by a severe drought 
in Australia. We expect the drought to continue to adversely affect our business
in 2003. As a result, Freight Australia will continue to be affected by         
unfavorable conditions affecting the agricultural industry in areas served by   
Freight Australia.                                                              

  Environmental and Other Governmental Regulation. Our railroad and real
estate ownership are subject to extensive foreign, federal, state and local     
environmental laws and regulations. We could incur significant costs as a result
of any allegations or findings to the effect that we have violated, or are      
strictly liable under these laws or regulations. We may be required to incur    
significant expenses to investigate and remediate environmental contamination.  
We are also subject to governmental regulation by a significant number of       
foreign, federal, state and local regulatory authorities with respect to our    
railroad operations and a variety of health, safety, labor, environmental,      
maintenance and other matters. Our failure to comply with applicable laws and   
regulations could have a material adverse effect on us.                         

    Continuing Relationships with Class I Carriers. The railroad industry in
the United States and Canada is dominated by a small number of Class I carriers 
that have substantial market control and negotiating leverage. Almost all of the
traffic on our North American railroads is interchanged with Class I carriers.  
Our ability to provide rail service to our customers in North America depends in
large part upon our ability to maintain cooperative relationships with Class I  
carriers with respect to, among other matters, freight rates, car supply,       
reciprocal switching, interchange and trackage rights. Class I carriers are also
sources of potential acquisition candidates as they continue to divest          
themselves of branch lines to smaller rail operators. Because we depend on Class
I carriers for our North American operations, our business and financial results
may be adversely affected if our relationships with those carriers were to      
deteriorate.                                                                    

  Risks of Our Australian Operations. In addition to the risks described
above, our Australian operations are subject to the following risks and         
uncertainties:                                                                  

-     The applicable legislative framework enables third party rail 
          operators to gain access to the railway infrastructure on which we
         operate for access fees. Because of this regulatory framework, we
       may lose customers or be forced to reduce rates to compete with
third party rail operators.                             

  -     Our access agreement with V/Line Passenger in Australia contains
         penalty provisions if trains using the railway infrastructure are
    delayed, early or cancelled under a variety of circumstances
resulting from our actions.                             

-     The director of public transport for the State of Victoria,   
          Australia may terminate our long-term railway infrastructure lease
         in specified circumstances, including: (1) if we fail to maintain
        all necessary accreditations; (2) if we fail to maintain railway
 infrastructure; and (3) if we fail to maintain insurance.

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Our Australian subsidiary generates approximately 19% of its total  
revenues under a five-year arrangement with AWB, Limited, the sole exporter of  
Australian wheat. AWB, Limited may terminate the agreement under specified      
limited circumstances.                                                          

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS                                    

GENERAL                                                                         

We are the world's largest short line and regional freight railroad 
operator. We own 49 railroads operating approximately 12,900 route miles in the 
United States, Canada, Chile, Argentina and Australia. In North America, we     
operate in 26 states, five Canadian provinces and the Northwest Territories.    

    In January 2003, we announced our intent to sell our 55% equity interest
in Ferronor, our Chilean railroad operations. Accordingly, the results of       
operations for the years presented have been reclassified to discontinued       
operations.                                                                     

     Our principal business consists of the operations of North American short
line freight railroads and international regional railroads. During 2002,       
excluding Ferronor, 78% of our revenues were derived from railroad operations in
North America while 22% of revenues were derived from our international railroad
operations based in Australia.                                                  

Our North American rail group operates 46 railroads. Each of these  
railroads operates independently with their own customer base. While these      
railroads are spread out geographically and carry diverse commodities, bridge   
traffic accounted for 17%, coal accounted for 12%, and lumber and forest        
products accounted for 11% of our carloads in North America during 2002. As a   
percentage of revenues, which is impacted by several factors including the      
length of the haul, bridge traffic generated 8%, coal generated 8%, and lumber  
and forest products generated 17% of our North American freight revenues. Bridge
traffic, which neither originates or terminates on our line, generally has a    
lower rate per carload.                                                         

Freight Australia, our Australian regional railroad, has two primary
sources of revenues. The first is freight revenues, which comprises 78% of      
Freight Australia's total revenues. Freight Australia hauls various commodities 
over its line including agricultural products, cement, gypsum, stone and logs.  
Agricultural products comprised approximately 39% of Freight Australia's total  
revenues in 2002. The level of revenues from agricultural products is highly    
dependent on the annual grain harvest in the State of Victoria. The grain       
harvest in the fourth quarter of 2002 was very poor due to the worst drought in 
many years in the grain regions served by Freight Australia. As a result,       
revenues from transporting grain were 21% lower in 2002 than in 2001. To        
partially offset this decrease in revenues and to reduce our dependence on grain
business, Freight Australia has pursued and been awarded several new long-term  
contracts to move a variety of other commodity types. It is anticipated that    
these new contracts should add approximately $50 million of new revenues over   
the next three to five years. The second source of revenue is access fees paid  
to us by other passenger or freight operators for the right to operate over our 
railroad. These amounts accounted for 19% of Freight Australia's revenues in    
2002.                                                                           

  In addition to our railroad operations, we have historically generated
gains through asset sales. Through our various North American railroads, we own 
8,300 miles of track and 63,000 acres of land. We continually review our        
portfolio of railroads and look to sell entire railroads, portions of railroads 
or underutilized real estate where holding such assets does not meet our        
internal criteria. During 2002, we generated net gains of $9.2 million. These   
gains are included in operating income in our consolidated statements of income.

    In January 2002, we acquired all of the stock of StatesRail, which owned
and operated eight railroads (including seven freight railroads and a tourist   
railroad in Hawaii) with 1,647 miles of track in eleven states. Total           
consideration for the acquisition was $90 million, consisting of $67 million in 
cash and $23 million in our common stock (1.7 million shares).                  

    Also, in January 2002, we acquired all of the stock of ParkSierra, which
owned and operated three freight railroads with 703 miles of track in four      
western states. Total consideration for the acquisition was $48 million,        
consisting of $23 million in cash and $25 million in our common stock (1.8      
million shares).                                                                

In February 2000, we acquired RailTex, which owned and operated 25  
railroads with over 4,100 miles of track in North America. Total consideration  
for the acquisition was $294 million, consisting of $128 million in cash,       
assumption of $105 million in debt and 6.6 million shares of our common stock   
valued at $61 million.                                                          

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In December 2000, we sold our specialty truck trailer manufacturing 
operations for $39 million. This segment is presented as a discontinued         
operation for each period presented.                                            

Critical Accounting Estimates                                                   

 The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires          
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at   
the dates of the financial statements and the reported amounts of revenues and  
expenses during the reporting periods.                                          

     The critical financial statement accounts that are subject to significant
estimation are reserves for litigation, casualty and environmental matters,     
Australian long service leave, deferred income taxes and property, plant and    
equipment.                                                                      

   In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 5, "Accounting for Contingencies,"an accrual for a loss contingency is      
established if information available prior to the issuance of the financial     
statements indicates that it is probable that a liability has been incurred or  
an asset has been impaired. These estimates have been developed in consultation 
with outside counsel handling our defense in these matters and are based upon an
analysis of potential results, assuming a combination of litigation and         
settlement strategies. Subsequent changes to those estimates are reflected in   
our statement of operations in the period of the change.                        

Freight Australia maintains a long service leave program for its    
employees. Under the program, an employee is entitled to paid leave of up to 13 
weeks after they have performed 10 years of service. Key assumptions in         
estimating this liability are the discount rate, annual rate of increase in     
compensation levels, employee turnover and the number of years before employees 
use the accrued leave.                                                          

    Deferred taxes are recognized based on differences between the financial
statement carrying amounts and the tax bases of assets and liabilities. We      
regularly review our deferred tax assets for recoverability and establish a     
valuation allowance based on historical taxable income, projected future taxable
income, and the expected timing of the reversals of existing temporary          
differences. If we are unable to generate sufficient future taxable income, or  
if there is a material change in the actual effective tax rates or time period  
within which the underlying temporary differences become taxable or deductible, 
we could be required to establish an additional valuation allowance against a   
portion of our deferred tax asset, resulting in an increase in our effective tax
rate and an adverse impact on earnings.                                         

 Property, plant and equipment comprised 82% of our total assets as of
December 31, 2002. These assets are stated at cost, less accumulated            
depreciation. We use the group method of depreciation under which a single      
depreciation rate is applied to the gross investment in our track assets. Upon  
normal sale or retirement of track assets, cost less net salvage value is       
charged to accumulated depreciation and no gain or loss is recognized.          
Expenditures that increase asset values or extend useful lives are capitalized. 
Repair and maintenance expenditures are charged to operating expense when the   
work is performed. We periodically review the carrying value of our long-lived  
assets for impairment. This review is based upon our projections of anticipated 
future cash flows. While we believe that our estimates of future cash flows are 
reasonable, different assumptions regarding such cash flows could materially    
affect our evaluations.                                                         

    For a complete description of our accounting policies, see Note 1 to our
consolidated financial statements.                                              

RESULTS OF OPERATIONS                                                           

    The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes beginning on Page F-1.          

     On a consolidated basis, we recorded net income for 2002 of $2.2 million,
or $0.07 per diluted share, compared with net income for 2001 of $17.0 million, 
or $0.71 per diluted share. Our operating revenues increased $80.7 million, or  
23%, to $428.2 million in 2002 from $347.5 million in 2001. The acquisitions of 
ParkSierra and StatesRail contributed $90.3 million to operating revenues for   
the year. This increase was partially offset by a decrease of $6.5 million in   
operating revenues from Freight Australia primarily due to the drought in       
Australia and a $3.1 million decrease from the disposal of Georgia Southwestern 
Railroad. Operating income decreased $0.7 million, or 1%, to $70.5 million from 
$71.2 million in 2001 primarily                                                 

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due to a decrease of $17.0 million in Freight Australia's operating income and  
$6.4 million due to failed bid costs and restructuring charges, partially offset
by the acquisitions of ParkSierra and StatesRail, which contributed $25.2       
million to operating income. Interest expense, including amortization of        
deferred financing costs, decreased $7.3 million, or 14%, to $43.4 million for  
the year ended December 31, 2002 from $50.7 million in 2001 primarily due to a  
general decrease in interest rates and the refinancing of our senior debt in May
2002, which resulted in a lower interest rate to us. In connection with our debt
refinancing in May 2002, we recorded a charge to other income (expense) of $19.1
million for the write-off of our interest rate swaps and other refinancing      
related costs and we recorded a charge of $4.5 million, after tax, as an        
extraordinary item for the write-off of the unamortized deferred loan costs from
the terminated credit facility, which was originally entered into in 2000.      

NORTH AMERICAN RAILROAD OPERATIONS                                              

 Our historical results of operations for our North American railroads
include the operations of our acquired railroads from the dates of acquisition  
as follows:                                                                     

NAME OF RAILROAD                                       DATE OF ACQUISITION      
----------------                                       -------------------      
RailTex properties (25 railroads)                      February 2000            
StatesRail (8 railroads)                               January 2002             
ParkSierra (3 railroads)                               January 2002             

We disposed of certain railroads as follows:                        

NAME OF RAILROAD                                       DATE OF DISPOSITION      
----------------                                       -------------------      
Minnesota Northern Railroad                            August 2000              
St. Croix Valley Railroad                              August 2000              
South Central Tennessee Railroad                       December 2000            
Pittsburgh Industrial Railroad                         December 2000            
Ontario L'Orignal Railway                              December 2000            
Dakota Rail, Inc.                                      December 2001            
Georgia Southwestern Railroad                          March 2002               
Texas New Mexico Railroad                              May 2002                 

   As a result, the results of operations for the years ended December 31,
2002, 2001 and 2000 are not comparable in various material respects and are not 
indicative of the results which would have occurred had the acquisitions or     
dispositions been completed at the beginning of the periods presented.          

 COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE YEARS
ENDED DECEMBER 31, 2002 AND 2001                                                

  The following table sets forth the operating revenues and expenses (in
thousands) for our North American railroad operations for the periods indicated.

                                                                [Download Table]

                                         For the year ended  For the year ended
                                         December 31, 2002   December 31, 2001 
                                         ------------------  ------------------
                                                                               
Total operating revenue                  $332,992    100.0%  $245,426    100.0%
                                         --------    -----   --------    ----- 
Operating expenses:                                                            
    Maintenance of way                     34,590     10.5%    23,477      9.5%
    Maintenance of equipment               30,094      9.0%    20,984      8.5%
    Transportation                         87,817     26.4%    69,932     28.5%
    Equipment rental                       19,103      5.7%    15,136      6.2%
    Selling, general and administrative    55,678     16.7%    39,962     16.3%
    Depreciation and amortization          21,699      6.5%    15,915      6.5%
                                         --------    -----   --------    ----- 
Total operating expenses                  248,981     74.8%   185,406     75.5%
                                         --------    -----   --------    ----- 
Operating income                         $ 84,011     25.2%  $ 60,020     24.5%
                                         ========    =====   ========    ----- 

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OPERATING REVENUES. Operating revenue increased by $87.6 million, or 36%, to    
$333.0 million for the year ended December 31, 2002 from $245.4 million for the 
year ended December 31, 2001 while carloads increased 25% to 1,113,925 in 2002  
from 891,318 in 2001. These increases are primarily due to the acquisitions of  
ParkSierra and StatesRail. Excluding revenues of $91.4 million in 2002 and $5.0 
million in 2001 for the acquisitions of ParkSierra and StatesRail and the       
dispositions of the Texas New Mexico Railroad and Georgia Southwestern Railroad,
operating revenues increased $1.1 million or 1% while carloads decreased by     
13,696 or 2%. The increase in "same railroad" revenues, while carloads declined,
is due to a change in commodity mix. While lower rated bridge traffic declined  
14,177 carloads in 2002, certain other commodities, such as metals, increased   
from 2001. The average rate per carload increased in 2002 to $259 from $243 in  
2001. The increase in the average rate per carload is due to the acquisitions of
ParkSierra and StatesRail which, on average, have a higher rate per carload as  
well as the change in mix of commodities as previously discussed.               

      The following table compares North American freight revenues, carloads and
average freight revenue per carload for the years ended December 31, 2002 and   
2001:                                                                           

                                                        [Enlarge/Download Table]

(dollars in thousands, except average            For the year ended                   For the year ended           
rate per carload)                                December 31, 2002                    December 31, 2001            
                                                 -----------------                    -----------------            

                                        Freight                Average rate   Freight                  Average rate
                                       Revenues      Carloads  per carload   Revenues      Carloads    per carload 
                                       --------      --------  ------------  --------      --------    ------------
                                                                                                                   
Agricultural & Farm Products           $ 27,877        95,005      $293      $ 20,524       80,835         $254    
Autos                                     9,842        43,843       224         9,982       45,962          217    
Chemicals                                28,305        84,935       333        22,907       66,915          342    
Coal                                     22,261       128,540       173        18,956       95,433          199    
Food Products                            19,817        62,471       317        11,956       40,988          292    
Intermodal                                4,082        39,538       103         4,859       42,253          115    
Lumber & Forest Products                 48,632       124,025       392        35,929       88,351          407    
Metals                                   24,400        80,117       305        14,645       52,184          281    
Metallic/Non-metallic Ores               14,196        55,260       257        11,074       45,658          243    
Minerals                                 16,983        45,995       369         7,299       19,424          376    
Paper Products                           26,240        94,528       278        20,764       64,914          320    
Petroleum Products                       16,194        47,252       343         9,819       28,593          343    
Railroad Equipment/Bridge Traffic        22,275       186,388       120        22,979      200,565          115    
Other                                     7,658        26,028       294         5,073       19,243          264    
                                       --------     ---------      ----      --------      -------         ----    

Total                                  $288,762     1,113,925      $259      $216,766      891,318         $243    
                                       ========     =========      ====      ========      =======         ====    

    Lumber and forest products revenues were $48.6 million in the year ended
December 31, 2002 compared to $35.9 million in the year ended December 31, 2001,
an increase of $12.7 million or 35%. This increase consists of $11.2 million    
from the acquisitions of ParkSierra and StatesRail and an increase of $1.5      
million from the existing North American railroad operations resulting from new 
business secured from forest product customers in Alberta and Oregon.           

  Agricultural and farm products revenues were $27.9 million in the year
ended December 31, 2002 compared to $20.5 million in the year ended December 31,
2001, an increase of $7.4 million or 36%. This increase is primarily the result 
of the acquisitions of ParkSierra and StatesRail.                               

     Paper products revenues were $26.2 million in the year ended December 31,
2002 compared to $20.8 million in the year ended December 31, 2001, an increase 
of $5.4 million or 26%. This increase consists of $7.6 million from the         
acquisitions of ParkSierra and StatesRail and an increase of $0.6 million from  
the existing North American railroad operations, partially offset by a decrease 
of $2.7 million from divested North American operations. The increase of $0.6   
million from existing North American railroad operations is due to new business 
obtained in Oregon and Alberta.                                                 

 Metal revenues were $24.4 million in the year ended December 31, 2002
compared to $14.6 million in the year ended December 31, 2001, an increase of   
$9.8 million or 67%. This increase consists of $6.7 million from the            
acquisitions of ParkSierra and StatesRail and an increase of $3.1 million from  
the existing North American railroad operations resulting from increased        
carloads from new business secured in North Carolina and our new steel train    
service in Southern Ontario.                                                    

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    Food products revenues were $19.8 million in the year ended December 31,
2002 compared to $12.0 million in the year ended December 31, 2001, an increase 
of $7.8 million or 66%. This increase consists of $8.3 million from the         
acquisitions of ParkSierra and StatesRail partially offset by a decrease of $0.7
million from divested North American operations.                                

   Mineral revenues were $17.0 million in the year ended December 31, 2002
compared to $7.3 million in the year ended December 31, 2001, an increase of    
$9.7 million or 133%. This increase is due to the acquisitions of ParkSierra and
StatesRail.                                                                     

     Petroleum products revenues were $16.2 million in the year ended December
31, 2002 compared to $9.8 million in the year ended December 31, 2001, an       
increase of $6.4 million or 65%. This increase consists of $5.1 million from the
acquisitions of ParkSierra and StatesRail and an increase of $1.3 million from  
the existing North American railroad operations due to new customers in New     
England and new business secured to diamond mines in the Canadian Northwest     
territories.                                                                    

Coal revenues were $22.3 million in the year ended December 31, 2002
compared to $19.0 million in the year ended December 31, 2001, an increase of   
$3.3 million or 17%. This increase is due to the acquisitions of ParkSierra and 
StatesRail.                                                                     

     Chemicals revenues were $28.3 million in the year ended December 31, 2002
compared to $22.9 million in the year ended December 31, 2001, an increase of   
$5.4 million or 24%. This increase is due to the acquisitions of ParkSierra and 
StatesRail.                                                                     

     Bridge traffic revenues were $22.3 million in the year ended December 31,
2002 compared to $23.0 million in the year ended December 31, 2001, a decrease  
of $0.7 million or 3%. This decrease is due to the reduction of volume          
associated with one of our railroads in eastern Canada during the third and     
fourth quarter of 2002.                                                         

The change in the remaining commodities is primarily due to the     
acquisitions of ParkSierra and StatesRail.                                      

    OPERATING EXPENSES. Total operating expenses increased by $63.6 million,
or 34%, to $249.0 million for the year ended December 31, 2002 from $185.4      
million for the year ended December 31, 2001. The increase in operating expenses
is primarily due to ParkSierra and StatesRail. The operating ratios, defined as 
total operating expenses divided by total revenues, were 74.8% and 75.5% for the
years ended December 31, 2002 and 2001, respectively.                           

     MAINTENANCE OF WAY. Maintenance of way expenses increased as a percentage
of revenues to 10.5% in 2002 from 9.5% in 2001, primarily due to the reduction  
of an environmental liability in 2001 of $1.9 million due to changes in         
environmental regulations.                                                      

      MAINTENANCE OF EQUIPMENT. Maintenance of equipment expense, which includes
locomotive lease expense, increased as a percentage of revenues to 9.0% in 2002 
from 8.5% in 2001. The increase is primarily due to car repairs on equipment    
used by StatesRail properties.                                                  

TRANSPORTATION. Transportation expenses decreased as a percentage of
revenues to 26.4% in 2002 from 28.5% in 2001. Of this decrease, lower fuel      
prices accounted for 1.0 percentage point as fuel costs were 87 cents per gallon
in 2002 compared to $1.00 per gallon in 2001. Lower labor costs accounted for   
the other 1.1 percentage points. Labor costs were lower due to strict cost      
control measures implemented in 2002.                                           

    EQUIPMENT RENTAL. Equipment rental expenses decreased as a percentage of
revenues to 5.7% in 2002 from 6.2% in 2001, due to improved management of leased
cars.                                                                           

    SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense increased as a percentage of revenues to 16.7% in 2002 from 16.3% in    
2001 due to higher labor and insurance costs.                                   

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
remained constant in 2002 from 2001 at 6.5% of revenues.                        

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COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE YEARS ENDED     
DECEMBER 31, 2001 AND 2000                                                      

The following table sets forth the operating revenues and expenses (in          
thousands) for our North American railroad operations for the years ended       
December 31, 2001 and 2000.                                                     

                                                                [Download Table]

                                          For the year ended    For the year ended 
                                          December 31, 2001     December 31, 2000  
                                          ------------------    ------------------ 
                                                                                   
Total operating revenue                  $245,426      100.0%  $231,445      100.0%
                                         --------      -----   --------      ----- 
Operating expenses:                                                                
    Maintenance of way                     23,477        9.5%    25,448       11.0%
    Maintenance of equipment               20,984        8.5%    13,101        5.7%
    Transportation                         69,932       28.5%    70,958       30.7%
    Equipment rental                       15,136        6.2%    15,842        6.8%
    Selling, general and administrative    39,962       16.3%    41,062       17.7%
    Depreciation and amortization          15,915        6.5%    16,430        7.1%
                                         --------      -----   --------      ----- 
Total operating expenses                  185,406       75.5%   182,841       79.0%
                                         --------      -----   --------      ----- 
Operating income                         $ 60,020       24.5%  $ 48,604       21.0%
                                         ========      -----   ========      ----- 

    OPERATING REVENUES. Operating revenue increased by $14.0 million, or 6%,
to $245.4 million for the year ended December 31, 2001 from $231.4 million for  
the year ended December 31, 2000 while carloads increased 6% to 891,318 in 2001 
from 839,451 in 2000. The increases in revenues and carloads was primarily due  
to the inclusion of the RailTex properties for twelve months in 2001 compared to
eleven months in 2000, partially offset by the sale of certain railroads in 2000
and the 4% decline in the Canadian dollar in 2001 compared to 2000. On a "same  
railroad" basis, including the RailTex properties on a pro forma basis from     
January 2000 and excluding the sold railroads, carloads and revenues both       
increased 4% in 2001. Increased coal shipments were primarily responsible for   
the increase. Transportation revenue per carload increased to $243 in 2001 from 
$242 in 2000.                                                                   

    The following table compares North American freight revenues, carloads and
average freight revenue per carload for the years ended December 31, 2001 and   
2000:                                                                           

                                                        [Enlarge/Download Table]

(dollars in thousands, except average            For the year ended                     For the year ended          
rate per carload)                                December 31, 2001                      December 31, 2000           
                                                 ------------------                     ------------------          

                                        Freight                 Average rate  Freight                   Average rate
                                       Revenues      Carloads   per carload   Revenues       Carloads   per carload 
                                       --------      --------   ------------  --------       --------   ------------
                                                                                                                    
Agricultural & Farm Products           $ 20,524        80,835       $254      $ 19,235        76,593       $251     
Autos                                     9,982        45,962        217         9,797        47,900        205     
Chemicals                                22,907        66,915        342        22,135        66,827        331     
Coal                                     18,956        95,433        199        15,612        71,945        217     
Food Products                            11,956        40,988        292        10,710        39,313        272     
Intermodal                                4,859        42,253        115         4,076        30,134        135     
Lumber & Forest Products                 35,929        88,351        407        34,866        90,102        387     
Metals                                   14,645        52,184        281        13,683        61,049        224     
Metallic/Non-metallic Ores               11,074        45,658        243         8,796        36,780        239     
Minerals                                  7,299        19,424        376         6,237        16,393        380     
Paper Products                           20,764        64,914        320        19,229        59,124        325     
Petroleum Products                        9,819        28,593        343         9,686        26,840        361     
Railroad Equipment/Bridge Traffic        22,979       200,565        115        23,603       192,323        123     
Other                                     5,073        19,243        264         5,319        24,128        220     
                                       --------       -------       ----      --------       -------       ----     

Total                                  $216,766       891,318       $243      $202,984       839,451       $242     
                                       ========       =======       ====      ========       =======       ====     

Coal revenues were $19.0 million in the year ended December 31, 2001
compared to $15.6 million in the year ended December 31, 2000, an increase of   
$3.4 million or 21%. This increase was due to new business in Indiana and       
increased moves for utilities in Minnesota.                                     

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  Agricultural and farm products revenues were $20.5 million in the year
ended December 31, 2001 compared to $19.2 million in the year ended December 31,
2000, an increase of $1.3 million or 7%. This increase was primarily due to the 
inclusion of the RailTex properties for twelve months in 2001 compared to eleven
months in 2000, partially offset by a decrease of $0.9 million from divested    
North American operations.                                                      

     Paper products revenues were $20.8 million in the year ended December 31,
2001 compared to $19.2 million in the year ended December 31, 2000, an increase 
of $1.6 million or 8%. This increase was primarily due to the inclusion of the  
RailTex properties for twelve months in 2001 compared to eleven months in 2000, 
partially offset by a decrease of $0.4 million from divested North American     
operations.                                                                     

 Metallic and non-metallic ore revenues were $11.1 million in the year
ended December 31, 2001 compared to $8.8 million in the year ended December 31, 
2000, an increase of $2.3 million or 26%. This increase was due to new business 
in Texas and an increase in salt movements in Southern Ontario.                 

    Food products revenues were $12.0 million in the year ended December 31,
2001 compared to $10.7 million in the year ended December 31, 2000, an increase 
of $1.3 million or 12%. This increase was primarily due to the inclusion of the 
RailTex properties for twelve months in 2001 compared to eleven months in 2000, 
partially offset by a decrease of $0.4 million from divested North American     
operations.                                                                     

      The change in the remaining commodities was primarily due to the inclusion
of the RailTex properties for twelve months in 2001 compared to eleven months in
2000.                                                                           

      OPERATING EXPENSES. Total operating expenses increased by $2.6 million, or
1%, to $185.4 million for the year ended December 31, 2001 from $182.8 million  
for the year ended December 31, 2000. The operating ratios were 75.5% and 79.0% 
for the years ended December 31, 2001 and 2000, respectively.                   

      MAINTENANCE OF WAY. Maintenance of way expenses decreased $1.9 million, or
8%, to $23.5 million in 2001 from $25.4 million in 2000. This decrease is       
primarily due to the reduction of an environmental liability in 2001 of $1.9    
million due to changes in environmental regulations.                            

      MAINTENANCE OF EQUIPMENT. Maintenance of equipment expense, which includes
locomotive lease expense, increased $7.9 million, or 60%, to $21.0 million in   
2001 from $13.1 million in 2000. This increase is primarily due to our          
sale-leaseback transactions which we consummated in December 2000 and June 2001.
Additional rent from these two transactions was approximately $4.0 million in   
2001. In addition, in connection with our locomotive fleet rationalization and  
upgrade program, we leased additional locomotives in 2001 to replace existing   
older, less powerful locomotives.                                               

     TRANSPORTATION. Transportation expenses decreased $1.1 million, or 1%, to
$69.9 million in 2001 from $71.0 million in 2000. The decrease in transportation
expenses is primarily due to lower fuel costs in 2001 as our average price per  
gallon was $1.00 in 2001 compared to $1.07 in 2000, resulting in a $1.5 million 
savings. In addition, our fleet rationalization and upgrade program resulted in 
more efficient locomotives and lower operating costs.                           

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INTERNATIONAL RAILROAD OPERATIONS                                               

    In January 2003, we announced our intent to sell our 55% equity interest
in Ferronor, the Chilean railroad operations. Accordingly, the results of       
operations for the years presented have been reclassified to discontinued       
operations.                                                                     

      COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 2002 AND 2001                                                      

  The following table sets forth the operating revenues and expenses (in
thousands) for our international railroad operations for the years ended        
December 31, 2002 and 2001.                                                     

                                                 2002         2001
                                                -------     --------
Revenues:                                       $94,915     $101,430
                                                -------     --------
Operating expenses:                                                 
   Transportation                                70,952       66,575
   Selling, general and administrative            8,010        5,870
   Depreciation and amortization                 10,855        6,932
                                                -------     --------
   Total operating expenses                      89,817       79,377
                                                -------     --------
Operating income                                $ 5,098     $ 22,053
                                                =======     ========

    OPERATING REVENUES. Operating revenues decreased $6.5 million, or 6%, to
$94.9 million for the year ended December 31, 2002 from $101.4 million for the  
year ended December 31, 2001. Freight Australia benefited from an increase in   
the Australian dollar against the U.S. dollar to 54 cents in 2002 from 52 cents 
in 2001, increasing revenues by $4.5 million in 2002. This was more than offset 
by lower grain traffic compared to 2001 as a result of the drought in Australia.
Freight Australia's carloads were 200,869 for the year ended December 31, 2002, 
a decrease of 20,841, or 9%, compared to 221,710 for the year ended December 31,
2001. Revenue per carload was $366 for 2002 versus $376 for 2001.               

     The following table compares international freight revenues, carloads and
average freight revenue per carload for the years ended December 31, 2002 and   
2001:                                                                           

                                                        [Enlarge/Download Table]

(dollars in thousands, except average            For the year ended                    For the year ended        
rate per carload)                                December 31, 2002                     December 31, 2001         
                                                 ------------------                    ------------------        

                                        Freight                Average rate  Freight                 Average rate
                                       Revenues      Carloads  per carload   Revenues     Carloads   per carload 
                                       --------      --------  ------------  --------     --------   ------------
                                                                                                                 
Agricultural & Farm Products           $36,597        75,207       $487      $46,040       97,003       $475     
Chemicals                                  316         1,013        311          225          737        305     
Coal                                         7            38        195          244          681        358     
Intermodal                              27,500        83,331        330       26,405       82,474        320     
Lumber & Forest Products                 1,630         5,017        325        4,725        9,475        499     
Minerals                                 4,960        18,793        264        3,692       16,076        230     
Paper Products                           1,274        13,492         94        1,109       11,426         97     
Petroleum Products                       1,284         3,889        330          786        3,435        229     
Other                                       19            89        217           40          403         99     
                                       -------       -------       ----      -------      -------       ----     

Total                                  $73,587       200,869       $366      $83,266      221,710       $376     
                                       =======       =======       ====      =======      =======       ====     

  Agricultural and farm products revenues were $36.6 million in the year
ended December 31, 2002 compared to $46.0 million in the year ended December 31,
2001, a decrease of $9.4 million or 21%. This decrease is primarily due to the  
drought in Australia. In 2002, Freight Australia transported 3.7 million tons of
grain compared to 5.0 million tons of grain in 2001. We are estimating that     
Freight Australia will transport 2.0 million tons of grain in 2003 as the impact
of the drought will be felt for the entire year. We believe, however, that      
Freight Australia will transport between 4.0 million and 5.0 million tons of    
grain in 2004 if normal harvest conditions return in Australia.                 

   Lumber and forest products revenues were $1.6 million in the year ended
December 31, 2002 compared to $4.7 million in the year ended December 31, 2001, 
a decrease of $3.1 million or 66%. The decrease is due to a decline in demand   
for export wood chips from Australia.                                           

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   Minerals revenues were $5.0 million in the year ended December 31, 2002
compared to $3.7 million in the year ended December 31, 2001, an increase of    
$1.3 million or 34%. This increase is primarily due to a new contract to extend 
a cement haul in Australia.                                                     

      OPERATING EXPENSES. Operating expenses increased $10.4 million, or 13%, to
$89.8 million for the year ended December 31, 2002 from $79.4 million for the   
year ended December 31, 2001. An increase in the Australian dollar against the  
U.S. Dollar, as noted above, increased total operating expenses by $4.3 million.
The remaining increase was due to higher labor, insurance, maintenance and      
depreciation expense. These increases were partially offset by reductions in    
transportation costs directly related to the decrease in grain traffic in 2002. 
The operating ratio for Freight Australia was 94.6% in 2002 compared to 78.3% in
2001 due to the decreased carloads and the increased operating expenses as      
discussed above.                                                                

COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE YEARS ENDED      
DECEMBER 31, 2001 AND 2000                                                      

                                               2001         2000
                                               --------     --------
Revenues:                                      $101,430     $102,204
                                               --------     --------
Operating expenses:                                                 
   Transportation                                66,575       70,118
   Selling, general and administrative            5,870        6,284
   Depreciation and amortization                  6,932        5,438
                                               --------     --------
   Total operating expenses                      79,377       81,840
                                               --------     --------
Operating income                               $ 22,053     $ 20,364
                                               ========     ========

    OPERATING REVENUES. Operating revenues decreased $0.8 million, or 1%, to
$101.4 million for the year ended December 31, 2001 from $102.2 million for the 
year ended December 31, 2000. Freight Australia's carloads were 221,710 for the 
year ended December 31, 2001, an increase of 18,174, or 9%, compared to 203,536 
for the year ended December 31, 2000. Freight Australia's revenue per carload   
was $376 for 2001 versus $406 for 2000. The decrease in Freight Australia's     
revenues and revenue per carload was primarily due to an 11% decline in the     
Australian dollar in 2001 compared to 2000. The increase in the carloads in 2001
was due to the strong grain harvest in Victoria. The decline in the value of the
Australian dollar relative to the U.S. dollar in 2001 compared to 2000 impacted 
Freight Australia's revenues by $12.6 million.                                  

      The following table compares international freight revenues, carloads, and
average freight revenue per carload for the years ended December 31, 2001 and   
2000:                                                                           

                                                        [Enlarge/Download Table]

(dollars in thousands, except average            For the year ended                    For the year ended        
rate per carload)                                December 31, 2001                     December 31, 2000         
                                                 ------------------                    ------------------        

                                        Freight                Average rate  Freight                 Average rate
                                       Revenues      Carloads  per carload   Revenues     Carloads   per carload 
                                       --------      --------  ------------  --------     --------   ------------
                                                                                                                 
Agricultural & Farm Products           $46,040        97,003       $475      $45,123       80,835       $558     
Chemicals                                  225           737        305          315          861        366     
Coal                                       244           681        358          764        2,557        299     
Intermodal                              26,405        82,474        320       27,312       74,379        367     
Lumber & Forest Products                 4,725         9,475        499        3,111       14,386        216     
Minerals                                 3,692        16,076        230        4,068       17,076        238     
Paper Products                           1,109        11,426         97        1,093       10,286        106     
Petroleum Products                         786         3,435        229          894        3,152        284     
Other                                       40           403         99            1            4        177     
                                       -------       -------       ----      -------      -------       ----     

Total                                  $83,266       221,710       $376      $82,681      203,536       $406     
                                       =======       =======       ====      =======      =======       ====     

  Agricultural and farm products revenues were $46.0 million in the year
ended December 31, 2001 compared to $45.1 million in the year ended December 31,
2000, an increase of $0.9 million or 2%. This increase was primarily due to a   
strong grain harvest in 2001, partially offset by the weaker Australian dollar  
in 2001.                                                                        

      Intermodal revenues were $26.4 million in the year ended December 31, 2001
compared to $27.3 million in the year ended                                     

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December 31, 2000, a decrease of $0.9 million or 3%. This decrease was due to   
the lower Australian Dollar in 2001.                                            

    OPERATING EXPENSES. Operating expenses decreased $2.5 million, or 3%, to
$79.4 million for the year ended December 31, 2001 from $81.8 million for the   
year ended December 31, 2000. The decrease in operating expenses was primarily  
due to the 11% decline in the Australian dollar, which reduced operating        
expenses by $9.8 million. Partially offsetting this decrease was an increase in 
2001 of depreciation and amortization due to the extensive capital work done on 
the locomotive fleet and track since we purchased the railroad from the         
government in 1999. The operating ratio improved to 78.3% in 2001 from 80.1% in 
2000 due to the increased carloads and the relatively fixed nature of many of   
the expenses.                                                                   

CORPORATE OVERHEAD AND OTHER                                                    

CORPORATE OVERHEAD. Corporate overhead services performed for our   
subsidiaries include executive management, overall strategic planning,          
accounting, finance, legal, cash management, information technology, human      
resources, payroll and tax. Corporate overhead, which is included in selling,   
general and administrative expenses in the consolidated statements of income,   
increased $10.0 million, or 62%, to $26.1 million for the year ended December   
31, 2002 from $16.1 million for the year ended December 31, 2001. Approximately 
$3.3 million of the increase is due primarily to the write-off of the failed bid
costs in connection with the proposed acquisition of National Rail and          
FreightCorp, two government-owned railroads in Australia. In addition, we       
recorded a $1.4 million charge in 2002 relating to the consolidation of the     
accounting and human resource functions from San Antonio to Boca Raton and a    
$1.0 million restructuring charge relating to the termination of certain        
executives in December 2002. The remaining increase was due to increased        
headcount in 2002 to support the ParkSierra and StatesRail acquisitions. For the
year ended December 31, 2001, corporate overhead increased $3.7 million, or 30%,
to $16.1 million from $12.4 million for the year ended December 31, 2000. This  
increase was related to the additional costs incurred to manage the acquired    
railroads and to establish a strong management team to handle our continued     
growth.                                                                         

     ASSET RATIONALIZATION PLAN. As part of our strategic plan, we continually
review our portfolio for under performing, non-core or non-strategic assets that
can be sold. Net gains on sales of assets were $9.2 million for the year ended  
December 31, 2002. This gain primarily relates to the sale of the Georgia       
Southwestern Railroad in March 2002 resulting in a gain of $4.5 million and a   
sale of right-of-ways resulting in a gain of $3.5 million. In December 2001, we 
sold Dakota Rail, Inc. and certain other assets for $9.8 million. The proceeds  
from these transactions were used to reduce our long-term debt and for general  
working capital purposes. The net gains in 2001 were $6.4 million compared to   
$11.2 million in 2000.                                                          

   TERMINATED MOTOR CARRIER OPERATIONS. During the year ended December 31,
2002, we recorded a charge of $1.3 million for the write-off of the remaining   
assets from the motor carrier division.                                         

   INTEREST EXPENSE. Interest expense, including amortization of financing
costs, decreased from $53.9 million in 2000 to $50.7 million in 2001 and        
continued to decrease to $43.4 million in 2002. The decrease in interest expense
from 2000 to 2001 is primarily due to reduction of our long-term debt and a     
decrease in base interest rates. The decrease in interest expense from 2001 to  
2002 is primarily due to the refinancing of our senior debt in May 2002, which  
resulted in a lower interest rate.                                              

  FINANCING COSTS AND OTHER INCOME (EXPENSE). In connection with the May
2002 refinancing of our senior debt, we terminated our existing interest rate   
swaps. Because these hedging instruments were designated as hedges of the cash  
flows under the previous senior debt facility, SFAS No. 133 requires the entire 
balance in other accumulated comprehensive loss to be charged to earnings.      
Accordingly, a charge of $17.1 million was recorded in other income (expense)   
during the year ended December 31, 2002. We also incurred a charge of $2.0      
million during 2002 to write-off other refinancing related costs incurred in    
connection with our May 2002 refinancing.                                       

 INCOME TAXES. Our effective tax rates in 2002 and 2001 were 35.5% and
22.5%, respectively. In 2001, we recorded a benefit of $3.1 million from a      
reduction in the Canadian federal and provincial tax rates. We believe our      
effective rate in 2003 will be approximately 37%.                               

     DISCONTINUED OPERATIONS. In January 2003, we announced our intent to sell
our 55% equity interest in Ferronor. Accordingly, we reclassified the operating 
results of Ferronor for each of the years presented to discontinued operations. 
As such, the income statements for the years ended 2002, 2001 and 2000, include 
$1.0 million, $1.5 million, and $1.2 million, (net of tax) respectively, of     
income from discontinued operations for Ferronor. We expect to sell our 55%     
equity interest in Ferronor in 2003 and use the proceeds of the sale to retire  
debt. In May 2002, we sold the Texas New Mexico Railroad for $2.3               

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million resulting in a net gain of $1.3 million ($0.8 million, after tax). The  
gain has been included in discontinued operations. In December 2000, we sold our
specialty truck trailer manufacturing operations for $38.5 million resulting in 
a gain of approximately $11.5 million, net of income taxes. In connection with  
the acquisition of RailTex, we refinanced our investment in our trailer         
manufacturing operations resulting in additional interest expense of $7.3       
million in 2000.                                                                

     EXTRAORDINARY LOSS. In connection with the refinancing of our senior debt
in May 2002, we wrote off the unamortized balance of the deferred loan costs    
relating to our old senior credit facility. The total charge of $6.6 million    
($4.5 million, after tax) was included as an extraordinary charge. In connection
with the reduction of our senior debt in July and August 2001, we recorded an   
extraordinary charge of $0.2 million for the year ended December 31, 2001.      
Pursuant to the refinancing of our debt in February 2000, we recorded an        
extraordinary charge for the year ended December 31, 2000 for the loss on early 
extinguishment of debt of $2.9 million. In connection with the issuance of      
subordinated debt in August 2000 we recorded an extraordinary charge of $1.1    
million for early extinguishment of debt.                                       

CUMULATIVE EFFECT OF ACCOUNTING CHANGE. In 2000, we recorded a $2.3 
million charge associated with a change in accounting principle. This charge    
resulted from a beneficial conversion feature associated with warrants in       
connection with the junior convertible subordinated debentures issued in 1999.  
This was a result of a change during 2000 of the applicable accounting          
literature.                                                                     

LIQUIDITY AND CAPITAL RESOURCES - COMBINED OPERATIONS                           

   The discussion of liquidity and capital resources that follows reflects
our consolidated results and includes all subsidiaries. Our principal source of 
liquidity is cash generated from operations. In addition, we may fund any       
additional liquidity requirements through borrowings under our $100 million     
revolving credit facility.                                                      

Operating Activities                                                            

    Our cash provided by operating activities was $38.6 million for the year
ended December 31, 2002. This amount consists of $2.2 million in net income,    
$41.3 million in depreciation and amortization and $25.4 million of refinancing 
related charges, partially offset by $9.7 million of asset sale gains (including
the sale of discontinued operations) and $23.5 million of changes in working    
capital accounts. Excluding the payments for the termination of the interest    
rate swaps of $17.1 million, which are classified as an operating activity      
pursuant to SFAS No.104, cash flows from operations would have been $55.7       
million, which is comparable to $55.0 million in 2001.                          

Investing Activities                                                            

   Cash used in investing activities was $150.1 million for the year ended
December 31, 2002 compared to $46.7 million in 2001. The increase of $103.4     
million is primarily due to the use of cash for the purchase of ParkSierra and  
StatesRail which totaled $89.4 million. In addition, capital expenditures for   
the year were $65.7 million or $4.0 million higher than 2001. Asset sale        
proceeds were $9.3 million for the year ended 2002 compared to $18.5 million in 
2001. We expect capital expenditures in 2003 to be approximately $71 million,   
including Ferronor, a discontinued operation. Ferronor's capital expenditures   
were $2 million in 2002 and are expected to be $7.0 million in 2003.            

Financing Activities                                                            

     Cash provided by financing activities was $79.3 million for 2002 compared
to $39.4 million in 2001. The increase of $39.9 million is primarily due to $50 
million of borrowings to finance the acquisitions of ParkSierra and StatesRail  
and an additional $50 million of borrowings in connection with the refinancing  
of the senior credit facility in May 2002, partially offset by the new financing
costs totaling $15.4 million and common stock repurchases of $5.0 million. Under
our existing senior debt facilities, our principal repayments will be $3.8      
million in 2003.                                                                

 In May 2002, we refinanced our senior credit facility. The new senior
credit facility requires 1% annual principal amortization and provides (1) a    
$265 million U.S. Term Loan, (2) a $50 million Canadian Term Loan, (3) a $60    
million Australian Term Loan and (4) a $100 million revolving credit facility   
which includes $82.5 million of U.S. dollar denominated loans, $10 million of   
Canadian dollar denominated loans and $7.5 million of Australian dollar         
denominated loans. The U.S. Term Loan, the Canadian Term Loan and the Australian
Term Loan mature on May 23, 2009 and the revolver loans mature on May 23, 2008. 
In addition, we may incur additional indebtedness under the credit facility     
consisting of up to $100 million                                                

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aggregate principal amount of additional term loans subject to the satisfaction 
of certain conditions set forth in the credit agreement including consent of the
Administrative Agent and the Joint Lead Arrangers under the credit facility and 
the satisfaction of all financial covenants set forth in the credit facility on 
a pro forma basis on the date of the additional borrowing.                      

   At our option, the new senior credit facilities bear interest at either
(1) the alternative base rate (defined as the greater of (i) UBS AG's prime rate
and (ii) the Federal Funds Effective Rate plus 0.50%) if such loan is a Term    
Loan or U.S. Revolving Loan or the Canadian Prime Rate (defined as the greater  
of (i) UBS AG's Canadian prime rate and (ii) the average rate for 30 day        
Canadian Dollar bankers' acceptances plus 1.0% per annum) if such loan is a     
Canadian revolving loan plus 1.00% for the revolving credit facilities and 1.50%
for the Term Loan facility, or (2) the reserve-adjusted LIBO rate (or, in the   
case of Australian revolving loans, the BBSY Rate) plus 2.00% for the revolving 
credit facility and 2.50% for the term loan facilities; provided, that the      
additional amounts added to the alternative base rate and the LIBO rate for the 
revolving credit facilities and the term loan facilities discussed above will be
subject to adjustment based on changes in our leverage ratio effective two      
fiscal quarters after the closing of the new senior credit facilities. At       
December 31, 2002 the interest rate on the term loan facilities was LIBOR plus  
2.50%, or 4.00%. The default rate under the new senior credit facility is 2.0%  
above the otherwise applicable rate. The U.S. Term Loan and the U.S. dollar     
denominated revolver are collateralized by the assets of and guaranteed by      
RailAmerica, Inc. and its U.S. subsidiaries, the Canadian Term Loan and the     
Canadian dollar denominated revolver are collateralized by the assets of and    
guaranteed by RailAmerica, Inc. and its U.S. and Canadian subsidiaries, and the 
Australian Term Loan and the Australian dollar denominated revolver are         
collateralized by the assets of and guaranteed by RailAmerica, Inc. and its U.S.
and Australian Subsidiaries. The assets of Ferronor, as well as any other       
subsidiaries designated in the future as unrestricted subsidiaries, are not     
pledged under this agreement. Ferronor has not guaranteed and any other         
unrestricted subsidiaries are not required to guarantee any of the obligations  
under the credit facility. The loans were provided by a syndicate of banks with 
Morgan Stanley Senior Funding, Inc., as syndication agent, UBS AG, Stamford     
Branch, as administrative agent and The Bank of Nova Scotia, as collateral      
agent.                                                                          

   In connection with the refinancing of the senior credit facility in May
2002, we terminated our interest rate swap agreements resulting in a cash       
payment of $17.1 million. Additionally, as required under our new senior credit 
facility, we entered into two step-up collars for a total notional amount of $75
million with an effective date of November 24, 2002 and expiring on November 24,
2004. Under the terms of these collars, the LIBOR component of our interest     
rates can fluctuate within specified ranges. From November 24, 2002 through May 
24, 2003, the floor and cap are 2% and 4.5%, from May 24, 2003 through November 
24, 2003, the floor and cap are 2.5% and 4.75%, from November 24, 2003 through  
May 24, 2004, the floor and cap are 3.5% and 5.5% and from May 24, 2004 through 
November 24, 2004, the floor and cap are 4% and 5.75%. The collars qualify and  
are accounted for as cash flow hedges under SFAS No. 133. As of December 31,    
2002, the fair value of these collars was a net liability of $1.9 million.      

    On November 8, 2002, we entered into two interest rate swaps for a total
amount of $300 million for the period commencing December 5, 2002 through       
December 5, 2003. Under the terms of the interest rate swaps, the LIBOR         
component of our interest rate is fixed at 1.62% on $300 million of debt. The   
swaps qualify and are accounted for as cash flow hedges under SFAS No. 133. At  
December 31, 2002, the fair value of these swaps was a net liability of $0.6    
million.                                                                        

      The May 2002 senior credit facility and the indenture governing our senior
subordinated notes include numerous covenants imposing significant financial and
operating restrictions on RailAmerica, Inc. The covenants limit our ability to, 
among other things: incur more debt or prepay existing debt, redeem or          
repurchase our common stock, pay dividends or make other distributions, make    
acquisitions or investments, use assets as security in other transactions, enter
into transactions with affiliates, merge or consolidate with others, dispose of 
assets or use asset sale proceeds, create liens on our assets, make certain     
payments or capital expenditures and extend credit. In addition, the senior     
credit facility also contains financial covenants that require us to meet a     
number of financial ratios and tests. Our ability to meet these ratios and tests
and to comply with other provisions of the new senior credit facility can be    
affected by events beyond our control. Failure to comply with the obligations in
the new senior credit facility could result in an event of default under the new
senior credit facility, which, if not cured or waived, could permit acceleration
of the indebtedness or other indebtedness which could have a material adverse   
effect on us. We were in compliance with each of these covenants as of December 
31, 2002.                                                                       

In August 2000, RailAmerica Transportation Corp., our wholly-owned  
subsidiary, sold units consisting of $130.0 million of 12-7/8% senior           
subordinated notes due 2010 and warrants to purchase 1,411,414 shares of our    
common stock. Our U.S. subsidiaries are guarantors of the senior subordinated   
notes.                                                                          

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     In February 2000, we entered into a credit agreement and two bridge notes
in connection with the acquisition of RailTex and the refinancing of most of our
and RailTex's existing debt. The credit agreement provided (i) a $125 million   
Term A loan, bearing interest at LIBOR plus 2.50% (4.44% at December 31, 2001), 
(ii) a $205 million Term B loan, initially bearing interest at LIBOR plus 3.25% 
(5.19% at December 31, 2001), and (iii) a $50 million revolving credit facility 
which includes $30 million of U.S. dollar denominated loans, $10 million of     
Canadian dollar denominated loans and $10 million of Australian dollar          
denominated loans with an interest rate of LIBOR plus 2.50%. All of the capital 
stock of RailAmerica, Inc.'s U.S. subsidiaries, 65% of the capital stock of the 
Canadian and Australian subsidiaries and the majority of the assets of          
RailAmerica, Inc.'s subsidiaries served as collateral for the senior credit     
facilities. In January 2002, in connection with the acquisitions of ParkSierra  
and StatesRail, we borrowed an additional $50 million under this senior credit  
facility. The credit agreement and the two bridge notes have all been repaid.   

 Our long-term business strategy includes the selective acquisition or
disposition of transportation-related businesses. Accordingly, we may require   
additional equity and/or debt capital in order to consummate acquisitions or    
undertake major business development activities. It is impossible to predict the
amount of capital that may be required for such acquisitions or business        
development, and whether sufficient financing for such activities will be       
available on terms acceptable to us, if at all.                                 

      As of December 31, 2002, we had working capital of $20 million compared to
$30 million as of December 31, 2001. This decrease is primarily due to the      
private placement of common stock in December 2001, in which we raised $51      
million. These funds were subsequently used to fund the acquisitions of         
ParkSierra and StatesRail in January 2002, thus decreasing our cash balance and 
reducing our working capital balance. Our cash flows from operations and        
borrowings under our credit agreements historically have been sufficient to meet
our ongoing operating requirements, capital expenditures for property, plant and
equipment, and to satisfy our debt service requirements.                        

Two primary uses of the cash provided by our operations are capital 
expenditures and debt service. The following table represents the minimum future
payments on our existing long-term debt and lease obligations:                  

                                                        [Enlarge/Download Table]

                                                              2004 -   2006 -    After  
                                            TOTAL     2003     2005     2007      2007  
                                           --------  -------  -------  -------  --------
                                                                                        
Long-term debt                             $385,701  $ 4,120  $ 8,300  $ 8,388  $364,893

Subordinated debt                          $141,331  $     0  $21,107  $     0  $120,224

Capital lease obligations                  $  1,620  $    80  $   492  $   648  $    400

Operating lease obligations                $ 97,970  $19,417  $33,701  $27,016  $ 17,836

Long-term debt of discontinued operations  $ 20,840  $ 6,743  $ 5,248  $ 4,243  $  4,606

Total contractual cash obligations         $647,462  $30,360  $68,848  $40,295  $507,959

Common Stock Repurchases Program                                                

  We occasionally repurchase our common stock under our share repurchase
program. These repurchases are limited to $5 million per year pursuant to our   
borrowing arrangements. In July 2002, our board of directors authorized a 2     
million share repurchase program through December 31, 2003, subject to          
restrictions under our borrowing arrangements. During the year ended December   
31, 2002, we repurchased 530,500 shares at a total cost of $4.9 million.        

RECENT ACCOUNTING PRONOUNCEMENTS                                                

On January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other    
Intangible Assets" and SFAS No. 144, "Accounting for the Impairment or Disposal 
of Long-Lived Assets." Under SFAS No. 142, goodwill and identifiable intangible 
assets with an indefinite life will no longer be amortized; however, both       
goodwill and other intangible assets will need to be tested at least annually   
for impairment. SFAS No. 144 addresses financial accounting and reporting for   
the impairment of long-lived assets, excluding goodwill and intangible assets,  
to be held and used or disposed of. While the adoption of these pronouncements  
did                                                                             

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not have a material impact on our consolidated financial statements, SFAS No.   
144 will require us to report the results of operations of a railroad that has  
been disposed of or is being held for disposal in discontinued operations.      

    In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 is    
effective for the fiscal year beginning January 1, 2003, and requires us to     
record the fair value of a liability for an asset retirement obligation in the  
period in which it is incurred. We believe the adoption of this pronouncement   
will not have a material impact on our financial statements.                    

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB    
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical 
Corrections." SFAS No. 145, requires that debt extinguishments used as part of a
company's risk management strategy should not be classified as an extraordinary 
item. The requirement to reclassify debt extinguishments is effective for fiscal
years beginning after May 15, 2002. We will adopt SFAS No. 145 on January 1,    
2003 and reclassify $4.5 million and $0.2 million of extraordinary charges, net 
of tax, to continuing operations in 2002 and 2001, respectively.                

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs   
Associated with Exit or Disposal Activities." SFAS No. 146, which is effective  
for exit or disposal activities initiated after December 31, 2002, requires that
a liability for a cost associated with an exit or disposal activity is          
recognized at fair value when the liability is incurred rather than when        
management commits to an exit or disposal plan. We believe the adoption of this 
pronouncement will not have a material impact on our financial statements.      

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), 
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including   
Indirect Guarantees of Indebtedness of Others: an interpretation of FASB        
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34,"    
which is effective for guarantees issued or modified after December 31, 2002.   
This Interpretation addresses the disclosures to be made by a guarantor in its  
interim and annual financial statements about its obligations under guarantees. 
This Interpretation also clarifies the requirements related to the recognition  
of a liability by a guarantor at the inception of a guarantee for the           
obligations the guarantor has undertaken in issuing that guarantee. We believe  
the adoption of this pronouncement will not have a material impact on our       
financial statements.                                                           

In December 2002, the FASB issued SFAS No. 148, "Accounting for     
Stock-Based Compensation-Transition and Disclosure." SFAS No. 148, which is     
effective for fiscal years ending after December 15, 2002, provides alternative 
methods of transition for voluntary changes to the fair value based method of   
accounting for stock-based employee compensation and requires prominent         
disclosure in both annual and interim financial statements about the method used
on reported results. The adoption of this pronouncement did not have a material 
impact on our financial statements.                                             

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),  
"Consolidation of Variable Interest Entities," which is effective immediately   
for variable interest entities created after January 31, 2003, and applies in   
the first interim period beginning after June 15, 2003 for variable interest    
entities created before February 1, 2003. FIN 46 addresses the consolidation of 
variable interest entities through identification of a primary beneficiary. We  
believe the adoption of this pronouncement will not have a material impact on   
our financial statements.                                                       

ITEM 7a. MARKET RISK                                                            

      We currently use derivatives to hedge against increases in fuel prices and
interest rates. We formally document the relationship between the hedging       
instrument and the hedged items, as well as the risk management objective and   
strategy for the use of the hedging instrument. This documentation includes     
linking the derivatives that are designated as cash flow hedges to specific     
assets or liabilities on the balance sheet, commitments or forecasted           
transactions. When we enter into a derivative contract, and at least quarterly, 
we assess whether the derivative item is effective in offsetting the changes in 
fair value or cash flows. Any change in fair value resulting from               
ineffectiveness, as defined by SFAS No. 133, is recognized in current period    
earnings. For derivative instruments that are designated and qualify as cash    
flow hedges, the effective portion of the gain or loss on the derivative        
instrument is recorded in Accumulated Other Comprehensive Loss, a separate      
component of Stockholders' Equity, and reclassified into earnings in the period 
during which the hedge transaction affects earnings.                            

     We monitor our hedging positions and credit ratings of our counterparties
and do not anticipate losses due to counterparty nonperformance.                

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FOREIGN CURRENCY. Our foreign currency risk arises from owning and  
operating railroads in Canada, Chile and Australia. As of December 31, 2002, we 
had not entered into any currency hedging transactions to manage this risk. A   
decrease in either the Canadian dollar or the Australian dollar would negatively
impact our reported revenues and earnings for the affected period. During 2002, 
the Australian dollar increased 5% while the Canadian dollar declined 1%. This  
led to a net increase of $3.7 million in reported revenues and $0.1 million     
increase in reported operating income, in 2002, compared to 2001. A majority of 
our revenue and debt in Chile is denominated to the U.S. dollar and therefore,  
we are not negatively impacted by a decline in the value of the Chilean peso.   

     INTEREST RATES. Our interest rate risk results from issuing variable rate
debt obligations, as an increase in interest rates would result in lower        
earnings and increased cash outflows.                                           

      In June 2002, as required under our new senior credit facility, we entered
into two step-up collars for a total notional amount of $75 million with an     
effective date of November 24, 2002 and expiring on November 24, 2004. Under the
terms of these collars, the LIBOR component of our interest rates can fluctuate 
within specified ranges. From November 24, 2002 through May 24, 2003, the floor 
and cap are 2% and 4.5%, from May 24, 2003 through November 24, 2003, the floor 
and cap are 2.5% and 4.75%, from November 24, 2003 through May 24, 2004, the    
floor and cap are 3.5% and 5.5% and from May 24, 2004 through November 24, 2004,
the floor and cap are 4% and 5.75%. The collars qualify and are accounted for as
cash flow hedges under SFAS No. 133. On November 8, 2002, we entered into two   
interest rate swaps for a total amount of $300 million for the period commencing
December 5, 2002 through December 5, 2003. The swaps qualify and are accounted  
for as cash flow hedges under SFAS No. 133. Under the terms of the interest rate
swaps, the LIBOR component of our interest rate is fixed at 1.62% on $300       
million of debt.                                                                

    DIESEL FUEL. We are exposed to fluctuations in diesel fuel prices, as an
increase in the price of diesel fuel would result in lower earnings and         
increased cash outflows. Fuel costs represented 7% of total revenues during the 
year ended December 31, 2002. Due to the significance of fuel costs to our      
operations and the historical volatility of fuel prices, we maintain a program  
to hedge against fluctuations in the price of our diesel fuel purchases. Each   
one-cent change in the price of fuel would result in a $0.4 million change in   
fuel expense on an annual basis.                                                

The fuel-hedging program includes the use of derivatives that are   
accounted for as cash flow hedges. As of December 31, 2002, we had entered into 
fuel swap agreements to hedge the equivalent of 750,000 gallons per month in    
2003 (35% of estimated North American consumption) at an average price of 66    
cents per gallon, excluding transportation and taxes.                           

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                             

  The Consolidated Financial Statements of RailAmerica, the accompanying
notes thereto and the independent accountants' reports are included as part of  
this Form 10-K and immediately follow the signature page of this Form 10-K.     

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND         
FINANCIAL DISCLOSURE.                                           

None.                                                                           

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PART III                                                                        

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                     

Information concerning directors, executive officers and nominees is
incorporated by reference from our definitive proxy statement relating to our   
2003 Annual Meeting of Stockholders to be filed with the Commission pursuant to 
Regulation 14A on or before April 30, 2003.                                     

ITEM 11. EXECUTIVE COMPENSATION                                                 

      Information concerning executive compensation is incorporated by reference
from our definitive proxy statement relating to our 2003 Annual Meeting of      
Stockholders to be filed with the Commission pursuant to Regulation 14A on or   
before April 30, 2003.                                                          

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND     
RELATED STOCKHOLDER MATTERS                                   

   Information concerning security ownership and securities issuable under
equity compensation plans is incorporated by reference from our definitive proxy
statement relating to our 2003 Annual Meeting of Stockholders to be filed with  
the Commission pursuant to Regulation 14A on or before April 30, 2003.          

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                         

    Information concerning certain relationships and related transactions is
incorporated by reference from our definitive proxy statement relating to our   
2003 Annual Meeting of Stockholders to be filed with the Commission pursuant to 
Regulation 14A on or before April 30, 2003.                                     

ITEM 14. CONTROLS AND PROCEDURES                                                

   As of a date within 90 days of this report, our chief executive officer
and chief financial officer evaluated the effectiveness of the design and       
operation of our disclosure controls and procedures.                            

     Management and PricewaterhouseCoopers have advised the audit committee of
our board of directors that during the course of the audit, they noted          
deficiencies in internal controls of our Australian subsidiary relating to      
procedures for determining which costs spent on improvements to track structure,
locomotives and freight cars qualified for capitalization under our policies.   
PricewaterhouseCoopers has advised the audit committee that these internal      
control deficiencies constitute a material weakness as defined by Statement of  
Auditing Standards No. 60. We have performed substantial additional procedures  
designed to ensure that these internal control deficiencies do not lead to      
material misstatements in our consolidated financial statements and to enable   
the completion of PricewaterhouseCoopers' audit of our consolidated financial   
statements, notwithstanding the presence of the internal control weaknesses     
noted above.                                                                    

      We are in the process of implementing corrective actions as of the date of
this annual report on Form 10-K to address these issues, and are evaluating     
implementation of the following corrective actions as well as additional        
procedures:                                                                     

o     Reorganization of the financial accounting responsibilities;              

o     Developing a pre-approval process for capital projects in Australia       
similar to our process in the United States;                        

o     Modifying the software which tracks individual jobs on our locomotives and
    railcars to provide better information to the accounting department; and

o     Instituting new requirements for invoicing and documentation of outsourced
track maintenance and improvements in Australia.                    

   Based upon this evaluation and the additional procedures performed, our
CEO and CFO concluded that the disclosure controls and procedures are effective 
in ensuring that information required to be disclosed in reports we file under  
the Securities Exchange Act of 1934, as amended, is recorded, processed,        
summarized and reported within the time periods specified by rules and forms    
promulgated under that act. We will continue to evaluate the effectiveness of   
our disclosure controls and internal controls and procedures on an ongoing      
basis, and will take further action as appropriate.                             

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PART IV                                                                         

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K        

(a)   Exhibits                                                                  

2.1   Amended and Restated Agreement and Plan of Merger, dated as of
    November 26, 2001 by and among RailAmerica, Inc., ParkSierra
Acquisition Corp. and ParkSierra Corp. (30)             

    2.2   Merger Agreement, dated as of October 12, 2001, among RailAmerica,
    Inc., StatesRail Acquisition Corp. and StatesRail, Inc. (32)

      2.3   Stock Purchase Agreement, dated October 12, 2001, among RailAmerica,
          Inc., New StatesRail Holdings, Inc., StatesRail L.L.C., West Texas
        and Lubbock Railroad Company, Inc. and the Members of StatesRail
L.L.C. (32)                                             

    2.4   Letter Agreement, dated as of October 12, 2001 between the parties
to Exhibits 2.2 and 2.3 above. (32)                     

     3.1   Amended and Restated Certificate of Incorporation of Registrant, as
amended (2)                                             

3.2   By-laws of RailAmerica, Inc. (1)                              

 3.3   Certificate Of Amendment to Amended and Restated Certificate of
Incorporation of RailAmerica, Inc. (31)                 

     4.1   Form of Common Stock Purchase Rights Agreement, dated as of January
        6, 1998, between RailAmerica, Inc. and American Stock Transfer &
Trust Company (6)                                       

4.2   Certificate of Designation of Series A Convertible Redeemable 
Preferred Stock (19)                                    

  4.3   Third Amendment to the Rights Agreement, dated as of January 13,
           2000, between RailAmerica, Inc. and American Stock Transfer & Trust
Company (10)                                            

 4.6   Fourth Amendment to the Rights Agreement, dated as of April 13,
       2000, between RailAmerica, Inc. and American Stock Transfer and
Trust Company (21)                                      

      4.7   Waiver and Supplemental Agreement, dated as of April 13, 2000, among
         RailAmerica, Inc. and EGS Associates, L.P., EGS Partners, L.L.C.,
         BEV Partners, L.P., Jonas Partners, L.P., EGS Management, L.L.C.,
        William Ehrman, Frederic Greenberg, Jonas Gerstl and Juli Oliver
(22)                                                    

4.8   Indenture, dated as of August 14, 2000, between RailAmerica   
          Transportation Corp., the Guarantors named therein and Wells Fargo
Bank Minnesota, N.A. (24)                               

     4.9   Warrant Agreement, dated August 14, 2000, between RailAmerica, Inc.
and Wells Fargo Bank Minnesota, N.A. (26)               

4.10  Warrant Registration Rights Agreement, dated August 14, 2000, 
          between RailAmerica, Inc., Donaldson, Lufkin & Jenrette Securities
         Corporation, Barclays Bank PLC and Scotia Capital (USA) Inc. (27)

4.11  Form of Placement Agent Warrant, dated as of June 2001. (32)  

  4.12  Form of Placement Agent Warrant, dated as of December 2001. (32)

4.13  First Supplemental Indenture (32)                             

4.14  Second Supplemental Indenture (32)                            

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10.43 Stock Option Agreement, dated November 11, 1994, between      
RailAmerica, Inc. and Gary O. Marino (7)+               

    10.45 RailAmerica, Inc. 1995 Non-Employee Director Stock Option Plan (2)

10.46 RailAmerica, Inc. 1995 Employee Stock Purchase Plan (2)       

10.47 RailAmerica, Inc. Corporate Senior Executive Bonus Plan (2)+  

 10.59 RailAmerica, Inc. Nonqualified Deferred Compensation Trust (5)+

   10.60 Nonqualified Deferred Compensation Agreement between RailAmerica,
Inc. and Gary O. Marino (5)+                            

   10.63 RailAmerica, Inc. 1998 Executive Incentive Compensation Plan (7)+

    10.80 Form of Change in Control Agreements between RailAmerica, Inc. and
certain executive officers (32)                         

   10.81 Service Agreement, dated April 4, 2001, between RailAmerica, Inc.
 and Marinus van Onselen and first amendment thereto. (32)

  10.82 Amended and Restated Executive Employment Agreement, dated as of
           January 1, 2002, between RailAmerica, Inc. and Gary O. Marino. (32)

  10.83 Amended and Restated Executive Employment Agreement, dated as of
          January 1, 2002, between RailAmerica, Inc. and Donald D. Redfearn.
(32)                                                    

10.84 Employment Agreement, dated as of January 1, 2002, between    
RailAmerica, Inc. and Gary M. Spiegel. (32)             

     10.85 Credit agreement, dated as of May 23, 2002 among RailAmerica, Inc.,
            Palm Beach Rail Holdings, Inc., RailAmerica Transportation Corp., as
          borrower, RailAmerica Canada Corp., as the Canadian term Borrower,
    Railink Ltd., as the Canadian revolver Borrower, RailAmerica
      Australia Finance Pty., Ltd., as the Australian Term Borrower,
         Freight Victoria Limited and RailAmerica Australia Pty., Ltd., as
         the Australian Revolver Borrowers, various financial institutions
         from time to time parties hereto, as the lenders, UBS Warburg LLC
            and Morgan Stanley Senior Funding, Inc., as Joint Lead Arrangers and
        Bookrunners, Morgan Stanley Denior Funding, Inc., as Syndication
Agent for the lenders, UBS AG, Stamford Branch, as the  
          Administrative Agent for the lenders, The Bank of Nova Scotia , as
         Collateral Agent for the lenders, and The Bank of Nova Scotia and
       Credit Lyonnais New York Branch, as the Document Agents for the
lenders. (33)                                           

10.86 Amendment No. 1 to Credit Agreement                           

10.87 Deferred Compensation Plan, as amended                        

10.88 Adoption Agreement relating to Deferred Compensation Plan, as 
amended                                                 

21.1  Subsidiaries of Registrant                                    

23.1  Consent of PricewaterhouseCoopers LLP                         

 99.1  Principal Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of The 
Sarbanes-Oxley Act of 2002.                             

 99.2  Principal Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of The 
Sarbanes-Oxley Act of 2002.                             

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(1)   Incorporated by reference to the same exhibit number filed as part of     
    RailAmerica, Inc.'s Registration Statement on Form S-1, Registration No.
33-49026.                                                           

(2)   Incorporated by reference to the same exhibit number filed as part of     
     RailAmerica, Inc.'s Form 10-QSB for the quarter ended September 30, 1995,
   filed with the Securities and Exchange Commission on November 12, 1995.

(5)   Incorporated by reference to the same exhibit number filed as part of     
   RailAmerica, Inc.'s Form 10-KSB for year ended December 31, 1995, filed
with the Securities and Exchange Commission on March 31, 1997.      

(6)   Incorporated by reference to exhibit No. 4.1 filed as part of RailAmerica,
    Inc.'s Registration Statement on Form 8-A, filed with the Securities and
Exchange Commission on January 8, 1998.                             

(7)   Incorporated by reference to the same exhibit number filed as part of     
     RailAmerica, Inc.'s Form 10-Q for the quarter ended March 31, 1998, filed
with the Securities and Exchange Commission on May 14, 1998.        

(10)  Incorporated by reference to exhibit 4.1 filed as part of RailAmerica,    
 Inc.'s Form 8-K as of January 13, 2000, filed with the Securities and
Exchange Commission on January 26, 2000.                            

(12)  Incorporated by reference to exhibit 10.2 filed as part of RailAmerica,   
Inc.'s Form 8-K as of April 30, 1999, filed with the Securities and 
Exchange Commission on May 18, 1999.                                

(19)  Incorporated by reference to the exhibit of the same number filed as part 
 of RailAmerica, Inc.'s Form 10-K for the year ended December 31, 1998
filed with the Securities and Exchange Commission on March 31, 1999.

(20)  Incorporated by reference to the exhibit of the same number filed as part 
  of RailAmerica, Inc.'s Form 10-K for the year ended December 31, 1999,
filed with the Securities and Exchange Commission on March 30, 2000.

(21)  Incorporated by reference to Exhibit 4.1 filed as part of RailAmerica,    
Inc.'s Form 8-K, dated April 13, 2000.                              

(22)  Incorporated by reference to Exhibit 4.2 filed as part of RailAmerica,    
Inc.'s Form 8-K, dated April 13, 2000.                              

(24)  Incorporated by reference to the Exhibit 4.1 filed as part of RailAmerica,
  Inc.'s Registration Statement on Form S-4, Registration No. 333-45196.

(26)  Incorporated by reference to the Exhibit 4.1 filed as part of RailAmerica,
  Inc.'s Registration Statement on Form S-3, Registration No. 333-45200.

(27)  Incorporated by reference to the Exhibit 4.2 filed as part of RailAmerica,
  Inc.'s Registration Statement on Form S-3, Registration No. 333-45200.

(30)  Incorporated by reference to the Annex A, filed as part of RailAmerica,   
  Inc.'s Registration Statement on Form S-4, Registration No. 333-75290.

(31)  Incorporated by reference to the same exhibit number filed as part of     
     RailAmerica, Inc.'s Form 10-K for the year ended December 31, 2000, filed
with the Securities and Exchange Commission on April 2, 2001.       

(32)  Incorporated by reference to the same exhibit number filed as part of     
     RailAmerica, Inc.'s Form 10-K for the year ended December 31, 2001, filed
with the Securities and Exchange Commission on April 1, 2002.       

(33)  Incorporated by reference to the same exhibit number filed as part of     
    RailAmerica, Inc.'s Form 10-Q for the quarter ended June 30, 2002, filed
with the Securities and Exchange Commission on August 14, 2002.     

+     Executive Compensation Plan or Arrangement.                               

(b)   Reports on Form 8-K.                                                      

    Registrant filed no reports on Form 8-K during the fourth quarter of the
year ended December 31, 2002.                                       

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SIGNATURES

 Pursuant to the requirements of Section 13 or 15(d) 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.                       

                 RAILAMERICA, INC.

                      By: /s/ GARY O. MARINO
                            --------------------
                                           Gary O. Marino, Chairman, President
                                   and Chief Executive Officer

                       By: /s/ MICHAEL J. HOWE
                             ---------------------
                                    Michael J. Howe, Senior Vice
                                     President and Chief Financial
                                    Officer (Principal Financial
                Officer)

                       By: /s/ ROBERT J. RABIN
                             ---------------------
                                           Robert J. Rabin, Vice President and
                                       Corporate Controller (Principal
                           Accounting Officer)

                    Dated March 27, 2003

   In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the   
capacities and on the dates indicated.                                          

                                                                [Download Table]

    SIGNATURES            TITLE                                          DATE    
    ----------            -----                                          ----    
                                                                                 

/s/ GARY O. MARINO        Chairman, President, Chief Executive     March 27, 2003
------------------------  Officer and Director                                   
Gary O. Marino                                                                   

/s/ DONALD D. REDFEARN    Chief Administrative Officer, Executive  March 27, 2003
------------------------  Vice President, Secretary and Director                 
Donald D. Redfearn                                                               

/s/ JOHN H. MARINO        Assistant Secretary and Director         March 27, 2003
------------------------                                                         
John H. Marino                                                                   

/s/ DOUGLAS R. NICHOLS    Director                                 March 27, 2003
------------------------                                                         
Douglas R. Nichols                                                               

/s/ RICHARD RAMPELL       Director                                 March 27, 2003
------------------------                                                         
Richard Rampell                                                                  

/s/ CHARLES SWINBURN      Director                                 March 27, 2003
------------------------                                                         
Charles Swinburn                                                                 

/s/ JOHN M. SULLIVAN      Director                                 March 27, 2003
------------------------                                                         
John M. Sullivan                                                                 

/s/ FERD C. MEYER, JR.    Director                                 March 27, 2003
------------------------                                                         
Ferd C. Meyer, Jr.                                                               

/s/ WILLIAM G. PAGONIS    Director                                 March 27, 2003
------------------------                                                         
William G. Pagonis                                                               

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CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER

I, Gary O. Marino, certify that:                                                

1.    I have reviewed this annual report on Form 10-K of RailAmerica, Inc.;     

2.    Based on my knowledge, this annual report does not contain any untrue     
      statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
this annual report;                                                 

3.    Based on my knowledge, the financial statements, and other financial      
      information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual 
report;                                                             

4.    The registrant's other certifying officers and I are responsible for      
establishing and maintaining disclosure controls and procedures (as 
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                               

 i)    Designed such disclosure controls and procedures to ensure that
      material information relating to the registrant, including its
       consolidated subsidiaries, is made known to us by others within
           those entities, particularly during the period in which this annual
report is being prepared;                               

     ii)   Evaluated the effectiveness of the registrant's disclosure controls
           and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and      

iii)  Presented in this annual report our conclusions about the     
            effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                   

5.    The registrant's other certifying officers and I have disclosed, based on 
  our most recent evaluation, to the registrant's auditors and the audit
   committee of the registrant's board of directors (or persons performing
the equivalent functions):                                          

     i)    All significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
     record, process, summarize and report financial data and have
           identified for the registrant's auditors any material weaknesses in
internal controls; and                                  

 ii)   Any fraud, whether or not material, that involves management or
       other employees who have a significant role in the registrant's
internal controls; and                                  

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

/s/ Gary O. Marino                                                              
----------------------------                                                    
Gary O. Marino                                                                  
Chief Executive Officer                                                         
Date: March 27, 2003                                                            

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CERTIFICATE OF THE CHIEF FINANCIAL OFFICER

I, Michael J. Howe, certify that:                                               

1.    I have reviewed this annual report on Form 10-K of RailAmerica, Inc.;     

2.    Based on my knowledge, this annual report does not contain any untrue     
      statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
this annual report;                                                 

3.    Based on my knowledge, the financial statements, and other financial      
      information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual 
report;                                                             

4.    The registrant's other certifying officers and I are responsible for      
establishing and maintaining disclosure controls and procedures (as 
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                               

 i)    Designed such disclosure controls and procedures to ensure that
      material information relating to the registrant, including its
       consolidated subsidiaries, is made known to us by others within
           those entities, particularly during the period in which this annual
report is being prepared;                               

     ii)   Evaluated the effectiveness of the registrant's disclosure controls
           and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and      

iii)  Presented in this annual report our conclusions about the     
            effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                   

5.    The registrant's other certifying officers and I have disclosed, based on 
  our most recent evaluation, to the registrant's auditors and the audit
   committee of the registrant's board of directors (or persons performing
the equivalent functions):                                          

     ii)   All significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
     record, process, summarize and report financial data and have
           identified for the registrant's auditors any material weaknesses in
internal controls; and                                  

 ii)   Any fraud, whether or not material, that involves management or
       other employees who have a significant role in the registrant's
internal controls; and                                  

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

/s/ Michael J. Howe                                                             
----------------------------                                                    
Michael J. Howe                                                                 
Chief Financial Officer                                                         
Date: March 27, 2003                                                            

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RAILAMERICA, INC. AND SUBSIDIARIES
 INDEX OF FINANCIAL STATEMENTS

The following consolidated financial statements of RailAmerica, Inc. and        
Subsidiaries are referred to in Item 8:                                         

                                                                       PAGES
                                                                       -----

Report of Independent Certified Public Accountants................     F-2      

Consolidated Balance Sheets - December 31, 2002 and 2001..........     F-3      

Consolidated Statements of Income - For the Years Ended                         
 December 31, 2002, 2001 and 2000...........................     F-4

Consolidated Statements of Stockholders' Equity - For the Years                 
 Ended December 31, 2002, 2001 and 2000.....................     F-5

Consolidated Statements of Cash Flows - For the Years Ended                     
 December 31, 2002, 2001 and 2000...........................     F-6

Notes to Consolidated Financial Statements........................     F-7-F-36 

F-1 

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of                                   
RailAmerica, Inc.:                                                              

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of       
RailAmerica, Inc. and its subsidiaries at December 31, 2002 and 2001, and the   
results of their operations and their cash flows for each of the three years in 
the period ended December 31, 2002 in conformity with accounting principles     
generally accepted in the United States of America. These financial statements  
are the responsibility of the Company's management; our responsibility is to    
express an opinion on these financial statements based on our audits. We        
conducted our audits of these statements in accordance with auditing standards  
generally accepted in the United States of America, which require that we plan  
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a 
test basis, evidence supporting the amounts and disclosures in the financial    
statements, assessing the accounting principles used and significant estimates  
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.          

As described in Note 14, the Company changed its method of accounting for       
derivative instruments and hedging activities in 2001.                          

/s/ PricewaterhouseCoopers LLP                                                  

PricewaterhouseCoopers LLP                                                      

Miami, Florida                                                                  
March 3, 2003                                                                   

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RAILAMERICA, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS

                                                        [Enlarge/Download Table]

DECEMBER 31,                                                                       2002            2001   
--------------------------------------------------------------------------------------------------------- 
                                                                                     (IN THOUSANDS,       
                                                                                    EXCEPT SHARE DATA)    
                                                                                                          
ASSETS                                                                                                    
Current assets:                                                                                           
       Cash and cash equivalents ...........................................    $    28,887     $  59,761 
       Restricted cash in escrow ...........................................            371         2,418 
       Accounts and notes receivable, net of allowance of                                                 
           $406 and $571, respectively .....................................         63,463        54,278 
       Current assets of discontinued operations ...........................          5,834            -- 
       Other current assets ................................................         22,429        14,204 
                                                                                -----------     --------- 
           Total current assets ............................................        120,984       130,661 
Property, plant and equipment, net .........................................        904,253       738,775 
Long-term assets of discontinued operations ................................         50,355            -- 
Other assets ...............................................................         30,961        21,732 
                                                                                -----------     --------- 
           Total assets ....................................................    $ 1,106,553     $ 891,168 
                                                                                ===========     ========= 
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                      
Current liabilities:                                                                                      
       Current maturities of long-term debt ................................    $     4,200     $  24,484 
       Accounts payable ....................................................         46,722        36,035 
       Accrued expenses ....................................................         38,420        39,889 
       Current liabilities of discontinued operations ......................         11,624            -- 
                                                                                -----------     --------- 
           Total current liabilities .......................................        100,966       100,408 
Long-term debt, less current maturities ....................................        383,121       277,203 
Subordinated debt ..........................................................        141,331       144,988 
Deferred income taxes ......................................................        150,159        96,822 
Long-term liabilities of discontinued operations ...........................         27,283            -- 
Other liabilities ..........................................................         24,790        50,788 
                                                                                -----------     --------- 
                                                                                    827,650       670,209 
                                                                                -----------     --------- 
Commitments and contingencies                                                                             

Stockholders' equity:                                                                                     
 Common stock, $0.001 par value, 60,000,000 shares authorized;                                            
       31,879,602 shares issued and outstanding at December 31, 2002                                      
       and 28,842,090 shares issued and outstanding at December 31, 2001 ...             32            29 
Additional paid in capital .................................................        261,372       224,248 
Retained earnings ..........................................................         48,055        45,902 
Accumulated other comprehensive loss .......................................        (30,556)      (49,220)
                                                                                -----------     --------- 
           Total stockholders' equity ......................................        278,903       220,959 
                                                                                -----------     --------- 

           Total liabilities and stockholders' equity ......................    $ 1,106,553     $ 891,168 
                                                                                ===========     ========= 

The accompanying Notes are an integral part of the Consolidated Financial 
Statements. 

F-3 

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RAILAMERICA, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME

                                                        [Enlarge/Download Table]

FOR THE YEARS ENDED DECEMBER 31,                                                 2002          2001          2000       
------------------------------------------------------------------------------------------------------------------------
                                                                          (IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
                                                                                                                        
Operating revenue ....................................................        $ 428,243     $ 347,546     $ 334,615     
                                                                              ---------     ---------     ---------     
Operating expenses:                                                                                                     
  Transportation .....................................................          242,555       196,105       195,467     
  Selling, general and administrative ................................           89,784        61,982        59,484     
  Net gain on sale and impairment of assets ..........................           (9,155)       (6,422)      (11,184)    
  Terminated motor carrier operations, net ...........................            1,396           263            88     
  Depreciation and amortization ......................................           33,158        24,393        23,322     
                                                                              ---------     ---------     ---------     
    Total operating expenses .........................................          357,738       276,321       267,177     
                                                                              ---------     ---------     ---------     
    Operating income .................................................           70,505        71,225        67,438     
Interest expense, including amortization costs of                                                                       
  $4,686, $4,410, and $4,854, respectively ...........................          (43,441)      (50,714)      (53,912)    
Other income (expense) ...............................................          (18,908)          178        (2,267)    
                                                                              ---------     ---------     ---------     
  Income from continuing operations before income taxes ..............            8,156        20,689        11,259     
Provision for income taxes ...........................................            2,893         4,897         2,900     
                                                                              ---------     ---------     ---------     
  Income from continuing operations ..................................            5,263        15,792         8,359     
Discontinued operations:                                                                                                
  Net gain on disposal of discontinued business (net of income                                                          
      taxes of $161 and $6,850, respectively) ........................              387            --        11,527     
  Income (loss) from operations of discontinued business                                                                
      (net of income taxes of ($10), $108, and ($1,600),                                                                
      respectively) ..................................................              984         1,482        (1,977)    
                                                                              ---------     ---------     ---------     
  Income before extraordinary item and cumulative effect                                                                
      of accounting change ...........................................            6,634        17,274        17,909     
  Extraordinary loss from early extinguishment of debt  (net of                                                         
      income taxes of ($2,167), ($142) and ($2,200), respectively) ...           (4,481)         (236)       (3,996)    
  Cumulative effect of accounting change .............................               --            --        (2,252)    
                                                                              ---------     ---------     ---------     
       Net income ....................................................        $   2,153     $  17,038     $  11,661     
                                                                              =========     =========     =========     

Net income available to common stockholders ..........................        $   2,153     $  16,740     $  10,991     
Basic earnings per common share:                                                                                        
  Continuing operations ..............................................        $    0.16     $    0.72     $    0.43     
  Discontinued operations ............................................             0.04          0.07          0.52     
  Extraordinary item .................................................            (0.13)        (0.01)        (0.22)    
  Cumulative effect of accounting change .............................               --            --         (0.12)    
                                                                              ---------     ---------     ---------     
    Net income .......................................................        $    0.07     $    0.78     $    0.61     
                                                                              =========     =========     =========     
Diluted earnings per common share:                                                                                      
  Continuing operations ..............................................        $    0.16     $    0.66     $    0.42     
  Discontinued operations ............................................             0.04          0.06          0.52     
  Extraordinary item .................................................            (0.13)        (0.01)        (0.22)    
  Cumulative effect of accounting change .............................               --            --         (0.12)    
                                                                              ---------     ---------     ---------     
    Net income .......................................................        $    0.07     $    0.71     $    0.60     
                                                                              =========     =========     =========     
Weighted average common shares outstanding:                                                                             
  Basic ..............................................................           32,047        21,510        18,040     
  Diluted ............................................................           32,620        25,350        18,267     

The accompanying Notes are an integral part of the Consolidated Financial 
Statements. 

F-4 

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RAILAMERICA, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                        [Enlarge/Download Table]

                                                                            STOCKHOLDERS' EQUITY                                  
                                                       -------------------------------------------------------------------------- 
                                                       Number of            Additional                       Other                
FOR THE YEARS ENDED DECEMBER 31,                         Shares     Par      Paid-In      Retained     Comprehensive              
2002, 2001 AND 2000                                      Issued    Value     Capital      Earnings     Income (Loss)      Total   
--------------------------------------------------------------------------------------------------------------------------------- 
                                                                                 (IN THOUSANDS)                                   
                                                                                                                                  
Balance, January 1, 2000 ............................    12,611     $ 13    $  47,797     $ 18,171       $  3,486       $  69,467 
Net income ..........................................        --       --           --       11,661             --          11,661 
Cumulative translation adjustments ..................        --       --           --           --        (27,735)        (27,735)
                                                                                                                        --------- 
          Total comprehensive loss ..................                                                                     (16,074)
                                                                                                                        --------- 
Issuance of common stock ............................     6,652        7       60,917           --             --          60,924 
Exercise of stock options ...........................        49       --          269           --             --             269 
Conversion of redeemable securities .................       339       --        2,669           --             --           2,669 
Warrants issued .....................................        --       --        8,841           --             --           8,841 
Purchase of treasury stock ..........................        --       --       (1,992)          --             --          (1,992)
Retirement of treasury stock ........................    (1,028)      (1)           1           --             --              -- 
Preferred stock dividends and accretion .............        --       --           --         (670)            --            (670)
--------------------------------------------------------------------------------------------------------------------------------- 
Balance, December 31, 2000 ..........................    18,623       19      118,502       29,162        (24,249)        123,434 
Net income ..........................................        --       --           --       17,038             --          17,038 
Cumulative effect of adopting SFAS 133, net .........        --       --           --           --         (4,388)         (4,388)
Change in market value of derivative                                                                                              
  instruments, net ..................................        --       --           --           --         (5,008)         (5,008)
Cumulative translation adjustments ..................        --       --           --           --        (15,575)        (15,575)
                                                                                                                        --------- 
            Total comprehensive loss ................                                                                      (7,933)
                                                                                                                        --------- 
Issuance of common stock ............................     8,176        8       89,728           --             --          89,736 
Exercise of stock options ...........................     1,334        1        8,342           --             --           8,343 
Tax benefit on exercise of options and                                                                                            
  Warrants ..........................................        --       --        2,633           --             --           2,633 
Conversion of redeemable securities .................       882        1        7,030           --             --           7,031 
Purchase of treasury stock ..........................      (173)      --       (1,987)          --             --          (1,987)
Preferred stock dividends and accretion .............        --       --           --         (298)            --            (298)
--------------------------------------------------------------------------------------------------------------------------------- 
Balance, December 31, 2001 ..........................    28,842       29      224,248       45,902        (49,220)        220,959 
Net income ..........................................        --       --           --        2,153             --           2,153 

Change in market value of derivative                                                                                              
  instruments, net ..................................        --       --           --           --         (2,472)         (2,472)

Realized loss on derivatives designated as hedges,                                                                                
   net of tax .......................................        --       --           --           --         10,737          10,737 
Cumulative translation adjustments ..................        --       --           --           --         10,399          10,399 
                                                                                                                        --------- 
            Total comprehensive income ..............                                                                      18,664 
                                                                                                                        --------- 
Issuance of common stock ............................     3,485        3       41,144           --             --          41,147 
Exercise of stock options ...........................        83       --          589           --             --             589 
Tax benefit on exercise of options and warrants .....        --       --          109           --             --             109 
Warrants issued .....................................        --       --          204           --             --             204 
Purchase of treasury stock ..........................      (530)      --       (4,922)          --             --          (4,922)
--------------------------------------------------------------------------------------------------------------------------------- 
Balance, December 31, 2002 ..........................    31,880     $ 32    $ 261,372     $ 48,055       $(30,556)      $ 278,903 
--------------------------------------------------------------------------------------------------------------------------------- 

The accompanying Notes are an integral part of the Consolidated Financial 
Statements. 

F-5 

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RAILAMERICA, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

FOR THE YEARS ENDED DECEMBER 31,                                  2002          2001          2000   
---------------------------------------------------------------------------------------------------- 
                                                                           (IN THOUSANDS)            
                                                                                                     
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                
Net income ................................................    $   2,153     $  17,038     $  11,661 
Adjustments to reconcile net income to net cash                                                      
  provided by operating activities:                                                                  
    Depreciation and amortization .........................       41,251        32,011        34,566 
    Financing costs .......................................       25,433           378         4,857 
    Interest paid in kind .................................           --            --         5,806 
    Equity interest in earnings of affiliate ..............           --            --          (554)
    Net gain on sale or disposal of properties ............       (9,705)       (6,434)      (29,554)
    Cumulative effect of accounting change ................           --            --         2,252 
    Deferred income taxes .................................        2,218         2,926        (2,797)
    Other .................................................          742         1,350           995 
    Changes in operating assets and liabilities, net of                                              
      acquisitions and dispositions:                                                                 
       Accounts receivable ................................        2,766         5,298         3,654 
       Other current assets ...............................          673         8,587         2,455 
       Accounts payable ...................................       (5,640)        1,172         2,239 
       Accrued expenses ...................................       (9,919)      (12,485)        5,759 
       Other assets and liabilities .......................      (11,365)        5,129         3,094 
---------------------------------------------------------------------------------------------------- 
          Net cash provided by operating activities .......       38,607        54,970        44,433 
---------------------------------------------------------------------------------------------------- 

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                
Purchase of property, plant and equipment .................      (65,682)      (61,675)      (62,499)
Proceeds from sale of properties and investments ..........        9,291        18,502        96,654 
Acquisitions, net of cash acquired ........................      (89,359)           --      (148,922)
Change in restricted cash in escrow .......................        1,357         1,046        (4,539)
Deferred acquisition costs and other ......................       (5,680)       (4,577)       (2,711)
---------------------------------------------------------------------------------------------------- 
          Net cash used in investing activities ...........     (150,073)      (46,704)     (122,017)
---------------------------------------------------------------------------------------------------- 

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                
Proceeds from issuance of long-term debt ..................      457,870        85,590       549,235 
Principal payments on long-term debt ......................     (358,639)     (142,088)     (448,107)
Sale of common stock ......................................           --        89,736            -- 
Proceeds from exercise of stock options ...................          386         8,343           234 
Preferred stock dividends paid ............................           --          (241)         (289)
Purchase of treasury stock ................................       (4,922)       (1,987)       (1,992)
Deferred financing costs paid .............................      (15,383)           --       (18,980)
---------------------------------------------------------------------------------------------------- 
          Net cash provided by financing activities .......       79,312        39,353        80,101 
---------------------------------------------------------------------------------------------------- 

Effect of exchange rates on cash ..........................        1,280          (948)       (1,025)
---------------------------------------------------------------------------------------------------- 
Net increase (decrease) in cash ...........................      (30,874)       46,671         1,492 
Cash, beginning of period .................................       59,761        13,090        11,598 
---------------------------------------------------------------------------------------------------- 
Cash, end of period .......................................    $  28,887     $  59,761     $  13,090 
---------------------------------------------------------------------------------------------------- 

The accompanying Notes are an integral part of the Consolidated Financial 
Statements. 

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RAILAMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                

ORGANIZATION AND PRINCIPLES OF CONSOLIDATION                        

      The accompanying consolidated financial statements include the accounts of
 RailAmerica, Inc. and all of its subsidiaries (the "Company"). All of
      RailAmerica's consolidated subsidiaries are wholly-owned except Empresa De
      Transporte Ferroviario S.A. ("Ferronor"), a Chilean railroad, in which the
Company has a 55% equity interest. All intercompany balances and    
     transactions have been eliminated. Certain prior period amounts have been
reclassified to conform to the 2002 presentation.                   

In January 2003, the Company announced its intention to sell its 55%
      equity interest in Ferronor, its Chilean railroad operations. As a result,
    Ferronor has been presented as a discontinued operation in the financial
statements.                                                         

     The Company's principal operations consist of rail freight transportation
in North America, Chile, Argentina and Australia.                   

USE OF ESTIMATES                                                    

 The preparation of financial statements in conformity with accounting
  principles generally accepted in the United States of America requires
 management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities and disclosure of contingent assets and
 liabilities at the dates of the financial statements and the reported
 amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.                          

CASH AND CASH EQUIVALENTS                                           

The Company considers all highly liquid instruments purchased with a
maturity of three months or less at the date of purchase to be cash 
   equivalents. The Company maintains its cash in demand deposit accounts,
    which at times may exceed insurance limits. As of December 31, 2002, the
Company had approximately $28 million of cash in excess of insurance
limits.                                                             

PROPERTY, PLANT AND EQUIPMENT                                       

     Property, plant and equipment, which are recorded at historical cost, are
   depreciated and amortized on a straight-line basis over their estimated
useful lives. Costs assigned to property purchased as part of an    
 acquisition are based on the fair value of such assets on the date of
acquisition.                                                        

    The Company self-constructs portions of its track structure and rebuilds
   certain of its rolling stock. In addition to direct labor and material,
    certain indirect costs are capitalized. Expenditures which significantly
     increase asset values or extend useful lives are capitalized. Repairs and
      maintenance expenditures are charged to operating expense when the work is
performed.                                                          

  The Company uses the group method of depreciation under which a single
     depreciation rate is applied to the gross investment in its track assets.
 Upon normal sale or retirement of track assets, cost less net salvage
value is charged to accumulated depreciation and no gain or loss is 
     recognized. The Company periodically reviews its assets for impairment by
    comparing the projected undiscounted cash flows of those assets to their
recorded amounts. Impairment charges are based on the excess of the 
recorded amounts over their estimated fair value, as measured by the
discounted cash flows.                                              

     The Company incurs certain direct labor, contract service and other costs
     associated with the development and installation of internal-use computer
    software. Costs for newly developed software or significant enhancements
to existing software are capitalized. Research, preliminary project,
operations, maintenance and training costs are charged to operating 
expense when the work is performed.                                 

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1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued                     

  Depreciation has been computed using the straight-line method based on
estimated useful lives as follows:                                  

             Buildings and improvements                              20-33 years
             Railroad track                                          30-40 years
             Railroad track improvements                              3-10 years
             Locomotives, transportation and other equipment          5-30 years
             Office equipment and capitalized software                5-10 years

INCOME TAXES                                                        

The Company utilizes the liability method of accounting for deferred
     income taxes. This method requires recognition of deferred tax assets and
    liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this
   method, deferred tax assets and liabilities are determined based on the
    difference between the financial and tax bases of assets and liabilities
   using enacted tax rates in effect for the year in which the differences
     are expected to reverse. Deferred tax assets are also established for the
      future tax benefits of loss and credit carryovers. The liability method of
accounting for deferred income taxes requires a valuation allowance 
      against deferred tax assets if, based on the weight of available evidence,
  it is more likely than not that some or all of the deferred tax assets
will not be realized.                                               

REVENUE RECOGNITION                                                 

    The Company recognizes transportation revenue after the freight has been
    moved from origin to destination. Other revenue is recognized as service
is performed.                                                       

FOREIGN CURRENCY TRANSLATION                                        

The financial statements and transactions of the Company's foreign  
operations are maintained in their local currency, which is their   
   functional currency, except for Chile, where the U.S. dollar is used as
the functional currency. Where local currencies are used, assets and
 liabilities are translated at current exchange rates in effect at the
      balance sheet date. Translation adjustments, which result from the process
      of translating the financial statements into U.S. dollars, are accumulated
     in the cumulative translation adjustment account, which is a component of
      accumulated other comprehensive loss in stockholders' equity. Revenues and
 expenses are translated at the average exchange rate for each period.
   Gains and losses from foreign currency transactions are included in net
income. At December 31, 2002, accumulated other comprehensive loss  
included ($29.4) million of cumulative translation adjustments.     

STOCK-BASED COMPENSATION                                            

As of December 31, 2002, the Company has three stock-based employee 
compensation plans. The Company accounts for those plans under the  
     recognition and measurement principles of APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. No     
     stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the
 market value of the underlying common stock on the date of grant. The
 following table illustrates the effect on net income and earnings per
     share if the Company had applied the fair value recognition provisions of
     Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
 for Stock -Based Compensation," to stock-based employee compensation.

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1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued                     

                                                        [Enlarge/Download Table]

                                                                             Year Ended December 31,          
                                                                     ---------------------------------------- 
                                                                        2002           2001           2000    
                                                                     ----------     ----------     ---------- 
                                                                                                              
Net income, as reported ............................................ $    2,153     $   17,038     $   11,661 
Less: Total stock-based employee compensation determined                                                      
under fair value based method for all awards, net of related tax                                              
effects ............................................................     (4,257)        (4,349)        (3,585)
                                                                     ----------     ----------     ---------- 
Pro forma net income (loss) ........................................ $   (2,104)    $   12,689     $    8,076 
                                                                     ==========     ==========     ========== 
Earnings (loss) per share:                                                                                    
    Basic-as reported .............................................. $     0.07     $     0.78     $     0.61 
                                                                     ----------     ----------     ---------- 
    Basic-pro forma ................................................ $    (0.07)    $     0.58     $     0.41 
                                                                     ----------     ----------     ---------- 

    Diluted-as reported ............................................ $     0.07     $     0.71     $     0.60 
                                                                     ----------     ----------     ---------- 
    Diluted-pro forma .............................................. $    (0.07)    $     0.54     $     0.41 
                                                                     ----------     ----------     ---------- 

RECENT ACCOUNTING PRONOUNCEMENTS                                    

     On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
  Intangible Assets" and SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." Under SFAS No. 142, goodwill and    
    identifiable intangible assets with an indefinite life will no longer be
      amortized; however, both goodwill and other intangible assets will need to
be tested at least annually for impairment. SFAS No. 144 addresses  
financial accounting and reporting for the impairment of long-lived 
    assets, excluding goodwill and intangible assets, to be held and used or
  disposed of. While the adoption of these pronouncements did not have a
    material impact on the Company's consolidated financial statements, SFAS
     No. 144 will require the Company to report the results of operations of a
railroad that has been disposed of or is being held for disposal in 
discontinued operations.                                            

    In August 2001, the Financial Accounting Standards Board ("FASB") issued
     SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143
     is effective for the Company's fiscal year beginning January 1, 2003, and
     requires the Company to record the fair value of a liability for an asset
    retirement obligation in the period in which it is incurred. The Company
believes the adoption of this pronouncement will not have a material
impact on its financial statements.                                 

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB    
 Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
    Technical Corrections." SFAS No. 145, requires that debt extinguishments
used as part of a company's risk management strategy should not be  
   classified as an extraordinary item. The requirement to reclassify debt
 extinguishments is effective for fiscal years beginning after May 15,
2002. The Company will adopt SFAS No. 145 on January 1, 2003 and    
     reclassify $4.5 million and $0.2 million of extraordinary charges, net of
tax, to continuing operations in 2002 and 2001, respectively.       

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs   
Associated with Exit or Disposal Activities." SFAS No. 146, which is
  effective for exit or disposal activities initiated after December 31,
 2002, requires that a liability for a cost associated with an exit or
disposal activity is recognized at fair value when the liability is 
     incurred rather than when management commits to an exit or disposal plan.
   The Company believes the adoption of this pronouncement will not have a
material impact on its financial statements.                        

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), 
"Guarantor's Accounting and Disclosure Requirements for Guarantees, 
      Including Indirect Guarantees of Indebtedness of Others: an interpretation
of FASB Statements No. 5, 57, and 107 and rescission of FASB        
Interpretation No. 34," which is effective for guarantees issued or 
modified after December 31, 2002. This Interpretation addresses the 
     disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations                                    

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1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued                     

 under guarantees. This Interpretation also clarifies the requirements
     related to the recognition of a liability by a guarantor at the inception
      of a guarantee for the obligations the guarantor has undertaken in issuing
   that guarantee. The Company believes the adoption of this pronouncement
will not have a material impact on its financial statements.        

In December 2002, the FASB issued SFAS No. 148, "Accounting for     
    Stock-Based Compensation-Transition and Disclosure." SFAS No. 148, which
  is effective for fiscal years ending after December 15, 2002, provides
     alternative methods of transition for voluntary changes to the fair value
based method of accounting for stock-based employee compensation and
requires prominent disclosure in both annual and interim financial  
      statements about the method used on reported results. The adoption of this
     pronouncement did not have a material impact on its financial statements.

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),  
"Consolidation of Variable Interest Entities," which is effective   
      immediately for variable interest entities created after January 31, 2003,
     and applies in the first interim period beginning after June 15, 2003 for
variable interest entities created before February 1, 2003. FIN 46  
addresses the consolidation of variable interest entities through   
      identification of a primary beneficiary. The Company believes the adoption
  of this pronouncement will not have a material impact on its financial
statements.                                                         

2.    EARNINGS PER SHARE                                                        

    Basic earnings per share is calculated using the weighted average number
     of common shares outstanding during the year while income from continuing
operations is reduced by preferred stock dividends and accretion.   

  Diluted earnings per share is calculated using the sum of the weighted
 average number of common shares outstanding plus potentially dilutive
common shares arising out of stock options, warrants and convertible
      securities. Options and warrants totaling 4.4 million, 1.2 million and 4.3
     million were excluded from the diluted earnings per share calculation for
      the years ended December 31, 2002, 2001 and 2000, respectively, as well as
   assumed conversion of $21.8 million (2.2 million shares) of convertible
    debentures in 2002 and $29.2 million (3.1 million shares) of convertible
  preferred stock and convertible debentures in 2000, as such securities
were anti-dilutive.                                                 

The following is a summary of the income from continuing operations 
     available for common stockholders and weighted average shares outstanding
(in thousands):                                                     

                                                                [Download Table]

                                                       Year Ended December 31,     
                                                  -------------------------------- 
                                                   2002        2001         2000   
                                                  -------    --------     -------- 
                                                                                   
Income from continuing operations ............... $ 5,263    $ 15,792     $  8,359 
Preferred stock dividends and accretion .........      --        (298)        (670)
                                                  -------    --------     -------- 
Income from continuing operations available                                        
    to common stockholders (basic) ..............   5,263      15,494        7,689 
Interest on convertible debt ....................      --       1,044           -- 
Preferred stock dividends and accretion .........      --         298           -- 
                                                  -------    --------     -------- 
Income from continuing operations available                                        
    to common stockholders (diluted) ............ $ 5,263    $ 16,836     $  7,689 
                                                  =======    ========     ======== 

Weighted average shares outstanding (basic) .....  32,047      21,510       18,040 
Assumed conversion:                                                                
    Options and warrants ........................     573       1,196          227 
    Convertible debentures and preferred stock ..      --       2,644           -- 
                                                  -------    --------     -------- 
Weighted average shares outstanding (diluted) ...  32,620      25,350       18,267 
                                                  =======    ========     ======== 

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3.    DISCONTINUED OPERATIONS                                                   

    In January 2003, the Company announced its intent to sell its 55% equity
      interest in Ferronor, its Chilean railroad operations. The Company expects
     to sell this ownership interest within the next twelve months, therefore,
     the results of operations are reported in discontinued operations, net of
applicable income taxes, for all periods presented. In addition, the
   liabilities and assets of Ferronor have been reclassified as assets and
   liabilities of discontinued operations on the December 31, 2002 balance
   sheet (see Note 8 for description of long-term debt). Gains realized on
 the sale of this business will be reported in the period in which the
divestiture is complete.                                            

  The results of operations for Ferronor were as follows (in thousands):

                                                        [Enlarge/Download Table]

                                               For the twelve months ended December 31,
                                                     2002        2001        2000      
                                                   -------    --------     --------    
                                                                                       
Operating revenue                                  $22,619    $ 22,085     $ 22,873    

Income from discontinued operations                $   974    $  1,590     $  1,299    
Income tax benefit (provision)                          10        (108)         (50)   
                                                   -------    --------     --------    

Income from discontinued operations, net of tax    $   984    $  1,482     $  1,249    
                                                   =======    ========     ========    

    The major classes of assets and liabilities for Ferronor were as follows
(in thousands):                                                     

                                                 For the twelve months ended
                                                  December 31,
                                                  2002        2001
                                                 -------     -------
Accounts receivable, net                         $ 3,767     $ 3,496
Inventory                                            939         976
Other current assets                               1,128       1,215
                                                 -------     -------
   Total current assets                            5,834       5,687
Property, plant and equipment, net                49,857      49,621
Other assets                                         498         250
                                                 -------     -------
     Total assets                                $56,189     $55,558
                                                 =======     =======

Current maturities of long- term debt            $ 6,743     $ 6,853
Accounts payable                                   2,003       1,962
Accrued expenses                                   2,878       3,413
                                                 -------     -------
    Total current liabilities                     11,624      12,228
Long-term debt, less current maturities           12,427      17,230
Subordinated debt                                  1,670       2,147
Minority interest and other liabilities           13,186      11,709
                                                 -------     -------
     Total liabilities                           $38,907     $43,314
                                                 =======     =======

In February 2000, the Company finalized its plan to sell its trailer
    manufacturing operations which consisted of Kalyn/Siebert, L.P. ("KSLP")
     and Kalyn/Siebert Canada ("KSC"). This business has been accounted for as
      a discontinued operation and results of operations have been excluded from
      continuing operations in the consolidated statements of operations for all
periods presented.                                                  

In December 2000, the Company sold KSLP for $32.5 million in cash,  
      including $3.5 million which was in escrow at December 31, 2000. A gain of
$21.0 million was recognized. In December 2000, the Company sold    
 substantially all of the assets and business of KSC for $6 million in
cash, including $2 million which                                    

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3.    DISCONTINUED OPERATIONS, continued                                        

      was in escrow at December 31, 2000. A loss of $2.6 million was recognized.
    As of December 31, 2002 and 2001, $0 and $2.2 million remained in escrow
under terms of the sale agreements.                                 

      Total revenue for the trailer manufacturing business was $34.7 million for
  the year ended December 31, 2000. Interest expense of $7.3 million was
    charged to the manufacturing business in 2000, representing the interest
   expense for the portion of the asset sale bridge note, which was repaid
  with the proceeds from the sale of the trailer manufacturing business.
    Loss before income taxes for the trailer manufacturing business was $4.9
million for the year ended December 31, 2000.                       

4.    ACQUISITIONS                                                              

     On January 4, 2002, the Company acquired StatesRail, Inc. ("StatesRail"),
      a privately owned group of railroads headquartered in Dallas, Texas, which
     owned and operated eight railroads (including seven freight railroads and
 a tourist railroad in Hawaii) with 1,647 miles of track in 11 states.
      Total consideration for the acquisition was $90 million, consisting of $67
million in cash and 1.7 million shares of the Company's common stock
 valued at $23 million. At December 31, 2002 there was $4.0 million in
     escrow outstanding relating to the purchase. The following table presents
      the balances of each major asset and liability caption of StatesRail as of
the acquisition date (in thousands):                                

    StatesRail, Inc.                             January 4, 2002
    ----------------                             ---------------

Cash                                            $    105
Accounts receivable, net                           9,062
Other current assets                               2,128
                                                --------
     Total current assets                         11,295
Property, plant, and equipment, net              110,883
Other assets                                       4,000
                                                --------
               Total assets                     $126,178
                                                ========

Current portion of long-term debt               $     60
Accounts payable                                   4,622
Accrued expenses                                   9,079
                                                --------
     Total current liabilities                    13,761
Long-term debt                                     1,457
Deferred income taxes                             25,907
                                                --------
               Total liabilities                $ 41,125
                                                ========

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4.    ACQUISITIONS, continued                                                   

     On January 8, 2002, the Company acquired ParkSierra Corp. ("ParkSierra"),
   a privately owned group of railroads headquartered in Napa, California,
    which owned and operated three freight railroads with 703 miles of track
   in four western states. Total consideration for the acquisition was $48
    million, consisting of $23 million in cash and 1.8 million shares of the
    Company's common stock valued at $25 million. At December 31, 2002 there
was $2.1 million in escrow outstanding relating to the purchase. The
   following table presents the balances of each major asset and liability
caption of ParkSierra as of the acquisition date (in thousands):    

    ParkSierra Corp.                             January 8, 2002
    ----------------                             ---------------

Cash                                             $   899
Accounts receivable, net                           3,793
Other current assets                               1,664
                                                 -------
     Total current assets                          6,356
Property, plant, and equipment, net               62,226
                                                 -------
               Total assets                      $68,582
                                                 =======

Accounts payable                                 $ 1,937
Accrued expenses                                   1,266
                                                 -------
     Total current liabilities                     3,203
Deferred income taxes                             19,055
Other long-term liabilities                          108
                                                 -------
               Total liabilities                 $22,366
                                                 =======

  The cash components of the StatesRail and ParkSierra acquisitions were
   financed through available cash and an additional $50 million term loan
under the Company's prior senior credit facility (see Note 8).      

     The results of operations of StatesRail and ParkSierra have been included
 in the Company's consolidated financial statements since the dates of
their respective acquisitions.                                      

The following unaudited pro forma summary presents the consolidated 
      results of operations for the Company as if the acquisitions of StatesRail
     and ParkSierra had occurred at the beginning of 2001 and does not purport
      to be indicative of what would have occurred had the acquisition been made
   as of that date or results which may occur in the future (in thousands,
except per share data).                                             

                                                                [Download Table]

                                                         For the Twelve
                                                          Months Ended 
                                                          December 31, 
                                                              2001     
                                                         --------------
                                                                       
Operating revenue ......................................    $431,735   
Income from continuing operations ......................    $ 26,125   
Net income .............................................    $ 27,607   
Income from continuing operations per share - diluted ..    $   0.86   
Net income per share - diluted .........................    $   0.91   

In January 2002, the Company submitted a bid for the acquisition of 
National Rail and FreightCorp, two government-owned railroads in    
     Australia. Subsequently, the Company was notified that another entity was
   awarded the bid. Accordingly, the Company recorded a charge in selling,
 general and administrative expense during the year ended 2002 of $3.3
million for the direct costs incurred in preparing, submitting and  
financing the bid.                                                  

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4.    ACQUISITIONS, continued                                                   

    On February 4, 2000, the Company acquired RailTex, Inc. for $128 million
   in cash, assumption of $105.3 million in debt and 6.6 million shares of
     the Company's common stock valued at $60.9 million. RailTex, the operator
 of 25 railroads with over 4,100 miles of rail lines in North America,
    became a wholly-owned subsidiary of the Company. As part of the purchase
  price and in accordance with EITF 95-3, "Recognition of Liabilities in
  Connection with a Purchase Business Combination", the Company recorded
 liabilities of $11.2 million which related to severance and change of
      control payments to former RailTex employees. The separation cost activity
was as follows (in thousands):                                      

                                              Separation Costs
                                              ----------------

Balance February 2, 2000 ............          $ 11,200 
Payments ............................            (8,259)
                                              --------
Balance December 31, 2000 ...........             2,941 
Payments ............................            (1,154)
Adjustment to purchase price ........              (729)
                                              --------
Balance December 31, 2001 ...........             1,058 
Payments ............................              (240)
                                              --------
Balance December 31, 2002 ...........          $    818 
                                              ========

   The RailTex acquisition was accounted for as a purchase and its results
were included since the date of acquisition. On a pro forma basis   
    (unaudited), as if the acquisition of RailTex had occurred on January 1,
    2000, the Company's operating revenue, income from continuing operations
and diluted earnings per share would have been $372.0 million, $11.7
      million and $0.57, respectively. This does not purport to be indicative of
     what would have occurred had the acquisition been made on January 1, 2000
or of results which may occur in the future.                        

5.    DISPOSITIONS                                                              

   In December 2002, the Company sold a right-of-way in South Carolina for
    total consideration of $4.25 million consisting of cash of $1.05 million
     and a short-term note of $3.2 million. The short-term note bears interest
    at 7.5% and is due on October, 31, 2003. The net gain on the transaction
was $3.5 million.                                                   

   In May 2002, the Company sold the Texas New Mexico Railroad and certain
   operating assets for total consideration of $2.25 million consisting of
     cash of $0.55 million, a short-term note of $0.85 million and a long-term
   note of $0.85 million, resulting in a net gain of $0.8 million which is
  included in discontinued operations. The results of operations for the
    Texas New Mexico Railroad were not material. The short-term note accrued
   interest at 10% and was due on November 15, 2002 and the long-term note
     accrues interest at 7% and is due on May 24, 2007. In December 2002, $0.4
   million was paid on the short-term note, $0.15 million was added to the
long-term note due on May 24, 2007 and the remaining balance of $0.3
   million was extended until December 11, 2006 at an interest rate of 7%.

 In March 2002, the Company sold the Georgia Southwestern Railroad and
certain operating assets for total consideration of $7.1 million,   
    including a long-term note for $0.8 million, resulting in a gain of $4.5
     million. The note receivable bears interest at 5% and is due February 28,
      2007. The results of operations for the Georgia Southwestern Railroad were
not material.                                                       

During 2001, the Company sold Dakota Rail, Inc. for $7.6 million,   
  resulting in a net gain of $3.9 million. In addition, the Company sold
other non-core assets resulting in a net gain of $2.5 million.      

     During 2000, the Company sold several railroads and other non-core assets
 for total proceeds of $44.0 million, resulting in a net gain of $11.2
million.                                                            

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6.    OTHER BALANCE SHEET DATA                                                  

     Other current assets consist of the following as of December 31, 2002 and
2001 (in thousands):                                                

                                       2002       2001
                                      -------    -------
Track supplies ...................    $13,889    $ 7,702
Prepaid expenses and other .......      8,540      6,502
                                      -------    -------
                                      $22,429    $14,204
                                      =======    =======

      Accrued expenses consist of the following as of December 31, 2002 and 2001
(in thousands):                                                     

                                       2002       2001
                                      -------    -------
Accrued interest expense .........    $ 8,254    $ 8,382
Accrued compensation and benefits       8,625      5,893
Other accrued liabilities ........     21,541     25,614
                                      -------    -------
                                      $38,420    $39,889
                                      =======    =======

7.    PROPERTY, PLANT AND EQUIPMENT                                             

     Property, plant and equipment consist of the following as of December 31,
2002 and 2001 (in thousands):                                       

                                    2002        2001
                                    --------    --------

Land .............................  $182,004    $133,643
Buildings and improvements .......    18,747      15,963
Railroad track and improvements      638,743     504,491
Locomotives, transportation and                         
 other equipment .................   152,426     147,489
                                    --------    --------
                                     991,920     801,586
Less: accumulated depreciation ...    87,667      62,811
                                    --------    --------
                                    $904,253    $738,775
                                    ========    ========

The Company completed $8.4 million in locomotive sale/leaseback     
transactions in 2001.                                               

8.    LONG-TERM DEBT AND LEASES                                                 

     Long-term debt consists of the following as of December 31, 2002 and 2001
(in thousands):                                                     

                                                                [Download Table]

                                                             2002        2001  
                                                           --------    --------
                                                                               
Senior credit facilities, see below ...................    $375,000    $267,752
Credit facility with Banco de Desarrollo (Ferronor) ...          --      11,678
Credit facility with Banco Security (Ferronor) ........          --       7,325
Other long-term debt ..................................      12,321      14,932
                                                           --------    --------
                                                            387,321     301,687
Less current maturities ...............................       4,200      24,484
                                                           --------    --------
    Long-term debt, less current maturities ...........    $383,121    $277,203
                                                           ========    ========

     In May 2002, the Company refinanced its senior credit facility, including
    $50 million borrowed in connection with the January 2002 acquisitions of
   ParkSierra and StatesRail. The new senior debt facility includes a $375
million Term B loan facility consisting of $265 million of U.S. Term
  Loans, $50 million of Canadian Term Loans and $60 million of Australia
      Term Loans with a 1% annual principal amortization for seven years and the
     balance due in 2009, and a $100 million revolver with sub-limits equal to
      $82.5 million in the United States, $10 million in Canada and $7.5 million
in Australia. The revolver is due in                                

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8.    LONG-TERM DEBT AND LEASES, continued                                      

  2008. The interest rate on the Term B debt and the revolver is LIBOR +
  2.50% (4.00% at December 31, 2002). There were no outstanding balances
  under the revolver at December 31, 2002. The senior credit facility is
collateralized by substantially all of the assets of the Company,   
excluding its investment in Ferronor.                               

The senior credit facility and the indenture governing our senior   
subordinated notes include numerous covenants imposing significant  
    financial and operating restrictions on the Company. The covenants limit
   the Company's ability to, among other things: incur more debt or prepay
existing debt, redeem or repurchase the Company's common stock, pay 
    dividends or make other distributions, make acquisitions or investments,
      use assets as security in other transactions, enter into transactions with
  affiliates, merge or consolidate with others, dispose of assets or use
   asset sale proceeds, create liens on the Company's assets, make certain
payments or capital expenditures and extend credit. In addition, the
     senior credit facility also contains financial covenants that require the
      Company to meet a number of financial ratios and tests. The Company was in
compliance with each of these covenants as of December 31, 2002.    

      During the year ended December 31, 2001, the Company prepaid $19.1 million
     of long-term debt with cash received from the sale of common stock. Based
     on this reduction, an extraordinary charge of approximately $0.2 million,
   net of income tax of $0.1 million, was recorded in the third quarter of
2001 from the write-off of deferred loan costs from this early      
extinguishment of debt.                                             

 In February 2000, the Company entered into a credit agreement and two
bridge notes in connection with the acquisition of RailTex and the  
 refinancing of most of the Company's and RailTex's existing debt. The
      credit agreement provided (i) a $125 million Term A loan, bearing interest
      at LIBOR plus 2.50% (4.44% at December 31, 2001), (ii) a $205 million Term
     B loan, initially bearing interest at LIBOR plus 3.25% (5.19% at December
31, 2001), and (iii) a $50 million revolving credit facility which  
 included $30 million of U.S. dollar denominated loans, $10 million of
  Canadian dollar denominated loans and $10 million of Australian dollar
   denominated loans with an interest rate of LIBOR plus 2.50%. All of the
      capital stock of the Company's U.S. subsidiaries, 65% of the capital stock
      of the Canadian and Australian subsidiaries and the majority of the assets
    of the Company's subsidiaries served as collateral for the senior credit
    facilities. These term loans were repaid in connection with the May 2002
refinancing discussed above.                                        

In connection with the February 2000 debt refinancing, the Company  
      recorded an extraordinary charge of $2.2 million for early extinguishments
of debt, net of income taxes.                                       

The aggregate annual maturities of long-term debt are as follows (in
thousands):                                                         

2003 .....................................      $  4,200
2004 .....................................         4,344
2005 .....................................         4,448
2006 .....................................         4,493
2007 .....................................         4,543
Thereafter ...............................       365,293
                                                --------
                                                $387,321
                                                ========

During the years ended December 31, 2002, 2001 and 2000 interest of 
   approximately $584, $668, and $1,257, respectively, was capitalized for
on-going capital improvement projects.                              

      On May 4, 2000, the Company entered into two interest rate swap agreements
      for a total notional amount of $212.5 million. The agreements, which had a
     term of three years, required the Company to pay a fixed interest rate of
    7.23% while receiving a variable interest rate equal to the 90 day LIBOR
      rate. In May 2001, the interest rate swap agreements were extended for two
      years and the fixed pay rate was reduced to 6.723%. In connection with the
   refinancing in May 2002, the Company terminated these existing interest

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8.    LONG-TERM DEBT AND LEASES, continued                                      

      rate swaps. Because these hedging instruments were designated as hedges of
the cash flows under the previous senior debt facility, SFAS No. 133
     required the entire balance in other accumulated comprehensive loss to be
    charged to earnings. Accordingly, a charge of $17.1 million was recorded
 in other income (expense) during the year ended December 31, 2002. In
   addition, the Company recorded an extraordinary charge of $4.5 million,
      net of income taxes of $2.2 million, to write off the unamortized deferred
      loan costs relating to the prior senior credit facility, as of the date of
refinancing.                                                        

    In connection with the refinancing of the senior credit facility in May,
  the Company, as required under its new senior credit facility, entered
    into two step-up collars for a total notional amount of $75 million with
     an effective date of November 24, 2002 and expiring on November 24, 2004.
  Under the terms of these collars, the LIBOR component of the Company's
   interest rates can fluctuate within specified ranges. From November 24,
      2002 through May 24, 2003, the floor and cap are 2% and 4.5%, from May 24,
      2003 through November 24, 2003, the floor and cap are 2.5% and 4.75%, from
  November 24, 2003 through May 24, 2004, the floor and cap are 3.5% and
   5.5% and from May 24, 2004 through November 24, 2004, the floor and cap
    are 4% and 5.75%. The collars qualify and are accounted for as cash flow
    hedges under SFAS No. 133. On November 8, 2002, the Company entered into
     two interest rate swaps for a total amount of $300 million for the period
    commencing December 5, 2002 through December 5, 2003. Under the terms of
  the interest rate swaps, the LIBOR component of the Company's interest
     rate is fixed at 1.62% on $300 million of debt. The swaps qualify and are
accounted for as cash flow hedges under SFAS No. 133.               

Leases                                                              

      The Company has several equipment finance leases for equipment. Certain of
these leases are accounted for as capital leases and are presented  
  separately below. The minimum annual lease commitments at December 31,
2002 are as follows (in thousands):                                 

                                       CAPITAL   OPERATING
                                      LEASES      LEASES
                                       -------   ---------

2003 .............................    $    80    $19,417
2004 .............................        204     17,238
2005 .............................        288     16,463
2006 .............................        311     14,425
2007 .............................        337     12,591
Thereafter .......................        400     17,836
                                      -------    -------
                                      $ 1,620    $97,970
                                      =======    =======

  Rental expense under operating leases was approximately $24.4 million,
  $16.0 million, and $9.0 million for the years ended December 31, 2002,
2001 and 2000, respectively.                                        

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8.    LONG-TERM DEBT AND LEASES, continued                                      

      The following table presents Ferronor's long-term debt balances, which are
included in Long-term liabilities of discontinued operations in the 
balance sheet for the year ended December 31, 2002 (in thousands):  

                                                                [Download Table]

                                                             2002       2001 
                                                           -------    -------
                                                                             
Credit facility with Banco de Desarrollo, see below ...      9,491     11,678
Credit facility with Banco Security, interest rate                           
rate of 4.50% - 7.00% .................................      5,813      7,325
Other long-term debt ..................................      3,866      5,080
                                                           -------    -------
                                                            19,170     24,083
Less current maturities ...............................      6,743      6,853
                                                           -------    -------
    Long-term debt, less current maturities ...........    $12,427    $17,230
                                                           =======    =======

    In February 1999, Ferronor refinanced certain short-term debt with Banco
  de Desarrollo. The refinancing consists of two credit lines. The first
credit line is a $5.0 million facility which bears interest at the  
      interbank cost plus 1.75% (9.05% at December 31, 2002) with interest to be
     paid over 120 equal monthly installments and principal to be paid over 96
      equal installments beginning two years from the funding. The second credit
    line is a $7.7 million facility which bears interest at LIBOR plus 2.75%
(4.25% at December 31, 2002) and is payable in 120 equal monthly    
installments (including interest).                                  

9.    SUBORDINATED DEBT                                                         

    In August 2000, RailAmerica Transportation Corp. ("RTC"), a wholly-owned
 subsidiary of the Company, sold units consisting of $130.0 million of
12-7/8% senior subordinated notes due 2010 and warrants to purchase 
     1,411,414 shares of the Company's common stock in a private offering, for
    gross proceeds of $122.2 million after deducting the initial purchasers'
  discount. All of the Company's U.S. subsidiaries are guarantors of the
     senior subordinated notes. The net proceeds received from the issuance of
the units were used to pay $115.0 million of then-existing debt and 
      approximately $1.8 million of term loans under the Company's senior credit
    facilities, resulting in an extraordinary charge of $1.8 million, net of
  taxes, associated with the early extinguishment of debt. The warrants,
    which have an exercise price of $6.60 per share and expire on August 15,
   2010, were valued at $5.1 million and are being amortized as additional
interest expense over ten years, the term of the senior subordinated
notes.                                                              

    Prior to August 15, 2003, the Company may redeem up to 35% of the senior
   subordinated notes at a redemption price of 112.875% of their principal
  amount with the proceeds from an equity offering. From August 16, 2003
through August 14, 2005, the Company may not redeem the senior      
 subordinated notes and subsequent to August 14, 2005, the Company may
redeem the senior subordinated notes for 106.438% of their principal
     amount. The premium reduces annually on a sliding scale until they may be
redeemed at their principal amount commencing August 15, 2008.      

      In June 2000, the Company engaged an investment banking firm to assist the
 Company's Board of Directors in evaluating the issuance of the senior
   subordinated notes, for which it issued three-year warrants to purchase
   150,000 shares of the Company's common stock. Of these warrants, 75,000
    are at an exercise price of $5.50 and 75,000 are at an exercise price of
$6.50. These warrants were exercised during 2001.                   

In August 1999, the Company issued $22.5 million aggregate principal
 amount of junior convertible subordinated debentures. Interest on the
debentures accrues at the rate of 6% per annum and is payable       

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9.    SUBORDINATED DEBT, continued                                              

semi-annually. The debentures are convertible, at the option of the 
holder, into shares of RailAmerica at a conversion price of $10. The
debentures which mature on July 31, 2004, are general unsecured     
obligations and rank subordinate in right of payment to all senior  
    indebtedness. At RailAmerica's option, the debentures may be redeemed at
   par plus accrued interest, in whole or in part, if the closing price of
    RailAmerica's common stock is above $20 for 10 consecutive trading days.
   During 2001 and 2000, $0.39 million and $0.35 million, respectively, of
     the junior convertible subordinated debentures were converted into common
stock.                                                              

      The Company recognized a $2.3 million charge in the fourth quarter of 2000
    for the beneficial conversion feature included in the junior convertible
     subordinated debentures. This charge is shown as the cumulative effect of
an accounting change.                                               

10.   COMMON STOCK TRANSACTIONS                                                 

     In December 2001, the Company closed on the private placement sale of 4.3
     million shares of its common stock for $12.50 per share, resulting in net
    proceeds of $51.5 million. The proceeds from this private placement were
 used to finance the StatesRail and ParkSierra acquisitions, which are
   described in Note 4, as well as the reduction of debt and other general
      corporate purposes. In connection with this private placement, the Company
     issued 18-month warrants to purchase 100,000 shares of common stock at an
exercise price of $13.75 per share to the placement agents.         

 In June 2001, the Company closed on the private placement sale of 3.8
     million shares of its common stock for $10.75 per share, resulting in net
    proceeds of $38.2 million. The proceeds from this private placement were
      used to reduce debt and for general corporate purposes. In connection with
    this private placement, the Company issued 18-month warrants to purchase
    200,000 shares of common stock at an exercise price of $11.825 per share
to the placement agents.                                            

 The Company occasionally repurchases its common stock under its share
   repurchase program. Such repurchases are limited to $5 million per year
pursuant to its borrowing arrangements. In July 2002, the Board of  
      Directors authorized a 2 million share repurchase program through December
31, 2003, subject to restrictions under the Company's borrowing     
arrangements. During the year ended December 31, 2002, the Company  
repurchased 530,500 shares at a total cost of $4.9 million.         

  As of December 31, 2002, the Company has a total of 3,069,564 warrants
  outstanding with exercise prices ranging from $6.60 to $13.75 and with
expiration dates ranging from March 26, 2003 to August 15, 2010.    

11.   INCOME TAX PROVISION                                                      

     Income from continuing operations before income taxes for the years ended
December 31, 2002, 2001 and 2000 consists of (in thousands):        

                                2002       2001       2000
                                -------    -------    --------
    Domestic ................    $ 1,608    $ 5,743    $(19,539)
   Foreign subsidiaries ....      6,548     14,946      30,798
                                -------    -------    --------
                                $ 8,156    $20,689    $ 11,259
                                =======    =======    ========

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11.   INCOME TAX PROVISION, continued                                           

      The provision for income taxes for the years ended December 31, 2002, 2001
and 2000 consists of (in thousands):                                

                                            2002        2001        2000
                                           -------     -------     -------
Federal income taxes:                                   
           Current ....................    $    --     $    --     $   334
           Deferred ...................     (2,341)        801       2,494
                                           -------     -------     -------
                                            (2,341)        801       2,828
                                           -------     -------     -------
State income taxes:                                     
           Current ....................      1,140         437         700
            Deferred ...................       (795)        565      (1,548)
                                           -------     -------     -------
                                                345       1,002        (848)
                                           -------     -------     -------
Foreign income taxes                                    
           Current ....................      2,140       1,500       2,435
           Deferred ...................        733       4,737       1,535
           Change in tax law ..........         --      (3,177)         --
                                           -------     -------     -------
                                             2,873       3,060       3,970
                                           -------     -------     -------
         Total income tax provision ...    $   877     $ 4,863     $ 5,950
                                           =======     =======     =======

    The following summarizes the total income tax provisions for each of the
years ended December 31, 2002, 2001 and 2000 (in thousands):        

                                            2002        2001        2000
                                           -------     -------     -------
         Continuing operations ........    $ 2,893     $ 4,897     $ 2,900
         Discontinued operations ......        151         108       5,250
          Extraordinary item ...........     (2,167)       (142)     (2,200)
                                           -------     -------     -------
         Total income tax provision ...    $   877     $ 4,863     $ 5,950
                                           =======     =======     =======

The differences between the U.S. federal statutory tax rate and the 
  Company's effective rate from continuing operations are as follows (in
thousands):                                                         

                                                                [Download Table]

                                                   2002      2001      2000  
                                                 -------   -------   ------- 
                                                                             
Income tax provision, at 35% ................... $ 2,854   $ 7,242   $ 3,951 
Net benefit due to difference between U.S. &                                 
    Foreign tax rates ..........................     155      (408)      (15)
Net benefit due to tax law changes in Canada ...      --    (3,177)       -- 
Amortization of non-deductible warrants ........      --        --      (602)
Permanent differences ..........................    (815)       --        -- 
State income taxes, net ........................    (785)       --        -- 
Other, net .....................................    (208)      610      (345)
Valuation allowance ............................   1,692       630       (89)
                                                 -------   -------   ------- 
Tax provision .................................. $ 2,893   $ 4,897   $ 2,900 
                                                 =======   =======   ======= 

     The Company files a consolidated U.S. income tax return with its domestic
    subsidiaries. For state income tax purposes, the Company and each of its
  domestic subsidiaries generally file on a separate return basis in the
     states in which they do business. The Company's foreign subsidiaries file
income tax returns in their respective jurisdictions.               

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11.   INCOME TAX PROVISION, continued                                           

The components of deferred income tax assets and liabilities as of  
December 31, 2002 and 2001 are as follows (in thousands):           

                                                  2002          2001
                                                   ---------     ---------
Deferred tax assets:                                    
         Net operating loss carryforward ......    $  44,346     $  26,178
         Alternative minimum tax credit .......          783           783
         Accrued expenses .....................        5,889        12,973
         Other ................................           --            24
                                                   ---------     ---------
             Total deferred tax assets ........       51,018        39,958
          Less: valuation allowance ............       (5,563)       (3,357)
                                                   ---------     ---------
             Total deferred tax assets, net ...       45,455        36,601
Deferred tax liabilities:                               
         Property, plant and equipment ........      195,543       132,806
         Deferred revenue .....................           71           617
              Net deferred tax liability .......    $(150,159)    $ (96,822)
                                                   =========     =========

   The liability method of accounting for deferred income taxes requires a
      valuation allowance against deferred tax assets if, based on the weight of
  available evidence, it is more likely than not that some or all of the
    deferred tax assets will not be realized. It is management's belief that
     it is more likely than not that a portion of the deferred tax assets will
      not be realized. The Company has established a valuation allowance of $5.6
million at December 31, 2002 and $3.4 million at December 31, 2001. 

The following is a summary of net operating loss carryforwards by   
jurisdiction as of December 31, 2002 (in thousands):                

                AMOUNT   EXPIRATION PERIOD
               -------   -----------------
U.S. - Federal        $ 72,942        2011 - 2022       
U.S. - State           164,037        2003 - 2022       
Luxembourg                  21               None       
Australia               34,656               None       
Canada                   6,569        2003 - 2009       
--------    
$278,225    
========    

    As part of certain acquisitions, the Company acquired net operating loss
    carryforwards for federal and state income tax purposes. The utilization
 of the acquired tax loss carryforwards may be limited by the Internal
      Revenue Code Section 382. These tax loss carryforwards expire in the years
2003 through 2020.                                                  

No provision was made in 2002 for U.S. income taxes on undistributed
      earnings of the Canadian or Australian subsidiaries as it is the intention
      of management to utilize those earnings in their respective operations for
an indefinite period of time.                                       

12.   STOCK OPTIONS                                                             

     The Company has stock option plans under which employees and non-employee
directors may be granted options to purchase shares of the Company's
common stock at the fair market value at the date of grant. Options 
      generally vest in two or three years and expire in ten years from the date
   of the grant. The Company has adopted the disclosure-only provisions of
     SFAS No. 123. See Note 1 for the total compensation costs that would have
    been recognized in 2002, 2001, and 2000 if the stock options issued were
valued based on the fair value at the grant date.                   

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12.   STOCK OPTIONS, continued                                                  

 The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following     
weighted-average assumptions used for grants in 2002, 2001 and 2000:
   dividend yield 0.0%, 0.0% and 0.0%; expected volatility of 46%, 41% and
      41%; risk-free interest rate of 3.0%, 4.6% and 6.5%; and expected lives of
    5, 5 and 5 years. The weighted average fair value of options granted for
2002, 2001 and 2000 were $4.52, $5.03, and $4.75, respectively.     

 Information regarding the above options for 2002, 2001 and 2000 is as
follows:                                                            

                                                                [Download Table]

                                                             WEIGHTED   WEIGHTED
                                     NUMBER OF    AVERAGE   NUMBER OF   AVERAGE 
                                    OUTSTANDING  EXERCISE     SHARES    EXERCISE
                                       SHARES      PRICE   EXERCISABLE   PRICE  
                                    -----------  --------  -----------  --------
                                                                                
Outstanding at January 1, 2000 ....  1,840,000    $ 6.34                        
Granted ...........................  1,882,558    $ 8.08                        
Exercised .........................    (48,969)   $ 4.78                        
Forfeited .........................   (222,498)   $ 7.64                        
                                     ---------              ---------           
Outstanding at December 31, 2000 ..  3,451,091    $ 7.23    1,937,858    $6.50  
                                                            =========           
Granted ...........................  1,494,289    $11.72                        
Exercised .........................   (936,223)   $ 5.31                        
Forfeited .........................    (62,855)   $ 7.74                        
                                     ---------              ---------           
Outstanding at December 31, 2001 ..  3,946,302    $ 9.37    2,557,233    $8.70  
                                     ---------              =========           
Granted ...........................  1,876,000    $10.31                        
Exercised .........................    (82,912)   $ 6.79                        
Forfeited .........................    (98,159)   $11.02                        
                                     ---------              ---------           
Outstanding at December 31, 2002 ..  5,641,231    $ 9.69    3,921,857    $9.25  
                                     ---------              =========           
Authorized at December 31, 2002 ...  6,113,893                                  
                                     =========                                  

      The following table summarizes information about stock options outstanding
at December 31, 2002:                                               

                                                        [Enlarge/Download Table]

                            OPTIONS OUTSTANDING                 OPTIONS EXERCISABLE   
               --------------------------------------------  -------------------------
                                   WEIGHTED                                           
                                   AVERAGE         WEIGHTED                   WEIGHTED
RANGE OF                          REMAINING        AVERAGE                    AVERAGE 
EXERCISE         NUMBER          CONTRACTUAL       EXERCISE    NUMBER         EXERCISE
PRICE          OF OPTIONS            LIFE           PRICE    OF OPTIONS         PRICE 
-------------  ----------        -----------       --------  ----------       --------
                                                                                      
$3.50-$5.00      178,200             3.19           $ 4.53      178,200        $ 4.53 
$5.01-$7.50      483,577             6.65           $ 6.52      483,577        $ 6.52 
$7.51-$10.00   1,813,954             6.64           $ 8.77    1,777,892        $ 8.78 
$10.01-$14.45  3,165,500             9.07           $11.00    1,482,188        $11.28 
               ---------                                     ----------               
               5,641,231                                     3,921,857                
               =========                                     ==========               

   The Company maintains an Employee Stock Purchase Plan for all full-time
   employees. Each employee may have payroll deductions as a percentage of
  their compensation, not to exceed $25,000 per year. The purchase price
  equals 85% of the fair market value of a share of the Company's common
    stock on certain dates during the year. For the years ended December 31,
  2002, 2001 and 2000, 25,081, 21,943 and 11,749 shares of common stock,
respectively, were sold to employees under this plan.               

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13.   NON-CASH INVESTING AND FINANCING ACTIVITIES                               

   Cash paid for interest from continuing operations during 2002, 2001 and
  2000 was $41.0 million, $54.6 million and $41.2 million, respectively.
     Cash paid (received) for income taxes during 2002, 2001 and 2000 was $0.2
million, $(1.1) million and $4.0 million, respectively.             

    The following table summarizes the net cash used in acquisitions, net of
    cash acquired, for the years ended December 31, 2002, 2001, and 2000 (in
thousands):                                                         

                                                                [Download Table]

                                                     2002      2001     2000    
                                                   ---------   -----  --------- 
                                                                                
Common stock issued for businesses acquired ...... $  40,905   $  --  $  60,773 
Debt issued for business acquired ................        --      --    105,376 
Details of acquisitions:                                                        
    Working capital components, other than cash ..       316      --      6,109 
    Property and equipment .......................  (173,099)     --   (390,468)
    Other assets .................................        (9)     --     (6,980)
    Goodwill .....................................    (4,000)     --         -- 
    Notes payable and loans payable ..............     1,565      --      3,148 
    Deferred income taxes payable ................    44,963      --     73,120 
                                                   ---------   -----  --------- 
Net cash used in acquisitions .................... $ (89,359)  $  --  $(148,922)
                                                   =========   =====  ========= 

14.   FAIR VALUE OF FINANCIAL INSTRUMENTS                                       

On January 1, 2001, the Company adopted SFAS No. 133, Accounting for
    Derivative Instruments and Hedging Activities, and recorded a cumulative
transition charge of $4.4 million, net of tax, to Accumulated Other 
      Comprehensive Loss ("AOCL"). The standard requires that all derivatives be
    recorded on the balance sheet at fair value and establishes criteria for
documentation and measurement of hedging activities.                

     The Company currently uses derivatives to hedge against increases in fuel
      prices and interest rates. The Company formally documents the relationship
   between the hedging instrument and the hedged item, as well as the risk
    management objective and strategy for the use of the hedging instrument.
      This documentation includes linking the derivatives that are designated as
    cash flow hedges to specific assets or liabilities on the balance sheet,
      commitments or forecasted transactions. The Company assesses at the time a
    derivative contract is entered into, and at least quarterly, whether the
   derivative item is effective in offsetting the changes in fair value or
   cash flows. Any change in fair value resulting from ineffectiveness, as
  defined by SFAS No. 133, is recognized in current period earnings. For
derivative instruments that are designated and qualify as cash flow 
hedges, the effective portion of the gain or loss on the derivative 
   instrument is recorded in AOCL as a separate component of Stockholders'
      Equity and reclassified into earnings in the period during which the hedge
transaction affects earnings.                                       

The Company monitors its hedging positions and credit ratings of its
counterparties and does not anticipate losses due to counterparty   
nonperformance.                                                     

Fuel costs represented 7% of total revenues during 2002. Due to the 
  significance of fuel expenses to the operations of the Company and the
 historical volatility of fuel prices, the Company periodically hedges
  against fluctuations in the price of its fuel purchases. Each one-cent
    increase in the price of fuel would result in $0.4 million of additional
fuel expense on a monthly basis.                                    

The fuel hedging program includes the use of derivatives that are   
   accounted for as cash flow hedges. As of December 31, 2002, the Company
 entered into a fuel swap agreement to hedge 750,000 gallons per month

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14.   FAIR VALUE OF FINANCIAL INSTRUMENTS, continued                            

     in 2003 (35% of estimated North American consumption) at an average price
      of 66 cents per gallon, excluding transportation and taxes. The fair value
      of the fuel swap was a net receivable of 0.8 million at December 31, 2002.

   Interest on the Company's senior credit facility is payable at variable
      rates indexed to LIBOR. To partially mitigate the volatility of LIBOR, the
      Company entered into two interest rate swaps in May 2000. These swaps were
      accounted for as cash flow hedges under SFAS No. 133 and qualified for the
      short cut method of recognition. The interest rate swaps locked in a LIBOR
     rate of 7.23% on $212.5 million of debt for a three-year period. In 2001,
      the Company extended the interest rate swaps for two years and reduced the
LIBOR rate to 6.723%. As noted in Note 8, the Company terminated its
     interest rate swaps and reclassified $17.1 million from accumulated other
comprehensive loss against earnings during the year ended 2002, in  
connection with the refinancing of the senior credit facility.      

In June 2002, the Company, as required under its new senior credit  
     facility, entered into two step-up collars for a total notional amount of
   $75 million with an effective date of November 24, 2002 and expiring on
    November 24, 2004. Under the terms of these collars, the LIBOR component
  of the Company's interest rates can fluctuate within specified ranges.
     From November 24, 2002 through May 24, 2003, the floor and cap are 2% and
    4.5%, from May 24, 2003 through November 24, 2003, the floor and cap are
      2.5% and 4.75%, from November 24, 2003 through May 24, 2004, the floor and
      cap are 3.5% and 5.5% and from May 24, 2004 through November 24, 2004, the
     floor and cap are 4% and 5.75%. The collars qualify and are accounted for
   as cash flow hedges under SFAS No. 133. The fair value of these collars
was a net liability of $1.9 million at December 31, 2002.           

     On November 8, 2002, the Company entered into two interest rate swaps for
     a total amount of $300 million for the period commencing December 5, 2002
     through December 5, 2003. Under the terms of the interest rate swaps, the
    LIBOR component of the Company's interest rate is fixed at 1.62% on $300
 million of debt. The swaps qualify and are accounted for as cash flow
hedges under SFAS No. 133. The fair value of these swaps was a net  
liability of $0.6 million at December 31, 2002. Were the Company to 
refinance the debt with terms different than the terms of the debt  
     currently hedged, the hedged transaction would no longer be effective and
     any deferred gains or losses would be immediately recognized into income.

Fluctuations in the market interest rate will affect the cost of our
     remaining borrowings. Excluding the impact of our interest rate hedges, a
    1% increase in interest rates would result in a $3.8 million increase in
interest expense. At December 31, 2002, AOCL included a $1.7 million
  charge, net of taxes, relating to the interest rate collars and swaps.

Management believes that the fair value of its senior long-term debt
    approximates its carrying value based on the variable rate nature of the
  financing, and for all other long-term debt based on current borrowing
    rates available with similar terms and maturities. The fair value of the
      senior subordinated notes is $136.5 million as of December 31, 2002, based
on the quoted market price.                                         

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15.   PENSION AND OTHER BENEFIT PROGRAMS                                        

The Company maintains a pension plan for a majority of its Canadian 
  railroad employees, with both defined benefit and defined contribution
components.                                                         

    DEFINED BENEFIT - The defined benefit component applies to approximately
  60 employees who transferred employment directly from Canadian Pacific
 Railway Company ("CPR") to a subsidiary of RailLink, Ltd. The defined
 benefit portion of the plan is a mirror plan of CPR's defined benefit
plan. The employees that transferred and joined the mirror plan were
   entitled to transfer or buy back prior years of service. As part of the
     arrangement, CPR transferred to the Company the appropriate value of each
employee's pension entitlement.                                     

  The following chart summarizes the benefit obligations, assets, funded
    status and rate assumptions associated with the defined benefit plan for
   the years ended December 31, 2002 and December 31, 2001 (in thousands):

                                                        [Enlarge/Download Table]

                                                    January 1, 2002 to  January 1, 2001 to  January 1, 2000 to
                                                    December 31, 2002   December 31, 2001   December 31, 2000 
                                                    -----------------   -----------------   ----------------- 
                                                                                                              
EXCHANGE RATE BEGINNING OF YEAR ...................      $  0.63             $  0.67             $  0.69      
EXCHANGE RATE END OF YEAR .........................      $  0.63             $  0.63             $  0.67      
CHANGE IN BENEFIT OBLIGATION                                                                                  
Benefit obligation at beginning of period .........      $ 3,282             $ 3,114             $ 2,853      
Service cost ......................................           64                  60                  62      
Interest cost .....................................          230                 205                 194      
Plan participants' contributions ..................           96                  89                  91      
Actuarial loss ....................................          244                   0                   0      
Benefits paid .....................................           (6)                  0                  (3)     
Foreign currency exchange rate changes ............            0                (186)                (83)     
                                                         -------             -------             -------      
Benefit obligation at end of period ...............      $ 3,910             $ 3,282             $ 3,114      
                                                         =======             =======             =======      
CHANGE IN PLAN ASSETS                                                                                         
Fair value of plan assets at beginning of period ..      $ 3,164             $ 3,201             $ 2,655      
Actual return on plan assets ......................         (291)                (54)                388      
Employer contribution .............................          100                 101                 106      
Plan participants' contributions ..................           97                 106                 132      
Benefits paid .....................................           (6)                  0                  (3)     
Foreign currency exchange rate changes ............            0                (190)                (77)     
                                                         -------             -------             -------      
Fair value of plan assets at end of period ........      $ 3,064             $ 3,164             $ 3,201      
                                                         =======             =======             =======      
Funded status - (accrued) benefit cost ............      $  (846)            $  (118)            $    87      
                                                         =======             =======             =======      
ASSUMPTIONS                                                                                                   
Discount rate .....................................         6.50%               7.00%               7.00%     
Expected return on plan assets ....................         7.00%               8.00%               8.00%     
Rate of compensation increase .....................         4.00%               4.50%               4.50%     
COMPONENTS OF NET PERIODIC BENEFIT COST IN                                                                    
  PERIOD                                                                                                      
Service cost ......................................      $    64             $    60             $    62      
Interest cost .....................................          230                 205                 194      
Expected return on plan assets ....................         (222)               (241)               (206)     
Amortization of prior service cost ................           15                  15                  16      
                                                         -------             -------             -------      
Net periodic pension cost .........................      $    87             $    39             $    66      
                                                         =======             =======             =======      

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15.   PENSION AND OTHER BENEFIT PROGRAMS, continued                             

   Freight Australia's employees participate in the Victorian government's
    superannuation funds. The contributions made by Freight Australia are as
    follows for the year ended December 31, 2002, 2001 and December 31, 2000
(in thousands):                                                     

                              2002      2001      2000
                              ------    ------    ------
Total contributions ......    $2,012    $1,566    $1,536
                              ======    ======    ======

  DEFINED CONTRIBUTION - The defined contribution component applies to a
      majority of the Company's Canadian railroad employees that are not covered
by the defined benefit component. The Company contributes 3% of a   
     participating employee's salary to the plan. Pension expense for the year
ended December 31, 2002, 2001 and 2000 for the defined contribution 
  members was $0.5 million, $0.3 million and $0.2 million, respectively.

     PROFIT SHARING PLAN - The Company maintains a contributory profit sharing
   plan as defined under Section 401(k) of the U.S. Internal Revenue Code.
The Company made contributions to this plan at a rate of 50% of the 
     employees' contribution up to a maximum annual contribution of $1,500 per
  eligible employee. An employee becomes 100% vested with respect to the
   employer contributions after completing five years of service. Employer
      contributions during the years ended December 31, 2002, 2001 and 2000 were
approximately $644,000, $484,000 and $286,000, respectively.        

16.   COMMITMENTS AND CONTINGENCIES                                             

In 2000, certain parties filed property damage claims totaling      
     approximately $32.5 million against RaiLink Ltd. and RaiLink Canada Ltd.,
   wholly-owned subsidiaries of RailAmerica, and others in connection with
      fires that allegedly occurred in 1998. The Company is vigorously defending
      these claims, and has insurance coverage to approximately $13.0 million to
 cover these claims. It is the opinion of management that the ultimate
 liability, if any, with respect to these matters will fall within the
     insurance coverage and that these claims will not have a material adverse
     effect on the Company's financial position, results of operations or cash
flows.                                                              

  In the ordinary course of conducting its business, the Company becomes
    involved in various legal actions and other claims, which are pending or
could be asserted against the Company. Litigation is subject to many
uncertainties, the outcome of individual litigated matters is not   
  predictable with assurance, and it is reasonably possible that some of
      these matters may be decided unfavorably to the Company. It is the opinion
    of management that the ultimate liability, if any, with respect to these
      matters will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.                      

      The Company has a $4.7 million contingent obligation, under certain events
of default or if line abandonment occurs, to the Canadian National  
 Railroad in connection with its properties. The contingent obligation
  bears no interest and has no pre-defined terms of payment or maturity.

The Company's operations are subject to extensive environmental     
regulation. The Company records liabilities for remediation and     
      restoration costs related to past activities when the Company's obligation
   is probable and the costs can be reasonably estimated. Costs of ongoing
     compliance activities to current operations are expensed as incurred. The
Company's recorded liabilities for these issues represent its best  
     estimates (on an undiscounted basis) of remediation and restoration costs
    that may be required to comply with present laws and regulations. During
the fourth quarter of 2001, the Company reduced its environmental   
   liability by $1.9 million due to a change in environmental regulations.
The remaining liabilities are not material. It is the opinion of    
 management that the ultimate liability, if any, with respect to these
      matters will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.                      

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17.   SEGMENT INFORMATION                                                       

      The Company's continuing operations have been classified into two business
segments: North American rail transportation and International rail 
   transportation. The North American rail transportation segment includes
      the operations of the Company's railroad subsidiaries in the United States
    and Canada, as well as corporate expenses. The international segment has
      been restated for the exclusion of the Chilean operations except for total
assets and capital expenditures, due to its reclassification to     
discontinued operations.                                            

      Business and geographical segment information for the years ended December
31, 2002, 2001 and 2000 is as follows (in thousands):               

YEAR ENDED DECEMBER 31, 2002:                                       

                                                        [Enlarge/Download Table]

                                               NORTH AMERICA           INTERNATIONAL      
                                               -------------           -------------      
                         CONSOLIDATED  UNITED STATES      CANADA    CHILE        AUSTRALIA
                         ------------  -------------     --------  -------       ---------
                                                                                          
Revenue ................  $  428,243      $274,251       $ 59,077  $    --       $ 94,915 
Depreciation and                                                                          
  amortization .........  $   33,158      $ 18,428       $  3,875  $    --       $ 10,855 
Income before                                                                             
  income taxes .........  $    8,156      $  1,608       $  4,404  $    --       $  2,144 
Interest expense .......  $   43,441      $ 37,073       $  3,414  $    --       $  2,954 
Total assets ...........  $1,106,553      $715,615       $141,853  $56,189       $192,876 
Capital expenditures ...  $   65,682      $ 37,980       $  8,587  $ 2,021       $ 17,094 

YEAR ENDED DECEMBER 31, 2001:                                       

                                                        [Enlarge/Download Table]

                                               NORTH AMERICA           INTERNATIONAL      
                                               -------------           -------------      
                         CONSOLIDATED  UNITED STATES      CANADA    CHILE        AUSTRALIA
                         ------------  -------------     --------  -------       ---------
                                                                                          
Revenue ................  $  347,546      $184,216       $ 61,900  $    --       $101,430 
Depreciation and                                                                          
  amortization .........  $   24,393      $ 13,938       $  3,523  $    --       $  6,932 
Income before                                                                             
  income taxes .........  $   20,689      $  5,743       $  2,271  $    --       $ 12,675 
Interest expense .......  $   50,714      $ 43,893       $  6,565  $    --       $    256 
Total assets ...........  $  891,168      $630,607       $ 87,952  $59,342       $113,267 
Capital expenditures ...  $   61,675      $ 29,148       $  9,869  $ 2,444       $ 20,214 

YEAR ENDED DECEMBER 31, 2000:                                       

                                                        [Enlarge/Download Table]

                                               NORTH AMERICA           INTERNATIONAL      
                                               -------------           -------------      
                         CONSOLIDATED  UNITED STATES      CANADA    CHILE        AUSTRALIA
                         ------------  -------------     --------  -------       ---------
                                                                                          
Revenue ................  $  334,615      $169,354       $ 63,057  $    --       $102,204 
Depreciation and                                                                          
  amortization .........  $   23,322      $ 14,052       $  3,832  $    --       $  5,438 
Income (loss) before                                                                      
  income taxes .........  $   11,259      $(19,539)      $ 13,752  $    --       $ 17,046 
Interest expense .......  $   53,912      $ 53,010       $    431  $    --       $    471 
Total assets ...........  $  839,703      $635,746       $ 83,724  $57,629       $ 62,604 
Capital expenditures ...  $   62,499      $ 24,566       $  9,570  $10,018       $ 18,345 

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18.   UNAUDITED QUARTERLY FINANCIAL DATA                                        

All quarterly financial data has been restated for the inclusion of 
Ferronor's results in discontinued operations.                      

     Quarterly financial data for 2002 is as follows (in thousands, except per
share amounts):                                                     

                                                                [Download Table]

                                       FIRST     SECOND      THIRD     FOURTH 
                                      QUARTER    QUARTER     QUARTER   QUARTER
                                      --------  ---------   --------  --------
                                                                              
Operating revenue ................... $105,811  $ 109,766   $108,488  $104,178
Operating income .................... $ 19,574  $  20,538   $ 17,761  $ 12,632
Income(loss) from continuing                                                  
  operations ........................ $  4,899  $  (7,094)  $  5,582  $  1,876
Net income (loss) ................... $  5,143  $ (10,725)  $  5,913  $  1,822
Basic income (loss) from                                                      
  continuing operations per share ... $   0.15  $   (0.22)  $   0.17  $   0.06
Diluted income (loss) from                                                    
  continuing operations per share ... $   0.15  $   (0.22)  $   0.17  $   0.06

     Quarterly financial data for 2001 is as follows (in thousands, except per
share amounts):                                                     

                                                                [Download Table]

                                       FIRST     SECOND     THIRD     FOURTH 
                                      QUARTER    QUARTER    QUARTER   QUARTER
                                      --------  ---------  --------  --------
                                                                             
Operating revenue ................... $ 85,875  $  88,008  $ 87,842  $ 85,821
Operating income .................... $ 17,008  $  18,888  $ 18,794  $ 16,535
Income from continuing                                                       
  operations ........................ $  2,408  $   3,734  $  4,626  $  5,024
Net income .......................... $  2,787  $   4,153  $  4,919  $  5,179
Basic income from                                                            
  continuing operations per share ... $   0.13  $    0.20  $   0.19  $   0.20
Diluted income from                                                          
  continuing operations per share ... $   0.12  $    0.19  $   0.18  $   0.19

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19.   GUARANTOR FINANCIAL STATEMENT INFORMATION                                 

In August 2000, RailAmerica Transportation Corp. ("Issuer"), a      
wholly-owned subsidiary of RailAmerica, Inc. ("Parent"), sold units 
      including 12 7/8% senior subordinated notes, which are registered with the
Securities and Exchange Commission. The notes are guaranteed by the 
Parent, the domestic subsidiaries of the Issuer and Palm Beach Rail 
Holdings, Inc.                                                      

RAILAMERICA, INC.                                                               
Consolidating Balance Sheet                                                     
At December 31, 2002                                                            
(in thousands)                                                                  

                                                        [Enlarge/Download Table]

                                                                                     NON                                  
                                                        COMPANY     GUARANTOR     GUARANTOR                               
                                            ISSUER      (PARENT)   SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED 
                                           ---------   ---------   ------------  ------------  ------------  ------------ 
                                                                                                                          
ASSETS                                                                                                                    
Current Assets:                                                                                                           
  Cash ................................... $      --   $   8,895     $    369     $  19,623      $      --    $    28,887 
  Cash held in escrow ....................        --         245           --           126             --            371 
  Accounts and notes receivable ..........        --         654       39,984        22,825             --         63,463 
  Current assets of discontinued                                                                                          
    operations ...........................        --          --           --         5,834                         5,834 
  Other current assets ...................        --       3,243       13,660         5,526             --         22,429 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Total current assets .............        --      13,037       54,013        53,934             --        120,984 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Property, plant and equipment, net .......        42       1,374      620,534       282,303             --        904,253 
Long-term assets of discontinued                                                                                          
  operations .............................        --          --                     50,355                        50,355 
Other assets .............................    16,892       1,163        8,136         4,770             --         30,961 
Investment in and advances to affiliates .   292,664     272,696      112,671        (4,623)      (673,409)            -- 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Total assets ..................... $ 309,598   $ 288,271     $795,354     $ 386,739      $(673,409)   $ 1,106,553 
                                           =========   =========     ========     =========      =========    =========== 
LIABILITIES AND                                                                                                           
   STOCKHOLDERS' EQUITY                                                                                                   
Current Liabilities:                                                                                                      
  Current maturities of long-term debt ... $   2,650   $      --     $    450     $   1,100      $      --    $     4,200 
  Accounts payable .......................       149         988       30,512        15,073             --         46,722 
  Accrued expenses .......................     7,135       3,020       21,558         6,707             --         38,420 
  Current liabilities of discontinued                                                                                     
    operations ...........................        --          --           --        11,624             --         11,624 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Total current liabilities ........     9,934       4,008       52,520        34,504             --        100,966 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Long-term debt, less current maturities ..   262,350          --       11,871       108,900             --        383,121 
Subordinated debt ........................   120,224      21,107           --            --             --        141,331 
Deferred income taxes ....................   (20,251)    (15,747)     154,331        31,826             --        150,159 
Long-term liabilities of discontinued                                                                                     
  operations .............................        --          --           --        27,283             --         27,283 
Other liabilities ........................     2,504          --        7,803        14,483             --         24,790 
Stockholders' equity:                                                                                                     
  Common stock ...........................        --          32        3,263        63,589        (66,852)            32 
  Additional paid-in capital .............       758     261,372      433,564        66,715       (501,037)       261,372 
  Retained earnings ......................   (64,268)     48,055      131,527        53,003       (120,262)        48,055 
  Accumulated other comprehensive                                                                                         
     Income ..............................    (1,653)    (30,556)         475       (13,564)        14,742        (30,556)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Total stockholders' equity .......   (65,163)    278,903      568,829       169,743       (673,409)       278,903 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Total liabilities and                                                                                             
          stockholders' equity ........... $ 309,598   $ 288,271     $795,354     $ 386,739      $(673,409)   $ 1,106,553 
                                           =========   =========     ========     =========      =========    =========== 

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19.   GUARANTOR FINANCIAL STATEMENT INFORMATION, continued                      

RAILAMERICA, INC.                                                               
Consolidating Statement of Income                                               
For the year ended December 31, 2002                                            
(in thousands)                                                                  

                                                        [Enlarge/Download Table]

                                                                                     NON                                  
                                                        COMPANY     GUARANTOR     GUARANTOR                               
                                            ISSUER      (PARENT)   SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED 
                                           ---------   ---------   ------------  ------------  ------------  ------------ 
                                                                                                                          
Operating revenue ........................ $      --   $      --     $274,251     $ 153,992      $      --    $   428,243 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Operating expenses:                                                                                                       
  Transportation .........................        --          --      138,367       104,188             --        242,555 
  Selling, general and administrative ....       187      25,230       51,100        13,267             --         89,784 
  Gain on sale and impairment of                                                                                          
     assets (net) ........................        --         101       (9,191)          (65)            --         (9,155)
  Terminated motor carrier operations,                                                                                    
    net ..................................        --          --           --         1,396                         1,396 
  Depreciation and amortization ..........        92         200       18,136        14,730             --         33,158 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Total operating expenses .........       279      25,531      198,412       133,516             --        357,738 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Operating (loss) income ..........      (279)    (25,531)      75,839        20,476             --         70,505 
Interest expense .........................   (11,744)     (1,532)     (23,797)       (6,368)            --        (43,441)
Equity in earnings of subsidiaries .......    24,921        (701)          --            --        (24,220)            -- 
Other income (expense) ...................   (18,911)     21,001      (14,158)       (6,840)            --        (18,908)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
      Income from continuing                                                                                              
         operations before income taxes ..    (6,013)     (6,763)      37,884         7,268        (24,220)         8,156 
Provision for income taxes ...............   (10,517)     (8,916)      18,924         3,402             --          2,893 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
      Income from continuing operations ..     4,504       2,153       18,960         3,866        (24,220)         5,263 
Gain from sale of discontinued                                                                                            
operations (net of tax) ..................        --          --          387            --             --            387 

Income from discontinued operations (net                                                                                  
of tax) ..................................        --          --           --           984             --            984 
Extraordinary loss from early                                                                                             
   extinguishment of debt (net of tax) ...    (4,481)         --           --            --             --         (4,481)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Net income ....................... $      23   $   2,153     $ 19,347     $   4,850      $ (24,220)   $     2,153 
                                           =========   =========     ========     =========      =========    =========== 

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19.   GUARANTOR FINANCIAL STATEMENT INFORMATION, continued                      

RAILAMERICA, INC.                                                               
Consolidating Statement of Cash Flows                                           
For the year ended December 31, 2002                                            
(in thousands)                                                                  

                                                        [Enlarge/Download Table]

                                                                                     Non                                  
                                                        Company     Guarantor     Guarantor                               
                                            Issuer      (Parent)   Subsidiaries  Subsidiaries  Eliminations  Consolidated 
                                           ---------   ---------   ------------  ------------  ------------  ------------ 
                                                                                                                          
Cash flows from operating activities:                                                                                     
  Net income ............................. $      23   $   2,153     $ 19,347     $   4,850      $ (24,220)   $     2,153 
  Adjustments to reconcile net income to                                                                                  
    net cash provided by operating                                                                                        
    activities:                                                                                                           
      Depreciation and amortization ......     3,795         955       18,162        18,339             --         41,251 
      Financing costs ....................    25,433          --           --            --             --         25,433 
      Equity in earnings of subsidiaries .   (24,921)        701           --            --         24,220             -- 
      Gain on sale or disposal of                                                                                         
        properties .......................        --         101      (10,588)          782             --         (9,705)
      Deferred income taxes ..............   (12,306)     (8,962)      20,142         3,344             --          2,218 
      Other ..............................        --       1,417           10          (685)            --            742 
      Changes in operating assets and                                                                                     
        liabilities, net of acquisitions                                                                                  
        and dispositions:                                                                                                 
         Accounts receivable .............        --      (1,151)       4,780          (863)            --          2,766 
         Other current assets ............        22       2,483       (1,555)         (277)            --            673 
         Accounts payable ................        --        (727)      (4,776)         (137)            --         (5,640)
         Accrued expenses ................    (1,777)     (1,751)      (2,167)       (4,224)            --         (9,919)
         Other assets and liabilities ....   (17,057)      4,210       (1,739)        3,221             --        (11,365)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
           Net cash provided by (used                                                                                     
             in) operating activities ....   (26,788)       (571)      41,616        24,350             --         38,607 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Cash flows from investing activities:                                                                                     
  Purchase of property, plant and                                                                                         
    equipment ............................        --        (646)     (37,334)      (27,702)            --        (65,682)
  Proceeds from sale of properties .......        --         963        7,963           365             --          9,291 
  Acquisitions, net of cash acquired .....        --          --      (89,359)           --             --        (89,359)
  Change in restricted cash in escrow ....        --          --        1,357            --             --          1,357 
  Deferred acquisition costs and other ...        --      (3,008)          --        (2,672)            --         (5,680)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
          Net cash used in investing                                                                                      
            activities ...................        --      (2,691)    (117,373)      (30,009)            --       (150,073)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Cash flows from financing activities:                                                                                     
  Proceeds from issuance of long-term                                                                                     
    debt .................................   343,500          --          556       113,814             --        457,870 
  Principal payments on long-term debt ...  (346,254)         --         (883)      (11,502)            --       (358,639)
  Disbursements/receipts on intercompany                                                                                  
    debt .................................    44,925     (21,356)      76,408       (99,977)            --             -- 
  Proceeds from exercise of stock                                                                                         
    options and warrants .................        --         385           --            --             --            385 
  Purchase of treasury stock .............        --      (4,921)          --            --             --         (4,921)
  Deferred financing costs paid ..........   (15,383)         --           --            --             --        (15,383)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
          Net cash provided by (used in)                                                                                  
            financing activities .........    26,788     (25,892)      76,081         2,335             --         79,312 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Effect of exchange rates on cash .........        --          --           --         1,280             --          1,280 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Net (decrease) increase in cash ..........        --     (29,154)         324        (2,044)            --        (30,874)
Cash, beginning of period ................        --      38,049           45        21,667             --         59,761 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Cash, end of period ...................... $      --   $   8,895     $    369     $  19,623      $      --    $    28,887 
                                           =========   =========     ========     =========      =========    =========== 

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RAILAMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.   GUARANTOR FINANCIAL STATEMENT INFORMATION, continued                      

RAILAMERICA, INC.                                                               
Consolidating Balance Sheet                                                     
At December 31, 2001                                                            
(in thousands)                                                                  

                                                        [Enlarge/Download Table]

                                                                                     NON                                  
                                                        COMPANY     GUARANTOR     GUARANTOR                               
                                            ISSUER      (PARENT)   SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED 
                                           ---------   ---------   ------------  ------------  ------------  ------------ 
                                                                                                                          
ASSETS                                                                                                                    
Current Assets:                                                                                                           
  Cash ................................... $      --   $  38,049     $    457     $  21,254      $      --    $    59,761 
  Cash held in escrow ....................        --         245        2,000           173             --          2,418 
  Accounts and notes receivable ..........        --         911       29,353        24,014             --         54,278 
  Other current assets ...................        11       1,344        5,801         7,048             --         14,204 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Total current assets .............        11      40,550       37,611        52,489             --        130,661 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Property, plant and equipment, net .......        48         929      434,137       303,662             --        738,775 
Other assets .............................    12,884       3,518       (5,180)       10,510             --         21,732 
Investment in and advances to affiliates .   344,002     187,223       29,965      (113,810)      (447,380)            -- 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Total assets ..................... $ 356,945   $ 232,220     $496,533     $ 252,850      $(447,380)   $   891,168 
                                           =========   =========     ========     =========      =========    =========== 
LIABILITIES AND                                                                                                           
   STOCKHOLDERS' EQUITY                                                                                                   
Current Liabilities:                                                                                                      
  Current maturities of long-term debt ... $  16,635   $      --     $  2,695     $   6,853      $  (1,699)   $    24,484 
  Accounts payable .......................        --       1,831       15,667        18,536             --         36,035 
  Accrued expenses .......................     7,638       1,356       18,635        12,260             --         39,889 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Total current liabilities ........    24,273       3,187       36,997        37,649         (1,699)       100,408 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Long-term debt, less current maturities ..   251,117          --        8,842        17,244             --        277,203 
Subordinated debt ........................   118,942      20,679           --         5,367             --        144,988 
Deferred income taxes ....................   (28,978)    (12,607)     108,991        29,417             --         96,822 
Minority interest and other liabilities ..    15,155           2       20,317        20,729         (5,415)        50,788 
Stockholders' equity:                                                                                                     
  Common stock ...........................        --          29        5,565        62,035        (67,600)            29 
  Additional paid-in capital .............        --     224,248      278,322        45,623       (323,945)       224,248 
  Retained earnings ......................   (14,118)     45,902       37,499        50,826        (74,207)        45,902 
  Accumulated other comprehensive                                                                                         
     Income ..............................    (9,446)    (49,220)          --       (16,040)        25,486        (49,220)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Total stockholders' equity .......   (23,564)    220,959      321,386       142,444       (440,266)       220,959 
                                           ---------   ---------     --------     ---------      ---------    ----------- 

        Total liabilities and                                                                                             
          stockholders' equity ........... $ 356,945   $ 232,220     $496,533     $ 252,850      $(447,380)   $   891,168 
                                           =========   =========     ========     =========      =========    =========== 

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RAILAMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.   GUARANTOR FINANCIAL STATEMENT INFORMATION, continued                      

RAILAMERICA, INC                                                                
Consolidating Statement of Income                                               
For the Year Ended December 31, 2001                                            
(in thousands)                                                                  

                                                        [Enlarge/Download Table]

                                                                                     NON                                  
                                                        COMPANY     GUARANTOR     GUARANTOR                               
                                            ISSUER      (PARENT)   SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED 
                                           ---------   ---------   ------------  ------------  ------------  ------------ 
                                                                                                                          
Operating revenue ........................ $      --   $   1,776     $182,047     $ 163,723      $      --    $   347,546 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Operating expenses:                                                                                                       
  Transportation .........................        --          --       94,379       101,726             --        196,105 
  Selling, general and administrative ....       185      15,077       32,184        14,536             --         61,982 
  Gain on sale and impairment of                                                                                          
    assets (net) .........................        26          --       (6,440)           (8)            --         (6,422)
  Terminated motor carrier operations,                                                                                    
    net ..................................        --          --           --           263             --            263 
  Depreciation and amortization ..........     1,031         130       12,777        10,455             --         24,393 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
      Total operating expenses ...........     1,242      15,207      132,900       126,972             --        276,321 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
      Operating (loss) income ............    (1,242)    (13,431)      49,147        36,751             --         71,225 
Interest expense .........................   (14,522)     (1,581)     (23,854)      (10,757)            --        (50,714)
Equity in earnings of subsidiaries .......    25,253      12,614           --            --        (37,867)            -- 
Minority interest and other income                                                                                        
  (expense) ..............................        --      15,064       (7,490)       (7,396)            --            178 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
    Income from continuing                                                                                                
      operations before income taxes .....     9,489      12,666       17,803        18,598        (37,867)        20,689 
Provision for income taxes ...............    (3,099)     (4,371)       5,114         7,253             --          4,897 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
      Income from continuing operations ..    12,588      17,037       12,689        11,345        (37,867)        15,792 

Income from discontinued operations (net                                                                                  
  of tax) ................................        --          --           --         1,482             --          1,482 
Extraordinary loss from early                                                                                             
  extinguishment of debt (net of tax) ....      (238)         --           --            --             --           (236)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Net income ....................... $  12,352   $  17,037     $ 12,689     $  12,827      $ (37,867)   $    17,038 
                                           =========   =========     ========     =========      =========    =========== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.   GUARANTOR FINANCIAL STATEMENT INFORMATION, continued                      

RAILAMERICA, INC.                                                               
Consolidating Statement of Cash Flows                                           
For the Year Ended December 31, 2001                                            
(in thousands)                                                                  

                                                        [Enlarge/Download Table]

                                                                                     Non                                  
                                                        Company     Guarantor     Guarantor                               
                                            Issuer      (Parent)   Subsidiaries  Subsidiaries  Eliminations  Consolidated 
                                           ---------   ---------   ------------  ------------  ------------  ------------ 
                                                                                                                          
Cash flows from operating activities:                                                                                     
  Net income ............................. $  12,352   $  17,037     $ 12,689     $  12,827      $ (37,867)   $    17,038 
  Adjustments to reconcile net income to                                                                                  
    net cash provided by operating                                                                                        
    activities:                                                                                                           
      Depreciation and amortization ......     4,584         891       13,853        12,682             --         32,011 
      Write-off of deferred loan costs ...       378          --           --            --             --            378 
      Equity in earnings of subsidiaries .   (25,253)    (12,614)          --            --         37,867             -- 
      Gain on sale or disposal of                                                                                         
        properties .......................        --          --       (6,428)           (6)            --         (6,434)
      Deferred income taxes ..............    (3,244)     (4,371)       3,904         6,637             --          2,926 
      Other ..............................        --          --           --         1,350             --          1,350 
      Changes in operating assets and                                                                                     
        liabilities, net of acquisitions                                                                                  
        and dispositions:                                                                                                 
        Accounts receivable ..............        11       1,038        3,450           799             --          5,298 
        Other current assets .............        12        (515)       5,049         4,041             --          8,587 
        Accounts payable .................       (74)      1,294        4,356        (4,404)            --          1,172 
        Accrued expenses .................    (2,249)        218      (11,397)          942             --        (12,485)
        Other assets and liabilities .....        92         340        3,819           878             --          5,129 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
          Net cash provided by (used in)                                                                                  
            operating activities .........   (13,390)      3,318       29,297        35,745             --         54,970 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Cash flows from investing activities:                                                                                     
  Purchase of property, plant and                                                                                         
    equipment ............................        (7)       (421)     (30,674)      (30,573)            --        (61,675)
  Proceeds from sale of properties .......        --          --       13,592         4,910             --         18,502 
  Change in restricted cash in escrow ....        --        (245)       1,291            --             --          1,046 
  Deferred acquisition costs and other ...        --      (2,319)          42        (2,300)            --         (4,577)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
          Net cash used in investing                                                                                      
            activities ...................        (7)     (2,985)     (15,749)      (27,962)            --        (46,703)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Cash flows from financing activities:                                                                                     
  Proceeds from issuance of long-term                                                                                     
    debt .................................    84,800          --          649           141             --         85,590 
  Principal payments on long-term debt ...  (136,762)         --       (5,326)           --             --       (142,088)
  Disbursements/receipts on intercompany                                                                                  
    debt .................................    65,360     (58,142)     (11,357)        4,139             --             -- 
  Sale of Common Stock ...................        --      89,736           --            --             --         89,736 
  Proceeds from exercise of stock                                                                                         
    options and warrants .................        --       8,343           --            --             --          8,343 
  Preferred stock dividends paid .........        --        (241)          --            --             --           (241)
  Purchase of treasury stock .............        --      (1,987)          --            --             --         (1,987)
  Deferred financing costs paid ..........        --          --           --            --             --             -- 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
          Net cash provided by (used in)                                                                                  
            financing activities .........    13,398      37,709      (16,034)        4,280             --         39,353 
                                           ---------   ---------     --------     ---------      ---------    ----------- 

Effect of exchange rates on cash .........        --          --           --          (948)            --           (948)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Net (decrease) increase in cash ..........        --      38,042       (2,487)       11,115             --         47,671 
Cash, beginning of period ................        --           7        2,944        10,139             --         13,090 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Cash, end of period ...................... $      --   $  38,049     $    457     $  21,254      $      --    $    59,761 
                                           =========   =========     ========     =========      =========    =========== 

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RAILAMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.   GUARANTOR FINANCIAL STATEMENT INFORMATION, continued                      

RAILAMERICA, INC.                                                               
Consolidating Statement of Income                                               
For the Year Ended December 31, 2000                                            
(in thousands)                                                                  

                                                        [Enlarge/Download Table]

                                                                                     Non                                  
                                                        Company     Guarantor     Guarantor                               
                                            Issuer      (Parent)   Subsidiaries  Subsidiaries  Eliminations  Consolidated 
                                           ---------   ---------   ------------  ------------  ------------  ------------ 
                                                                                                                          
Operating revenue ........................ $      --   $     594     $169,353     $ 165,261      $    (593)   $   334,615 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Operating expenses:                                                                                                       
  Transportation .........................        --          --       87,897       107,570             --        195,467 
  Selling, general and administrative ....       530      11,730       34,090        13,727           (593)        59,484 
  Gain on sale and impairment of assets                                                                                   
    (net) ................................      (762)         --      (10,753)          331             --        (11,184)
  Terminated motor carrier operations,                                                                                    
    net ..................................        --          --           --            88             --             88 
  Depreciation and amortization ..........       944         121       12,987         9,270             --         23,322 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
      Total operating expenses ...........       712      11,851      124,221       130,986           (593)       267,177 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
      Operating income ...................      (712)    (11,257)      45,132        34,275             --         67,438 
Interest expense .........................   (48,428)     (1,910)      (2,247)       (1,327)            --        (53,912)
Interest in equity of subsidiaries .......    55,891      25,301           --            --        (81,192)            -- 
Minority interest and other income                                                                                        
  (expense) ..............................        --           7          223        (2,497)            --         (2,267)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
    Income from continuing operations                                                                                     
      before income taxes ................     6,751      12,141       43,108        30,451        (81,192)        11,259 
Provision for income taxes ...............   (11,548)     (3,093)      10,130         7,411             --          2,900 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
     Income from continuing operations ...    18,299      15,234       32,978        23,040        (81,192)         8,359 
Discontinued operations:                                                                                                  
  Gain on disposal of discontinued                                                                                        
    segment (net of tax) .................        --          --       13,527        (2,000)            --         11,527 
  Loss from operations of discontinued                                                                                    
    segment (net of tax) .................        --          --       (5,077)        3,100             --         (1,977)
  Extraordinary loss from early                                                                                           
    extinguishment of debt (net of tax) ..    (1,299)     (1,321)      (1,376)           --             --         (3,996)
  Cumulative effect of accounting change .        --      (2,252)          --            --             --         (2,252)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
        Net income ....................... $  17,000   $  11,661     $ 40,052     $  24,140      $ (81,192)   $    11,661 
                                           =========   =========     ========     =========      =========    =========== 

F-35

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RAILAMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19. GUARANTOR FINANCIAL STATEMENT INFORMATION, continued                        

RAILAMERICA, INC.                                                               
Consolidating Statement of Cash Flows                                           
For the Year Ended December 31, 2000                                            
(In thousands)                                                                  

                                                        [Enlarge/Download Table]

                                                                                     Non                                  
                                                        Company     Guarantor     Guarantor                               
                                            Issuer      (Parent)   Subsidiaries  Subsidiaries  Eliminations  Consolidated 
                                           ---------   ---------   ------------  ------------  ------------  ------------ 
                                                                                                                          
Cash flows from operating activities:                                                                                     
  Net income (loss) ...................... $  17,000   $  11,661     $ 40,052     $  24,140      $ (81,192)   $    11,661 
  Adjustments to reconcile net income to                                                                                  
    net cash provided by operating                                                                                        
    activities:                                                                                                           
      Depreciation and amortization ......     4,594       1,236       15,751        12,985             --         34,566 
      Financing costs ....................     1,615       1,353          735         1,154             --          4,857 
      Interest paid in kind ..............        --          --        5,806            --             --          5,806 
      Equity interest in earnings of                                                                                      
        affiliate ........................   (55,891)    (25,301)          --          (554)        81,192           (554)
      (Gain) loss on sale or disposal of                                                                                  
        properties .......................      (762)         --      (31,857)        3,065             --        (29,554)
      Cumulative effect of accounting                                                                                     
        change ...........................        --       2,252           --            --             --          2,252 
      Deferred income taxes ..............   (13,984)     (4,431)      20,549        (4,931)            --         (2,797)
      Other ..............................        --          --           --           995             --            995 
      Changes in operating assets and                                                                                     
        liabilities, net of acquisitions                                                                                  
        and dispositions:                                                                                                 
        Accounts receivable ..............      (356)        745       (2,676)        5,941             --          3,654 
        Other current assets .............       (23)       (388)      (1,802)        4,668             --          2,455 
        Accounts payable .................        74        (240)      (2,977)        5,382             --          2,239 
        Accrued expenses .................     9,889         295       (2,562)       (1,863)            --          5,759 
        Other assets and liabilities .....       263      (1,552)       4,279           104             --          3,094 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
          Net cash provided by operating                                                                                  
            activities ...................   (37,581)    (14,370)      45,297        51,088             --         44,433 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Cash flows from investing activities:                                                                                     
  Purchase of property, plant and                                                                                         
    equipment ............................       (52)        (26)     (24,034)      (38,387)            --        (62,499)
  Proceeds from sale of properties .......        --          --       80,976        15,678             --         96,654 
  Acquisitions, net of cash acquired .....        --          --     (148,922)           --             --       (148,922)
  Change in cash in escrow ...............        --          --       (2,507)       (2,032)            --         (4,539)
  Deferred acquisition costs and other ...        --      (2,711)          --            --             --         (2,711)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
          Net cash used in investing                                                                                      
            activities ...................       (52)     (2,737)     (94,486)      (24,742)            --       (122,017)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Cash flows from financing activities:                                                                                     
  Proceeds from issuance of long-term                                                                                     
    debt .................................   539,150         986        6,040         3,059             --        549,235 
  Principal payments on long-term debt ...   (97,186)    (11,699)    (156,010)     (183,212)            --       (448,107)
  Disbursements/receipts on intercompany                                                                                  
    debt .................................  (385,991)     29,805      201,256       154,930             --             -- 
  Proceeds from exercise of stock                                                                                         
    options ..............................        --         234           --            --             --            234 
  Preferred stock dividends paid .........        --        (289)          --            --             --           (289)
  Purchase of treasury stock .............        --      (1,992)          --            --             --         (1,992)
  Deferred financing costs paid ..........   (18,340)        (23)        (617)           --             --        (18,980)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
          Net cash provided by financing                                                                                  
            activities ...................    37,633      17,022       50,669       (25,223)            --         80,101 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Effect of exchange rates on cash .........        --          --           --        (1,025)            --         (1,025)
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Net (decrease) increase in cash ..........        --         (85)       1,480            98             --          1,492 
Cash, beginning of period ................        --          92        1,464        10,042             --         11,598 
                                           ---------   ---------     --------     ---------      ---------    ----------- 
Cash, end of period ...................... $      --   $       7     $  2,943     $  10,140      $      --    $    13,090 
                                           =========   =========     ========     =========      =========    =========== 

F-36

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 10-K Filing		Date		First		Last			Other Filings
		3/31/92		3
		11/11/94		38
		9/30/95		39
		11/12/95		39
		12/31/95		39
		3/31/97		39					10-Q, 10-Q/A, 10KSB, NT 10-Q
		1/6/98		37
		1/8/98		39					8-A12G, 8-K
		3/31/98		39					10-K, 10-Q
		5/14/98		39					10-Q
		12/31/98		18		39			10-K
		3/31/99		39					10-K, 10-Q, 10-Q/A
		4/30/99		9		39			8-K, 8-K/A, DEF 14A
		5/18/99		39					8-K
		8/1/99		18
		9/1/99		18
		12/31/99		18		39			10-K, 10-K/A
		1/1/00		47		67
		1/13/00		37		39			8-K
		1/26/00		39					8-A12G/A, 8-K
		2/1/00		18
		2/2/00		56
		2/4/00		56					3, 8-K, S-3/A
		3/30/00		39					10-K
		4/13/00		37		39			8-K
		5/4/00		58
		8/14/00		37					10-Q, 3
		12/31/00		8		78			10-K405
		1/1/01		65		67
		4/2/01		39					10-K405
		4/4/01		38
		10/12/01		37
		11/26/01		37
		12/31/01		8		76			10-K405, 4
		1/1/02		33		67
		1/2/02		17					8-K
		1/4/02		18		54			8-K, S-3/A
		1/8/02		18		55
		4/1/02		39					10-K405
		5/15/02		34		51
		5/23/02		38
		6/30/02		1		39			10-Q, 4
		8/14/02		39					4
		11/8/02		32		66
		11/15/02		56
		11/24/02		32		66
		12/5/02		32		66
		12/15/02		34		52
For The Period Ended		12/31/02		1		73
		1/1/03		34		51
		1/31/03		34		52
		2/1/03		34		52
		3/3/03		44
		3/20/03		1
		3/22/03		13
		3/24/03		17
		3/26/03		61
Filed On / Filed As Of		3/27/03		40		42
		4/30/03		36
		5/24/03		32		66
		6/15/03		34		52
		8/15/03		60
		8/16/03		60
		11/24/03		32		66
		12/5/03		32		66
		12/31/03		33		61			10-K, 5
		5/24/04		32		66
		5/31/04		16
		7/31/04		61
		11/24/04		32		66
		8/14/05		60
		12/31/05		16					10-K
		12/11/06		56
		2/28/07		56
		5/24/07		56
		5/23/08		31
		8/15/08		60
		5/23/09		31
		8/15/10		60		61
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