Railamerica Inc/DE · 10-K · For 12/31/99

Filed On 3/30/00   ·   SEC File 0-20618   ·   Accession Number 950144-0-4311

Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Railamerica 12/31/1999                                87    427K 
 2: EX-4.4      Warrant Agreement                                     25     76K 
 3: EX-4.5      Asset Bridge Warrant Agreement                        26     76K 
 4: EX-10.71    Credit Agreement                                     141    517K 
 5: EX-10.72    Securities Purchase Agreement                         62    235K 
 6: EX-10.73    Asset Bridge Securities Purchase Agreement            58    206K 
 7: EX-10.74    Equity Registration Rights Agreement                  13     43K 
 8: EX-10.75    Debt Registration Rights Agreement                    23     76K 
 9: EX-10.76    Asset Bridge Equity Registration Rights Agreement     13     43K 
10: EX-21.1     Subsidiaries of Registrant                             2     11K 
11: EX-23.1     Consent of Pricewaterhousecoopers Llp                  1      6K 
12: EX-23.2     Consent of Arthur Andersen Langton Clarke              1      7K 
13: EX-27       Financial Data Schedule                                1      7K 

10-K   —   Railamerica 12/31/1999
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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, 1999  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: None
 Securities Registered Pursuant to Section 12(g) of the Act:

 Common Stock, $.001 Par Value

Common Stock Purchase Rights

       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. [ ]                                         

       The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 23, 2000 computed by reference to the average bid 
and asked prices of registrant's common stock reported on NASDAQ on such date   
was $96.5 million.                                                              

      The number of shares outstanding of registrant's Common Stock, $.001
par value per share, as of March 23, 2000 was 18,676,021.                       

DOCUMENTS INCORPORATED BY REFERENCE                                             

         The registrant's proxy statement for the Annual Meeting of Stockholders
(the "Definitive Proxy Statement") to be filed with the Commission pursuant to  
Regulation 14A is incorporated by reference into Part III of this Form 10-K.    

================================================================================

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 TABLE OF CONTENTS

                                                                [Download Table]


                                                                           PAGE  
                                                                           ----  
                                                                                 
PART I                                                                           

Item 1.    Business                                                            3 
Item 2.    Properties                                                         22 
Item 3.    Legal Proceedings                                                  28 
Item 4.    Submission of Matters to a Vote of Security Holders                28 

PART II                                                                          

Item 5.    Market for Common Equity and Related Stockholder Matters           29 
Item 6.    Selected Financial Data                                            30 
Item 7.    Management's Discussion and Analysis                               31 
Item 7a.  Market Risk                                                         46 
Item 8.    Financial Statements                                               47 
Item 9.   Changes in and Disagreements with Accountants on Accounting and        
                 Financial Disclosure                                         47 

PART III                                                                         

Item 10.  Directors and Executive Officers of the Registrant                  48 
Item 11.  Executive Compensation                                              48 
Item 12.  Security Ownership of Certain Beneficial Owners and Management      48 
Item 13.  Certain Relationships and Related Transactions                      48 

PART IV                                                                          

Item 14.  Exhibits and Reports on Form 8-K                                    49 

Signatures                                                                       

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         This Form 10-K contains certain "forward-looking" statements within the
meaning of The Private Securities Act of 1995 and information relating to       
RailAmerica, Inc. and it subsidiaries that are based on the beliefs of the      
Company's management and that involve known and unknown risks and uncertainties.
When used in this report "anticipate," "believe," "estimate," "expect" and      
"intend" and words or phrases of similar import, as they relate to the Company  
or its subsidiaries or Company management, are intended to identify             
forward-looking statements. Such statements reflect the current risks,          
uncertainties and assumptions related to certain factors including, without     
limitation, currency risk, competitive factors, general economic conditions,    
customer relations, relationships with vendors, fuel costs, the interest rate   
environment, governmental regulation and supervision, seasonality, technological
change, changes in industry practices, the inability to integrate successfully  
the acquired operations, the ability to service debt, one-time events and other 
factors described herein and in other filings made by the Company 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 herein as anticipated, believed, estimated or intended. The     
Company undertakes no obligation to update, and the Company does not have a     
policy of updating or revising, these forward looking statements.               

PART I                                                                          

ITEM 1.  BUSINESS                                                               

GENERAL                                                                         

     RailAmerica, Inc. (together with its consolidated subsidiaries, the
"Company" or "RailAmerica") is 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. RailAmerica owns/leases, operates or  
has equity interests in, a diversified portfolio of 50 railroads with           
approximately 12,500 miles of track located in the United States, Australia,    
Canada and Chile. Through its diversified portfolio of rail lines, the Company  
operates in numerous geographic regions with varying concentrations of          
commodities hauled. The Company believes that individual economic and seasonal  
cycles in each region may partially offset each other.                          

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

      The Company's strategy is to grow through (i) the integration of the
newly acquired properties, including RailTex, Inc. ("RailTex"), (ii) the        
creation of new business and improvement in operating performance of newly added
and currently operated properties and (iii) the continuance of selective        
acquisitions in North America and Internationally and divestiture of non-core   
lines.                                                                          

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RECENT DEVELOPMENTS                                                             

Since January 1, 1999, the Company has completed the following acquisitions:    

o        in February 2000, the Company acquired RailTex, a leading owner and    
operator of short line freight railroads concentrated in the  
      southeastern, midwestern, Great Lakes and New England regions of the
        United States and in eastern Canada, with approximately 4,100 miles of
 freight rail lines in North America, for total consideration of
         approximately $128 million in cash, approximately 6.6 million shares of
      RailAmerica common stock, valued at $60.8 million, and assumption of
     approximately $111 million in debt. As a result of the acquisition,
       former RailTex shareholders owned approximately 35 % of the Company's
common stock at the time of the merger;                       

o        in September 1999, the Company acquired The Toledo, Peoria and Western 
    Railroad Corporation ("TPW"), a regional freight railroad with 369
    miles of rail lines in the central United States, for an aggregate
     purchase price of $18 million, including the assumption of debt and
subject to closing working capital adjustments;               

o        in July 1999, the Company acquired RaiLink Ltd. ("RaiLink"), the third 
largest freight rail system in Canada, which owns or operates 
      approximately 1,620 miles of rail lines and has an approximately 26%
    interest in a railroad company operating another 740 miles, for an
      aggregate purchase price of $71 million, including the assumption of
debt;                                                         

o        in April 1999, the Company acquired the business of V/Line Freight     
        Corporation, the freight railroad of Australia's Victorian Government,
      with approximately 3,150 miles of rail lines in Australia, for total
   consideration of $103 million. The Company operates this business
     through its wholly owned subsidiary Freight Victoria Limited, which
does business as Freight Victoria;                            

o        in January 1999, the Company acquired the assets of the Esquimalt and  
    Nanaimo Railway Company, a 181 mile rail line in British Columbia,
     Canada, which operates as E&N Railway Corporation, for an aggregate
purchase price of $11 million.                                

    In November 1999, the Company announced a plan to sell its trailer
manufacturing operations, Kalyn/Siebert. This business has been classified as a 
discontinued operation and the results of operations have been excluded from    
continuing operations in the consolidated statements of operations for all      
periods presented.                                                              

 In February 2000, the Company's wholly owned subsidiary Freight
Victoria announced that it will begin doing business as Freight Australia.      

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BUSINESS STRATEGY                                                               

         The Company's strategy is to expand its position as a leading owner and
operator of short line and regional railroads in selected markets worldwide. Key
elements of this strategy include:                                              

    INTEGRATE RECENT ACQUISITIONS INTO THE COMPANY'S OPERATIONS. A key
element to the Company's strategy will be to implement a comprehensive          
integration plan focusing on areas such as rationalizing staffing, regionalizing
operations, centralizing corporate functions and management information systems 
and the elimination of other duplicative costs including public company costs   
and board of director fees. Should the Company be unable to integrate           
successfully the acquired operations, the Company's operating results and       
financial condition may be materially adversely affected.                       

       GROW INTERNALLY THROUGH FOCUSED SALES, MARKETING EFFORTS AND CUSTOMER
SERVICE. The Company will continue to focus on increasing traffic in each of the
Company's markets by aggressively marketing the Company's customer service to   
its customers and bolstering sales efforts. In many cases, customer service and 
sales and marketing at railroads that the Company has acquired have been        
neglected by the previous owners. The Company has purchased a number of rail    
lines from Class I railroads. Due to the size of the Class I railroads and their
concentration on long-haul traffic, the Class I operators typically have not    
effectively marketed these branch line operations.                              

        Once the Company acquires a rail property the Company undertakes steps
to improve the local sales and marketing efforts and to increase the railroad's 
focus on customer service. Due to the Company's decentralized management        
structure and a flexible, cross-trained employee base, the Company is able to   
provide flexible and customized solutions that were not previously available to 
the customers under the ownership of a Class I operator. This increased focus on
service enables the Company to reestablish relationships with customers who had 
previously dropped service.                                                     

         In addition, the Company's management has been successful at increasing
traffic by further penetrating the acquired railroad's existing customer base.  
As a result, typically revenues increase and profitability improves once the    
Company acquires and integrates a railroad. The Company's management intends to 
continue this successful strategy by deepening its relationships with customers 
and further improving upon its local sales and marketing efforts.               

       MAINTAIN CLOSE RELATIONSHIPS WITH CLASS I RAILROADS. Since all of the
Company's North American short line properties interchange with at least one    
Class I railroad, the Company maintains close relationships with all of the     
North American Class I railroads. The Company believes that these relationships 
will enable the Company to pursue new business opportunities on existing rail   
properties and acquire additional short line freight lines from the Class I     
railroads.                                                                      

      CONTINUE TO GROW THROUGH SELECTIVE ACQUISITIONS. The Company expects
that opportunities to acquire select North American short line rail properties  
will continue to become available over the next several years. The Company      
intends to selectively make acquisitions of properties at an attractive purchase
price and with the potential for substantial improvement in revenue and         
profitability, in similar geographic regions or clusters so that synergies and  

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economies of scale may be achieved. The Company expects that those acquisitions 
will increase product diversification in order to further mitigate the effects  
of seasonal or cyclical fluctuations.                                           

   The Company also expects to make acquisitions in economically and
politically stable international markets as a result of an increasing number of 
governments seeking to privatize their national rail systems. In particular, the
Company believes that further acquisition opportunities exist within Australia, 
and that the Company has a significant advantage over its competitors in        
completing acquisitions of Australian rail properties given its current         
operating status in the region. The Company has been successful at improving    
operating efficiencies and reducing costs at the recently acquired Freight      
Victoria and Ferronor railroads and the Company believes it will be able to     
achieve success at other international acquisitions.                            

        DIVERSIFICATION. RailAmerica believes that its revenue diversification
limits its exposure to geographic, economic and customer related risks, while   
positioning the Company to take advantage of a broad range of business          
opportunities. This diversification, and the stability it provides to the       
Company's operations, differentiates it from other regional and short line      
carriers. Diversification also enables the Company to develop and maintain close
relationships with essentially all major rail carriers in North America.        

       DIVESTITURES. In order to capitalize on opportunities more profitable
to its overall portfolio and to minimize the amount of management time and      
effort on the smaller properties in its portfolio and to reduce debt, it may    
from time to time divest certain of its non-core railroad properties. The       
Company believes there is a market for such divestitures among other smaller    
short line operating companies and selected strategic buyers.                   

NORTH AMERICAN RAILROAD OPERATIONS                                              

       The Company currently owns, leases and/or operates 43 rail properties
in North America and has equity interests in an additional five rail properties.
All of the Company's North American rail properties are short line railroads    
that provide transportation services for both on-line customers and Class I     
railroads which interchange with the Company's 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 the Company's 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 make the Company's rail services generally a more effective, lower-cost    
alternative to other modes of transportation, including motor carriers.         

        UNITED STATES. The Company owns/leases and operates 33 short line rail
properties in the United States with approximately 5,000 miles of track. The    
Company's United States properties are geographically diversified and operate in
24 states. The Company has clusters of rail properties in the southeastern,     

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midwestern, Great Lakes and New England regions of the United States. The       
Company believes that this cluster strategy provides economies of scale and     
helps achieve operational synergies.                                            

 CANADA. The Company owns/leases and operates 10 short line rail
properties in Canada with approximately 2,200 miles of track. The Company's     
Canadian properties are geographically diversified and operate in six provinces.
The Company has clusters of rail properties in Alberta, southern Ontario and    
eastern Quebec. The Company also owns a 26% equity interest in Quebec Railway   
Corporation, a railroad company operating five railroads in southeastern Canada.

       SALES AND MARKETING. The Company focuses on providing rail service to
its customers that is easily accessible, reliable and cost-effective. Following 
commencement of operations, the Company's 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.  
The Company believes its ability to generate additional traffic is enhanced by  
its marketing efforts which are aimed at identifying and responding quickly to  
the individual business needs of customers along its rail lines. As part of its 
marketing efforts, the Company often schedules more frequent rail service, helps
customers negotiate price and service levels with interchange partners and      
assists customers in obtaining the quantity and type of rail equipment required 
for their operations. The Company also provides non-scheduled train service on  
short notice to accommodate customers' special or emergency needs.              

    The Company's decentralized management structure is an important
element of its marketing strategy. Significant discretion with respect to sales 
and marketing activities is given to the Company's North American regional      
marketing managers and international marketing managers. Each regional marketing
manager works closely with personnel of the Company's 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. The Company 
also works 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. The     
Company considers all of its employees to be customer service representatives   
and encourages them to initiate and maintain regular contact with shippers.     

        TRAFFIC. 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 neither originates nor terminates on a   
rail carrier's line, but rather passes over the line from one connecting rail   
carrier to another.                                                             

         Traffic which originated or terminated on RailAmerica's lines generated
89% and 100% of the Company's total freight revenue in 1999 and 1998,           
respectively. The Company believes that higher levels of interline and local    
traffic provide it with greater stability of revenues because such traffic      
represents shipments to or from customers located along its lines, unlike bridge
traffic, which cannot be easily diverted to other rail carriers.                

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   The following table summarizes freight revenue by type of traffic
carried by the Company's railroads in 1999 and 1998, in dollars and as a percent
of total freight revenue.                                                       

 FREIGHT REVENUE
(DOLLARS IN THOUSANDS)

                            1999                      1998
                              -------------------       --------------------
    Interline                  $31,905      86.5%       $14,979        99.1%
    Local                          945       2.6%           142         0.9%
   Bridge                       4,019      10.9%           --           --
                              -------     -----        -------       -----
                               $36,869     100.0%       $15,121       100.0%
                              =======     =====        =======       =====

 CONNECTING CARRIERS. All of RailAmerica's short line properties
interchange traffic with Class I railroads. The following table summarizes the  
Company's significant connecting carriers in 1999 and 1998 by freight revenues  
and carloads as a percentage of total interchanged (interline and bridge)       
traffic.                                                                        

INTERCHANGED TRAFFIC

                                                                [Download Table]

                                              1999                 1998           
                                      -------------------  -----------------------
                                            FREIGHT               FREIGHT         
                                       REVENUES CARLOADS   REVENUES      CARLOADS 

                                                                                  
Canadian Pacific                        28.5%       24.4%     --          --      
Burlington Northern Sante Fe Railway    26.6%       34.2%    63.0%       66.2%    
Canadian National Railways              20.4%       21.6%     --          --      
CSXT Transportation, Inc.               14.6%       10.0%    31.5%       28.2%    
Union Pacific Corporation                3.5%        3.3%     1.9%        1.8%    
All other railroads                      6.4%        6.5%     3.6%        3.8%    
                                       ------      ------   ------      ------    
    Total interchanged traffic         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 the Company's    
lines. The Company's revenues from such traffic are generally collected through 
fees paid directly to the Company by the connecting carriers rather than by     

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customers on its 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 the Company's       
railroads with their respective connecting carriers and are subject to periodic 
adjustments.                                                                    

         CUSTOMERS. In 1999, the Company served more than 500 customers in North
America who shipped and/or received a wide variety of products. The Company's   
railroads are typically the only rail carriers directly serving their customers.
Although most of the Company's North American railroads have a well-diversified 
customer base, several of the smaller rail lines have one or two dominant       
customers. In 1999, the Company's 10 largest North American customers accounted 
for approximately 39% of North American transportation revenue. One of these    
customers accounted for approximately 12% of the Company's North American       
transportation revenue.                                                         

      COMMODITIES. The following table sets forth by number and percentage
the carloads hauled by our North American railroads during the years ended      
December 31, 1999, 1998 and 1997.                                               

 CARLOADS CARRIED BY COMMODITY GROUP

                                                        [Enlarge/Download Table]

                                   YEAR ENDED               YEAR ENDED               YEAR ENDED         
                                DECEMBER 31, 1999        DECEMBER 31, 1998        DECEMBER 31, 1997     
                                -----------------        -----------------        -----------------     
             COMMODITY      CARLOADS      % OF TOTAL  CARLOADS      % OF TOTAL  CARLOADS      % OF TOTAL
         -----------------  --------      ----------  --------      ----------  --------      ----------
                                                                                                        
Railroad equipment                37,023       24%             --       0%            --        0%      
Paper and forest products         29,991       19%          9,152       19%        9,797       21%      
Agriculture                       28,140       18%         15,349       31%       13,185       29%      
Steel & scrap steel               10,956       7%           1,695       3%         1,562        3%      
Food products                      9,736       6%           5,272       11%        4,928       11%      
Chemicals/fertilizer               8,522       6%           4,936       10%        4,418       10%      
Petroleum products                 5,678       4%             135       0%            --        0%      
Coal                               5,504       4%           4,898       10%        3,877        8%      
Containers                         5,033       3%              --       0%            --        0%      
Minerals & stones                  4,066       3%           4,879       10%        5,247       11%      
Auto parts                         3,415       2%             683       1%           755        2%      
Other                              6,927       4%           2,520       5%         2,438        5%      
                                   -----                    -----                  -----                
        Total                    154,991      100%         49,519      100%       46,207       100%     
                                 =======                   ======                 ======                

* - Railroad equipment includes bridge traffic on the Company's Ottawa Valley   
Railway                                                                         

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     EMPLOYEES. Currently, the Company has approximately 1,300 full-time
railroad employees in North America. A majority of the approximately 400        
Canadian employees are subject to collective bargaining agreements as well as   
approximately 200 of the 900 United States employees.                           

       SAFETY. The Company endeavors to conduct safe railroad operations for
the benefit and protection of employees, customers and the communities served by
the Company's railroads. The Company's safety program, led by the Assistant Vice
President of Safety, involves all of the Company's employees and is administered
on a daily basis by each Regional Vice President. Operating personnel are       
trained and certified in train operations, hazardous materials handling, proper 
radio procedures 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       
regulation. The Company believes that each of its North American railroads      
complies in all material respects with federal, state and local regulations.    
Additionally, each railroad is given flexibility to develop more stringent      
safety rules based on local requirements or practices. The Company also         
participates in governmental and industry sponsored safety programs including   
Operation Lifesaver (the national grade crossing awareness program) and the     
American Short Line Railroad Association Safety Committee.                      

      COMPETITION. In acquiring rail properties, the Company competes with
other short line and regional railroad operators, some of which have greater    
financial resources than the Company. Competition for rail properties is based  
primarily upon price, operating history and financing capability. The Company   
believes its established reputation as a successful acquirer of short line rail 
properties, combined with its managerial resources, effectively positions it to 
take advantage of future acquisition opportunities.                             

       The Company's railroads are typically the only rail carriers directly
serving their customers; however, the Company's 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 the Company's 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, the Company  
cannot control the cost and quality of service.                                 

INTERNATIONAL RAILROAD OPERATIONS                                               

AUSTRALIAN RAILROAD OPERATIONS                                

     In Australia, the Company owns Freight Victoria, a regional freight
railroad operating in the State of Victoria. Freight Victoria is the Company's  
wholly owned Australian subsidiary that purchased the assets and business of    
V/Line Freight Corporation from the Government of the State of Victoria,        

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Australia on April 30, 1999 for total consideration of approximately $103       
million. The assets purchased from V/Line Freight Corporation included 106      
locomotives and over 2,600 rail cars. In addition, Freight Victoria prepaid to  
the State of Victoria the rental payments of a 45-year lease to operate 3,150   
miles of track. The present value of the lease payments totaled approximately   
$60 million.                                                                    

       In February 2000, Freight Victoria announced that it will begin doing
business as Freight Australia.                                                  

       CUSTOMERS. Freight Victoria'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.                   

         MAJOR CONTRACTS. Freight Victoria generates a substantial percentage of
its revenue from contracts with the Australian Wheat Board and the Government of
Victoria's Passenger Rail Authority. In addition, Freight Victoria has recently 
entered into a contract with GrainCo, a private Australian agricultural         
commodities company.                                                            

o        AUSTRALIAN WHEAT BOARD - Through a recently renewed five-year contract 
    with the Australian Wheat Board, Australia's only government-owned
      grain export agency, Freight Victoria hauls grain from points on its
 rail system to various export terminals throughout the State of
Victoria, including the port of Melbourne and other industrial
         locations. Pursuant to this contract, Freight Victoria is guaranteed to
       haul 90% of all wheat harvested in Victoria and specified surrounding
         areas, and destined for export abroad, and receives fixed-rate fees for
      the transportation services. The contract expires in September 2005.
       Freight Victoria, under this new contract is provided a 90% guarantee
for additional grain-growing regions of southeastern Australia
        (including specified areas of New South Wales) and, correspondingly, a
greater amount of tonnage to be hauled. Australian Wheat Board
      represented 19% of Freight Victoria's transportation revenue for the
period May 1, 1999 to December 31, 1999.                      

o        V/LINE PASSENGER - In connection with the acquisition of Freight       
       Victoria, the Company entered into a long-term agreement granting the
         Victoria Passenger Rail Authority track access for its V/Line passenger
     train business. Under the contract, Freight Victoria provides track
   entitlements and maintenance for the passenger train business and
      receives minimum fees of $16 million per year (subject to escalation
     each year) in return for providing such access and maintenance. The
         contract is non-cancelable and expires in 2006. V/Line Passenger access
      revenue represented 23% of Freight Victoria's transportation revenue
for the period May 1, 1999 to December 31, 1999.              

o        GRAINCO - In September 1999, Freight Victoria entered into a two-year  
        contract with GrainCo, an Australian agricultural commodities company.
         Under the terms of this agreement, Freight Victoria will generate total
  revenue of approximately $4 million per year. GrainCo, a private
  Australian company, operates an agricultural products brokerage,

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         trading and distribution business through facilities located throughout
      the state of Victoria, including a large new facility in the Port of
       Melbourne. GrainCo handles Australian agricultural product shipments,
  including grain, barley and other cereals, destined for both the
domestic Australian market as well as export.                 

  COMMODITIES. The following table sets forth by dollar amount (in
thousands) and percentage Freight Victoria's transportation revenue for the     
period from May 1, 1999 to December 31, 1999.                                   

                       COMMODITY                  US$ AMOUNT      % OF TOTAL
                       ---------                  ----------      ----------

Agricultural products                                   24,613          40%     
Track access fees                                       12,430          21%     
Intermodal containers                                    7,470          12%     
Fast track*                                              6,744          11%     
Bulk (i.e. cement, gypsum, stone, logs)                  6,213          10%     
Interstate                                               3,484           6%     
                                                  -------           --
   Total transportation revenue                    60,954         100%
                                                  =======         ====

 *       Fast Track - Freight Victoria's Fast Track business transports products
         which typically are less than a container load of freight (the majority
of traffic are either parcels or pallets). Services offered to
        customers include depot-to-depot, depot-to-door, and door-to-door. The
         Fast Track business has six metropolitan sites and services 24 regional
         freight centers. Road contractors perform local pick-up and delivery to
and from the freight centers.                                 

        EMPLOYEES. Freight Victoria currently has approximately 650 employees.
A majority of these employees are subject to collective bargaining agreements.  

CHILEAN RAILROAD OPERATIONS                                                     

     In February 1997, the Company, through a newly formed, wholly owned
subsidiary, RailAmerica de Chile S.A., acquired 55% of the outstanding voting   
stock of Ferronor for approximately $7.2 million. Ferronor owns and operates    
approximately 1,400 miles of rail line serving northern Chile. RailAmerica was  
joined in the purchase of Ferronor by Andres Pirazzoli y Cia, Ltda. ("APCO"), a 
Chilean contractor providing equipment and mechanized services to the forest    
industry.                                                                       

    Ferronor 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 limestone mines   

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and production facilities with several Chilean Pacific port cities. Ferronor    
also serves Argentina and Bolivia through traffic interchanged with the General 
Belgrano Railroad and the Ferrocarriles Antofagasta Bolivia.                    

         CUSTOMERS. Ferronor's customers are principally in the mining industry.
Ferronor had two customers who each represented more than 10% of the            
transportation revenue in Chile. The customers represented 43% and 40% of the   
Chilean transportation revenue for 1999.                                        

MAJOR CONTRACTS. Ferronor, in 1996, entered into a new 20-year
take-or-pay agreement with CMH, a large Chilean mining company. The contract    
outlines the terms for the transport of approximately 5.2 million tons of iron  
pellets annually, commencing July 1998. The contract guarantees a minimum of 4.0
million tons per year at a rate of US$1.45/ton. The contract has escalators     
based on general inflation rates and the cost of fuel. Ferronor expects the     
contract to yield a minimum of US$8.6 million per year in additional revenue.   

 During 1998, Ferronor entered into a new 10-year transportation
contract with SQM Nitratos S.A. that the Company estimates will yield aggregate 
revenues of approximately US$68 million. The contract calls for the movement of 
approximately 500,000 tons annually of potassium chloride and potassium sulfite 
from the Minsal Salt Flats mine in northern Chile to Coya Sur, a distance of 128
miles, with further service 54 miles to Tocopilla, in conjunction with the      
Tocopilla railroad. Movements commenced in mid 1998.                            

        COMMODITIES. Iron ore and nitrates accounted for approximately 43% and
40%, respectively, of Ferronor's revenue for 1999.                              

EMPLOYEES. Ferronor currently has approximately 255 full-time 
employees. A majority of Ferronor's employees are subject to collective         
bargaining agreements.                                                          

TRAILER MANUFACTURING OPERATIONS                                                

Kalyn/Siebert, Inc ("KSI"), located in Gatesville, Texas, was 
established in 1968 and manufactures a broad range of specialty truck trailers. 
KSI products are marketed to customers in the construction, trucking,           
agricultural, railroad, utility, and oil industries. In addition, a substantial 
portion of KSI's sales are to the military and several other local and federal  
government agencies. During the second quarter of 1999, KSI's assets and        
operations were transferred to a Texas limited partnership, Kalyn/Siebert L.P.  
KSI is the 1% general partner and a newly formed, wholly owned subsidiary of the
Company, KS Boca, Inc., is the 99% limited partner.                             

         In January 1998, the Company, through its wholly-owned subsidiary, KSI,
acquired all of the outstanding stock of Fabrex, Inc. and its affiliate,        
Services Remorques Plus, Inc. Fabrex's operations have been combined into       
Kalyn/Siebert Canada ("KSC"), a wholly-owned subsidiary of KSI. KSC is a        
manufacturer of specialty bulk-hauling truck trailers located in Trois-Rivieres,
Quebec, Canada. KSC's products are marketed to the solid waste, agricultural and
construction industries.                                                        

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  In November 1999, the Company adopted a plan to sell its trailer
manufacturing operations. This business has been classified as a discontinued   
operation and the results of operations have been excluded from continuing      
operations in the consolidated statements of operations for all periods         
presented.                                                                      

      PRODUCTS. KSI manufactures an extensive variety of light, medium and
heavy duty truck trailers. The Company's products include the following:        

o        FLATBED TRAILERS. Flatbed trailers, also known as platform trailers,   
         are generally used to carry loads such as steel and building materials.
    The Company produces a wide variety of flatbed trailers, including
   straight frames, drop frames and multi-axle units for specialized
        loads. KSI's leading product in this category is the KDP-80, a 48 foot
      drop deck flatbed trailer which is purchased primarily by commercial
       customers. This trailer has a 10 foot spread on the tandem axle which
allows more weight per axle than narrower tandems.            

o        LOWBED TRAILERS. Lowbed trailers, also known as lowboy trailers or     
      California legals, generally haul heavy equipment such as electrical
         transformers or grain silos. Lowbed trailers are equipped with up to 18
axles and have the capacity to haul up to 300 ton loads. Heavy
       equipment lowbeds are used by heavy haulers, specialized carriers and
riggers, larger construction and engineering firms and        
        highly-specialized members of the aerospace and automotive industries.
         The products constituting this category include the following trailers:
    fixed neck lowbed, folding neck lowbed, detachable lowbed, and the
         mechanical removable gooseneck, which is KSI's leading trailer by sales
in this product line.                                         

o        OTHER PRODUCTS. KSI manufactures a sliding-axle trailer which can be   
 used to transport heavy equipment such as forklifts and similar
         equipment. KSI also manufactures a specialty van trailer for the United
        States Tank Automotive Command ("TACOM"), a Department of Defense unit
  established to consolidate purchases for various branches of the
   military, which has special dolly-style suspensions and removable
    landing gear so that it can be shipped on military transport cargo
      planes. These specialty van trailers can be used for tactical combat
   purposes or as storage containers. Another specialty trailer is a
  double drop totally enclosed trailer for hauling rocket engines.

o        PARTS AND ACCESSORIES. Replacement parts and accessories are primarily 
sold to dealers.                                              

KSC produces specialty bulk-hauling truck trailers used in the
solid-waste, agricultural, and construction industries. Historically,           
approximately 85% of KSC's sales have been transfer trailers and 80% of these   
have been made in aluminum. KSC began producing dump trailers in 1995. In 1998, 
these trailers represented approximately 15% of KSC's sales. The dump trailers  
consist of approximately 70% aluminum and 30% steel. During the second half of  
1998, KSC began producing KSI flatbed trailers in its newly acquired facility.  

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         MANUFACTURING AND ENGINEERING. KSI considers its engineering expertise,
combined with the manufacturing experience of its work force, to be key         
competitive advantages. KSI utilizes this experience in its marketing by        
including manufacturing personnel in initial meetings with potential KSI        
customers to assist in defining and meeting the customer's objectives. This team
approach often results in new and unique ways to satisfy customer needs and     
facilitates effective communication throughout the organization.                

       Each of KSI's trailers is manufactured from highly customized designs
based on detailed customer specifications of each aspect of the trailer,        
including dimensions, structural requirements, fabrication materials, component 
parts and accessories. KSI's computer assisted design allows its engineers to   
readily modify trailer component designs and generate new designs based on      
customer needs.                                                                 

      KSI builds all the structural parts of its trailers using steel bars
and plates. The major manufacturing steps include cutting, bending and welding  
of steel and, once assembled, cleaning and painting. The axles and running gears
are purchased as sub-assemblies which are integrated into the KSI trailer       
design. KSI contracts out any necessary machining. KSI exercises strict quality 
control by screening suppliers and conducting inspections throughout the        
production process.                                                             

   KSI's ability to manufacture trailers is dependent upon receiving
supplies or components and raw materials from a limited number of sources. To   
date, KSI has experienced no material difficulties in procuring supplies,       
components or materials. However, if deliveries of such items are delayed, KSI's
production ability may be decreased which could have a negative effect on KSI's 
and the Company's results of operations.                                        

        KSI's manufacturing operations are conducted in thirteen Company owned
buildings, totaling approximately 198,000 square feet on an 25.5 acre site,     
which were constructed between 1969 and 1998. The Company expects that this site
will be able to meet its manufacturing goals for the foreseeable future.        

     At acquisition date, Fabrex, was producing its trailers at a 45,000
square foot manufacturing facility located in Trios Rivieres, Quebec, Canada,   
midway between Montreal and Quebec City. In April 1998, KSC purchased an        
additional 105,000 square-foot manufacturing facility on a 36.7 acre site       
located adjacent to KSC's existing plant in Trois-Rivieres, Quebec, Canada.     

    MARKETING AND DISTRIBUTION. KSI's marketing strategy is focused on
offering a broad range of high-quality, customized trailers manufactured to the 
design specifications of its customers. These products are marketed and         
distributed through a network of approximately 140 independent dealers          
throughout North America and through a direct sales force. During 1998          
approximately 50% of independent dealers maintained inventories of KSI trailers.

   Presently, up to 75% of all of KSI's commercial sales are made to
dealers, with the balance representing direct retail sales by its sales force.  
KSI's sales staff consists of a vice president, seven sales managers, and an    

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advertising manager. The sales staff is supported by registered mechanical      
design engineers and draftsmen. KSC's sales staff consists of a V.P. sales and  
five sales managers.                                                            

       In the United States the majority of sales are done through a network
of dealers. KSC also has access to KSI's extensive dealer base in the United    
States.                                                                         

       CUSTOMERS. The majority of sales in the government segment are to the
General Services Administration ("GSA"), the purchasing arm of most non-military
agencies, and to TACOM. KSI has been awarded "Blue Ribbon Contractor" status    
with TACOM. As a result of this status, KSI receives a 10% preference on bids   
for certain contracts. Sales to governmental agencies represented 35%, 36% and  
37% of KSI's manufacturing revenue for the years ended December 31, 1999, 1998  
and 1997. A substantial decrease in orders by the GSA and/or TACOM could have a 
material adverse effect on KSI's business and results of operations.            

KSC's trailers are used in the solid-waste, agricultural and  
construction industries. Waste disposal companies are KSC's largest market      
segment. In addition, during the second half of 1998 KSC began producing and    
marketing KSI type flatbed trailers.                                            

    Unit sales of new truck trailers have historically been subject to
substantial variation. Sales of new truck trailers have historically been       
subject to a five- to seven-year replacement cycle. Additionally, periods of    
economic recession in the United States have previously resulted in declines in 
the profitability of the trucking industry. Future decreases in the demand for  
truck trailers due to economic downturns or cyclical decreases would likely have
a material adverse effect on RailAmerica's business and results of operations.  

BACKLOG. As of December 31, 1999, KSI's backlog of orders was 
approximately $14.0 million, compared to $18.3 million as of December 31, 1998. 
As of December 31, 1999, KSC's backlog of orders was approximately $2.3 million,
compared to $3.7 million as of December 31, 1998. KSI and KSC include in its    
backlog only those orders for trailers for which a confirmed customer order has 
been received. KSI manufactures trailers mostly to customer or dealer orders and
does not typically maintain an inventory of "stock" trailers in anticipation of 
future orders.                                                                  

     COMPETITION. The Company faces significant competition in the truck
trailer manufacturing industry which is highly competitive and has relatively   
low barriers to entry. The Company competes with a number of other trailer      
manufacturers, some of which have greater financial resources and higher sales  
than KSI. Furthermore, the Company's products compete with alternative forms of 
shipping, such as intermodal containers. There can be no assurance that the     
Company will be able to continue to compete effectively with existing or        
potential competitors or alternative forms of shipping containers.              

      EMPLOYEES. Currently, KSI has 172 full-time employees in the trailer
manufacturing operation. None of the KSI employees are subject to a collective  
bargaining agreement. Currently, KSC has 140 full-time employees in the trailer 
manufacturing operation of which approximately 90 are subject to a collective   
bargaining agreement.                                                           

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REGULATION                                                                      

    UNITED STATES. The Company's subsidiaries in the United States are
subject to various safety and other laws and regulations by numerous government 
agencies, including (1) regulation by the Surface Transportation Board ("STB")  
and the Federal Railroad Administration ("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)   
regulation by agencies in the states in which the Company does business.        
Additionally, the Company is subject to STB regulation in connection with its   
acquisition of new railroad properties. As a result of the enactment in 1980 of 
the Staggers Rail Act, which amended the Interstate Commerce Act, and the       
enactment of the ICC Termination Act of 1995, there has been a significant      
relaxation in regulation governing rail carriers, which management believes has 
greatly simplified the purchase and sale of short line railroad properties and  
expedited the closing of such transactions.                                     

       The STB 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. The ICC Termination Act replaced the         
Interstate Commerce Commission ("ICC") with the STB. The ICC Termination Act    
also abolished labor protective conditions applicable to numerous types of rail 
transactions. Labor protective conditions cannot be imposed on the sale of a    
railroad line to a new carrier. In the sale of a railroad line to a regional    
railroad, which is a railroad with annual revenues between $20 million and $250 
million, as adjusted by the railroad revenue deflator, labor protection consists
of the payment of up to one year of severance pay for employees affected by the 
transaction. In some instances of the sale of a railroad line to a small        
railroad, which is a railroad with annual revenues that are less than $20       
million, as adjusted by the railroad revenue deflator, labor protection also    
consists of the payment of up to one year of severance pay for employees        
affected by the transaction. While imposition of labor protective conditions on 
line sales and transfers does not subject a rail line buyer to the seller's     
collective bargaining agreements, rates of pay, and other labor practices and   
does not unionize the buyer's operating and maintenance employees, it does      
entitle employees of the buyer or seller who are "adversely affected" by the    
transaction in terms of job loss, pay cuts, loss of overtime, loss of hours,    
loss of benefits, and moving expenses, to receive over a period of up to six    
years payments representing compensation for those losses. Generally, in a line 
sale or transfer, only the seller's or transferor's employees are affected.     

As a result of the 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. 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  

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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.                                                          

        Under the ICC Termination Act, the STB is funded through September 30,
2000. It is unclear whether the STB will be reauthorized in its present form.   
Under the ICC Termination Act, states lost their jurisdiction over economic     
regulation of interstate railroad transportation. All states retain some        
jurisdiction over safety related matters.                                       

      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.                                                                 

       AUSTRALIA. Our Australian subsidiary, Freight Victoria, is subject to
regulation in the State of Victoria by the Office of the Regulator-General. The 
Office of the Regulator-General (the "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, which  
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 (the "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. ORG and the Department of Infrastructure, however,    
advise that a Discussion Paper in relation to the regulation of the rail        
transport authority is currently being prepared and is expected to be issued    
before the end of April 2000. This paper is likely to contain draft declarations
(in relation to specific rail services which may be made subject to the access  
regime in Part 2A) and draft pricing orders.                                    

  In the event that any services are declared to be "declared rail
transport services" and thus become subject to the Part 2A access regime, Part  
2A provides that:                                                               

        (1)      manager of rail infrastructure and a provider and operator of
                 rolling stock must: (1) use all reasonable endeavours to meet
              the requirements of persons seeking access to the declared
rail transport services;                    

    (2)      make a formal proposal of terms and conditions for access
                 within 14 days after receiving a request for it to do so; and

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      (3)      at the request of a person seeking, or considering seeking,
              access provide to that person information as prescribed by
ORG.                                        

         In the following circumstances an application may be made in writing to
ORG, by the operator or a person seeking access, for a determination:           

        (1)      if the operator has not made a formal proposal within 14 days
after receiving a request for it to do so;  

      (2)      if the operator and a person seeking access cannot agree on
               the terms and conditions on which access is to be provided;
and                                         

      (3)      a person considers that their right of access to a declared
rail transport service has been hindered.   

A determination of ORG may, among other things:               

       (1)      require the operator to provide access to the service to the
person seeking access;                      

(2)      deal with the terms and conditions of access; and    

     (3)      specify the extent to which the determination overrides an
earlier determination.                      

  In addition, the Governor in the Council may specify policies or
principles which ORG must apply in:                                             

      (1)      determining any amount to be paid for access to a specified
declared rail transport services; or        

(2)      determining the terms and conditions of access.      

  In addition to complying with the above-described regulations, a
manager of rail infrastructure and a provider and operator of rolling stock,    
must be accredited under the TRANSPORT ACT 1993. A corporation which manages    
rail infrastructure or operates rolling stock without accreditation is liable   
for a fine of $250,000.                                                         

         The Secretary to the Department of Infrastructure may take disciplinary
action against an accredited person if the person 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 person from 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.        

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         The person has a right of review concerning accreditation decisions and
may apply to the Victorian Civil and Administrative Tribunal for a review of a  
decision made by the Secretary. An accreditation is personal to a person who    
holds it, it is not capable of being transferred of assigned or otherwise dealt 
with by the person who holds it and does not vest by operation of law in any    
other person.                                                                   

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, to test      
equipment and to seize 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 12 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.                                                                  

     CANADA. The Company's 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 operated by the   
subsidiary 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 ("CTA")     
which is issued on proof of insurance. Under the CTA, the sale of a federally   
regulated railroad line is not subject to federal approval, although a process  
of advertising and negotiations may be required in connection with any proposed 
discontinuance of a federal railway. Federal railroads are governed by federal  
labor relations laws.                                                           

         Short lines 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 negotiations 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 (the "ICA"), a federal statute which applies to every acquisition of 

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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 tor 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 (the "CA"), federal antitrust legislation of general        
application. The CA 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.                                               

NORTH AMERICAN RAILROAD INDUSTRY                                                

     The U.S. railroad industry is dominated by major Class I railroads,
which operated approximately 120,000 miles of track and represented 91.2% of    
total rail industry operating revenues of approximately $35.3 billion in 1998.  
In addition to large railroad operators, there were more than 500 short line and
regional railroads, which generated approximately $3.1 billion of operating     
revenues and operated approximately 50,000 miles of track at year end 1998.     

       The railroad industry is subject to regulations of various government
agencies, primarily the STB. For regulatory purposes, the STB classifies        
railroads into three groups: Class I, Class II and Class III, based on annual   
operating revenue. For 1998, the Class I railroads had operating revenues of at 
least $259.4 million, Class II railroads had revenues of $20.8 million to $259.4
million, and Class III railroads had revenues of less than $20.8 million.       

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

1998 INDUSTRY OVERVIEW

                                                                [Download Table]


                  NUMBER OF                              
TYPE OF RAILROAD  CARRIERS   1998 REVENUES  % OF REVENUES
----------------  ---------  -------------  -------------
                                                         
Class I               9           $32.2           91.2%  
Regional             35             1.6            4.5   
Local               515             1.5            4.3   
                    ---           -----          -----   
          Total     559           $35.3          100.0%  
                    ===           =====          =====   

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  As a result of deregulation, 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 the Company. Divesting branch lines allows Class I railroads to increase     
traffic density, improve railcar utilization and avoid rail line abandonment.   
The proportion of total track miles operated by short line and regional         
railroads in the U.S. has increased dramatically as a result of these           
divestitures.                                                                   

    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    
divesting carriers' freight traffic because much of the business originating or 
terminating on branch lines feeds into divesting carriers' core routes.         

         Rail traffic may be categorized into three categories: interline, local
and bridge. 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 rail carriers. Bridge traffic neither originates nor terminates on
a rail carrier's line, but rather passes over the line from one connecting      
carrier to another.                                                             

INTERNATIONAL RAILROAD INDUSTRY                                                 

         Freight railroad services in countries other than the United States and
Canada are typically conducted at a loss. This is primarily the result of       
state-run railroads that are unresponsive to market needs and inefficiently     
operated. Due to economic necessity and a lack of cost-effective solutions, many
countries are privatizing their rail operations. Recent examples include Mexico,
Japan (for rail passenger service) and Australia.                               

       In the last several years several states in Australia have privatized
their rail systems. The largest to-date being the V/Line Freight Corporation in 
the state of Victoria. It is anticipated that several other state rail systems  
as well as the national rail system will be privatized over the next several    
years.                                                                          

ITEM 2. DESCRIPTION OF PROPERTY                                                 

NORTH AMERICAN RAILROAD PROPERTIES                                              

        The following table sets forth certain information with respect to the
North American railroad properties that the Company owned as of December 31,    
1999:                                                                           

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                                                        [Enlarge/Download Table]


                                Date of        Track                                 Principal                      
           Railroad             Acquisition    Miles    Structure    Location        Commodities                    
------------------------------- -------------- -------- ------------ --------------- -------------------------------
                                                                                                                    
Huron and Eastern Railway       March 1986       83     Owned        Michigan        Agricultural products, sugar   
                                May 1988         55     Owned                        products, fertilizer           
                                                 45     Leased                                                      
                                                  2     Trackage                                                    
                                                        rights                                                      
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Saginaw Valley Railway          Jan. 1991        10     Owned        Michigan        Agricultural products,         
                                Apr. 1998        51     Owned                        fertilizer                     
------------------------------- -------------- -------- ------------ --------------- -------------------------------
South Central Tennessee         Feb. 1994        49     Leased       Tennessee       Wood products, frozen          
Railroad                                          3     Trackage                     potatoes, paper products       
                                                        rights                                                      
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Dakota Rail                     Sept. 1995       44     Contract     Minnesota       Plastics, lumber, scrap steel  
                                                        for Deed                                                    
------------------------------- -------------- -------- ------------ --------------- -------------------------------
West Texas & Lubbock Railroad   Nov. 1995        104    Owned        Texas           Fertilizer, sodium sulfate,    
                                                   4    Trackage                     cotton and cotton products     
                                                        rights                                                      
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Cascade and Columbia River      Sept. 1996       131    Owned        Washington      Wood products, limestone,      
Railroad                                           6    Trackage                     agricultural products          
                                                        rights                                                      
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Otter Tail Valley Railroad      Oct. 1996        72     Owned        Minnesota       Coal, agricultural products,   
                                                                                     fertilizer                     
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Minnesota Northern Railroad     Dec. 1996        167    Owned        Minnesota       Agricultural products, sugar   
                                                  47    Trackage                     products, fertilizer, coal,    
                                                        rights                       aggregates                     
------------------------------- -------------- -------- ------------ --------------- -------------------------------
St. Croix Valley Railroad       Aug. 1997        44     Easement     Minnesota       Agricultural products,         
                                                  8     Trackage                     fertilizer, plastics           
                                                        rights                                                      
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Ventura County Railroad         Aug. 1998         13    Leased       California      Automobiles, paper products    
------------------------------- -------------- -------- ------------ --------------- -------------------------------
E&N Railway                     Jan. 1999         61    Owned        British         Lumber, paper products,        
                                                 120    Leased       Columbia        propane                        
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Ottawa Valley (RaiLink)         July 1999        342    Leased       Ontario         Bridge traffic, forest         
                                                                                     products, mining               
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Southern Ontario (RaiLink)      July 1999         53    Leased       Ontario         Fuel, metals, agricultural     
                                                                                     products                       
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Mackenzie Northern (RaiLink)    July 1999       650     Owned        Alberta,        Fuel, forest products,         
                                                                     Northwest       agricultural products          
                                                                     Territory                                      
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Coronado Bonnyville (RaiLink)   July 1999       271     Owned        Alberta         Forest products, agricultural  
                                                                                     products                       
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Central Western (RaiLink)       July 1999       103     Owned        Alberta         Agricultural products          
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Lakeland & Waterways (RaiLink)  July 1999       202     Owned        Alberta         Petroleum coke                 
------------------------------- -------------- -------- ------------ --------------- -------------------------------
Toledo, Peoria and Western      Sept 1999       273     Owned        Indiana,        Intermodal, agricultural       
Railroad                                          96    Trackage     Illinois, Iowa  products, fertilizers,         
                                                        rights                       chemicals                      
------------------------------- -------------- -------- ------------ --------------- -------------------------------

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   In February 2000, the Company acquired RailTex which operates the
following 25 North American railroad properties:                                

                                                        [Enlarge/Download Table]


------------------------------ --------------- -------- ----------- ----------------- ------------------------------
                               Date of         Track                                  Principal                     
          Railroad             Acquisition*    Miles    Structure   Location          Commodities                   
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
                                                                                                                    
Indiana & Ohio Railway         June 1996        576     Owned       Michigan, Ohio,   Autos, railroad equipment,    
                                                        Leased      Indiana           agricultural products         
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Missouri & Northern Arkansas   Dec 1992         497     Owned       Missouri,         Railroad equipment, coal,     
Railroad                       Sept 1998         10     Leased      Arkansas, Kansas  agricultural products         
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Central Oregon & Pacific       Dec 1994         336     Owned       Oregon            Lumber, paper products        
Railroad                                        105     Leased                                                      
                                                  8     Trackage                                                    
                                                        rights                                                      
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
New England Central Railroad   Feb 1995         330     Owned       Vermont,          Lumber, paper products        
                                                                    Massachusetts                                   
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Indiana Southern Railroad      Apr 1992         170     Owned       Indiana           Coal                          
                                                  6     Trackage                                                    
                                                        rights                                                      
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Cape Breton & Central Nova     Oct 1993         245     Owned       Nova Scotia       Coal, paper, metals,          
Scotia Railway                                                                        railroad equipment            
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Dallas Consolidated (2 rail    Feb 1992           92    Leased      Texas             Food products, Non-metallic   
lines)                         Jan 1999           89    Leased                        ores, paper products          
                               Oct 1990         107     Leased                                                      
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
South Carolina Central         Dec 1987           58    Owned       South Carolina    Chemicals, metals, coal,      
Railroad                                                                              paper products                
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Goderich-Exeter Railway        Apr 1992           70    Owned       Ontario           Auto parts, chemicals,        
                               Nov 1998           99    Leased                        non-metallic ores             
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Michigan Consolidated          Dec 1987           67    Owned       Michigan, Ohio,   Agricultural products,        
(3 rail lines)                 Dec 1990            7    Owned       Indiana           non-metallic ores, chemicals  
                               July 1993          45    Owned                                                       
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Georgia Southwestern Railroad  June 1989         357    Leased      Georgia, Alabama  Non-metallic ores, lumber,    
                               June 1995                                              chemicals                     
------------------------------ --------------- -------- ----------- ----------------- ------------------------------

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                                                        [Enlarge/Download Table]

                                                                                                                    
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Connecticut Southern           Sept 1996          23    Owned       Connecticut       Lumber, paper products,       
                                                  55    Trackage                      chemicals                     
                                                        rights                                                      
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Virginia Consolidated          Nov 1988           75    Leased      Virginia, North   Coal, lumber                  
(3 rail lines)                 Nov 1987           53    Owned       Carolina                                        
                               Apr 1990           82    Leased                                                      
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Central Railroad of Indiana    June 1998          81    Owned       Indiana, Ohio     Chemicals, minerals &         
                                                                                      stones, metals                
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
San Diego & Imperial Valley    Oct 1984          153    Trackage    California,       Petroleum, paper products,    
Railroad                                                rights      Mexico            non-metallic ores             
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Carolina Piedmont Railroad     Nov 1990           37    Owned       South Carolina    Chemicals, minerals &         
                               Apr 1997           12    Owned                         stones, food products         
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Pittsburgh Industrial          Dec 1996           42    Owned       Pennsylvania      Chemicals, metals, petroleum  
Railroad                                                                                                            
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Central Railroad of            June 1998          92    Leased      Indiana           Agricultural products,        
Indianapolis                                            Trackage                      railroad equipment,           
                                                        rights                                                      
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Ontario L'Original Railroad    Nov 1996           26    Owned       Ontario           Metals                        
------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Texas-New Mexico Railroad      Sept 1989        107     Owned       Texas, New        Non-metallic ores, petroleum  
                                                                    Mexico                                          
------------------------------ --------------- -------- ----------- ----------------- ------------------------------

* - Date acquired by RailTex.                                                   

CHILEAN RAILROAD PROPERTIES                                                     

     In February 1997, the Company, through a newly formed, wholly-owned
subsidiary, RailAmerica de Chile S.A., acquired 55% of the outstanding voting   
stock of Ferronor. Ferronor owns and operates approximately 1,400 miles of rail 
line serving northern Chile. RailAmerica was joined in the purchase of Ferronor 
by APCO, a family-owned Chilean transportation and distribution company.        

    Ferronor 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 limestone mines   
and production facilities with several Chilean Pacific port cities. Ferronor    
also serves Argentina and Bolivia through traffic interchanged with the General 
Belgrano Railroad and the Ferrocarriles Antofagasta Bolivia.                    

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AUSTRALIAN RAILROAD PROPERTIES                                                  

    On April 30, 1999, the Company through its wholly owned subsidiary
Freight Victoria, prepaid a 45-year lease to operate 3,150 miles of track in the
State of Victoria, Australia.                                                   

TEXAS MANUFACTURING PROPERTIES                                                  

        KSI's manufacturing operations are conducted in thirteen Company owned
buildings, totaling approximately 198,000 square feet on an 25.5-acre site,     
which were constructed over the period from 1969 to 1998. QUEBEC, CANADA        
MANUFACTURING PROPERTIES                                                        

   KSC's manufacturing operations are conducted in two Company owned
buildings, totaling approximately 150,000 square feet on a 36.7-acre site.      

ONTARIO, CANADA MOTOR CARRIER PROPERTIES                                        

    Steel City Carriers leases a terminal it owns in Sault Ste. Marie,
Ontario, Canada, which includes an office building housing administrative and   
dispatch offices, fabricating and service and a shop building. A 5-1/2 acre lot 
provides adequate space for the normal loading, unloading, movement and parking 
of tractors and trailers as well as for temporarily storing and transferring    
some shipments. The Company has entered into an agreement to sell the real      
estate and anticipates the sale closing in 12 to 24 months.                     

NORTH AMERICAN ROLLING STOCK                                                    

       The following tables summarize the composition of the Company's North
American railroad equipment fleet as of December 31, 1999:                      

                                                                [Download Table]

                              FREIGHT CARS           
TYPE                   OWNED     LEASED         TOTAL
----                   -----  -------------     -----
                                                     
Covered hopper cars     --          583          583 
Open top hopper cars     48         204          252 
Tank cars               143         --           143 
Box cars                --          167          167 
Wood chip cars          --           78           78 
Center-beam flat cars   --          120          120 
Flat cars                12          10           22 
                       ----     -------      ------- 
                        203       1,162        1,365 
                       ====     =======      ======= 

                                                                [Download Table]

                         LOCOMOTIVES       
HORSEPOWER/UNIT  OWNED      LEASED    TOTAL
---------------  ------  -----------  -----
                                           
Over 2000           5          --        5 
1500 to 2000       92          28      120 
Under 1500         11          --       11 
                 ----       ------    ---- 
                  108          28      136 
                 ====       ======    ==== 

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INTERNATIONAL ROLLING STOCK                                                     

 The following tables summarize the composition of the Company's
Australian and Chilean railroad equipment fleet as of December 31, 1999:        

FREIGHT CARS
------------
TYPE                       CHILE     AUSTRALIA   TOTAL                          
----                       -----     ---------   -----                          
Covered hopper cars         --        1,157      1,157                          
Open top hopper cars         198        173        371                          
Box cars                     230        249        479                          
Intermodal containers       --          646        646                          
Tank cars                   --          335        335                          
Flat cars                    115         84        199                          
Gondola cars                  87       --           87                          
 -----      -----      -----
   630      2,644      3,274
 =====      =====      =====

             LOCOMOTIVES
HORSEPOWER/UNIT            CHILE          AUSTRALIA           TOTAL             
---------------            -----         ------------         -----             
Over 2000                   --               40                 40              
1500 to 2000                --               23                 23              
Under 1500                   32              43                 75              
             ----            ----               ----
               32             106                138
             ====            ====               ====

   All of the international equipment fleet is owned by the Company.

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

ADMINISTRATIVE OFFICES                                                          

     The Company maintains its principal executive office in Boca Raton,
Florida. In July 1998, the Company purchased a 59,500 square foot office        
building, located in Boca Raton, Florida, for approximately $4.6 million and has
renovated it for an additional $3.2 million. Approximately 17,500 square feet of
this building is being used as the Company's new corporate headquarters. The    
remaining 42,000 square feet of space is currently leased to a single tenant.   

      Freight Victoria's administrative office is in Melbourne, Australia.
Freight Victoria leases approximately 20,000 square feet of space from the      
Victorian Government for AUS$310,000 annually. The lease term is May 1, 1999 to 
May 31, 2004.                                                                   

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         Ferronor's administrative office is in Coquimbo, Chile. Ferronor owns a
three story 21,600 square foot office building in Coquimbo. This building was   
included as part of the February 1997 acquisition of Ferronor by the Company.   

ITEM 3. LEGAL PROCEEDINGS                                                       

        In the ordinary course of conducting its business, the Company becomes
involved in various legal actions and other claims some of which are currently  
pending. Litigation is subject to many uncertainties and the Company may be     
unable to accurately predict the outcome of individual litigated matters. Some  
of these matters possibly 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 be material. Other than ordinary routine litigation incidental 
to the Company's business, no other litigation exists.                          

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 1999.                                                         

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PART II                                                                         

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS               

      Effective March 6, 1997, the Company's common stock began trading on
the Nasdaq National Market under the symbol "Rail". Prior to March 6, 1997, the 
Company's common stock traded on the Nasdaq SmallCap Market tier of The Nasdaq  
Stock Market. Set forth below is high and low bid information for the common    
stock as reported on the NASDAQ system for each quarter of 1998 and 1999. All   
such quotations reflect inter-dealer prices, without retail mark-up, mark-down  
or commissions and may not reflect actual transactions.                         

                                                        [Enlarge/Download Table]


1998                                                              HIGH SALES PRICE             LOW SALES PRICE       
----------------------------------------------------------- ----- ---------------------- ----- ----------------------
                                                                                                                     
First Quarter                                               $          7 23/32           $          6                
Second Quarter                                                         7 3/16                       5 15/16          
Third Quarter                                                          6 3/8                        5                
Fourth Quarter                                                         8 3/4                        5 5/16           
----------------------------------------------------------- ----- ---------------------- ----- ----------------------

1999                                                             HIGH SALES PRICE              LOW SALES PRICE       
---------------------------------------------------------- ----- ---------------------- ------ ----------------------
First Quarter                                              $            10 1/4          $         7 11/16            
Second Quarter                                                          10 5/16                   8 3/4              
Third Quarter                                                           10 3/4                    9 1/8              
Fourth Quarter                                                           9 15/16                  7 1/16             
---------------------------------------------------------- ----- ---------------------- ------ ----------------------

2000                                                             HIGH SALES PRICE             LOW SALES PRICE        
---------------------------------------------------------- ----- ---------------------- ----- ---------------------- 
First Quarter (through March 21)                           $              9 1/16        $         5 3/4              
---------------------------------------------------------- ----- ---------------------- ----- ---------------------- 

      As of March 21, 2000, there were 522 holders of record of the common
stock. The Company has never declared or paid a dividend on its common stock.   
The ability of the Company to pay dividends in the future will depend on, among 
other things, restrictive covenants contained in loan or other agreements to    
which the Company may be subject.                                               

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ITEM 6.  SELECTED FINANCIAL DATA                                                

     The following selected financial data should be read in conjunction
with the financial statements and the notes thereto included elsewhere in this  
Annual Report on Form 10-K. The results of operations for the year ended        
December 31, 1999 include the results of the railroads acquired in 1999 as      
follows: Freight Victoria, effective April 30, 1999, RaiLink, effective August  
1, 1999 and TPW, effective September 1, 1999. The statement of operations data  
for the years ended December 31, 1997, 1998 and 1999 and the balance sheet data 
at December 31, 1998 and 1999 are derived from, and are qualified by reference  
to, audited financial statements included elsewhere herein and should be read in
conjunction with those financial statements and the notes thereto. The statement
of operations data set forth below for the periods ended December 31, 1995 and  
1996 and the balance sheet data as of December 31, 1995, 1996 and 1997 are      
derived from the audited financial statements of the Company not included herein
(thousands, except operating data).                                             

                                                        [Enlarge/Download Table]


                                                  YEAR ENDED DECEMBER 31,             
                                  ----------------------------------------------------
                                  1995         1996       1997        1998       1999 
                                  -----       ------     -----       -----        ----
                                                                                      
INCOME STATEMENT DATA                                                                 

  Operating revenue              $  7,205    $ 12,020   $ 24,496   $ 37,256   $125,372
  Operating income                    541       2,529      3,365      5,497     21,268
  Income (loss) from                                                                  
    continuing operations             (40)        478        288        113      6,026
  Basic earnings per                                                                  
    common share from                                                                 
    continuing operations        $  (0.15)   $   0.10   $   0.02   $   0.01   $   0.45
Diluted earnings per                                                                  
    common share from                                                                 
    continuing operations        $  (0.15)   $   0.09   $   0.02   $   0.01   $   0.43
Weighted average                                                                      
    common shares - Basic           4,554       4,966      8,304      9,553     11,090

BALANCE SHEET DATA                                                                    

 Total assets                    $ 34,469    $ 65,215   $ 95,141   $130,964   $443,928
 Long-term debt, including                                                            
     current maturities            16,274      37,788     47,603     66,327    162,827
 Subordinated debt,                                                                   
   including current maturities     3,879       2,212      2,212       --      122,449
 Redeemable convertible                                                               
    preferred stock                    --        --         --         --        8,830
  Stockholders' equity              9,149      15,992     26,814     34,760     69,314

OPERATING DATA                                                                        

  Freight Carloads                 18,505      25,871     69,140    117,535    394,177
  Track Mileage                       450         930      2,330      2,400      8,400
  Number of full time                                                                 
     employees                        265         275        542        652      1,707

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS                                   

GENERAL                                                                         

   The Company's principal operations include the operation of North
American short line freight railroads and international regional railroads. The 
Company hauls various products, which historically have consisted primarily of  
agricultural commodities, for its customers corresponding to their local        
operating areas. The Company recognizes railroad transportation revenue after   
services are provided.                                                          

       On February 4, 2000, the Company acquired RailTex through a merger of
one of its wholly owned subsidiaries with and into RailTex for approximately    
$128 million in cash, assumption of $111 million in debt and approximately 6.6  
million shares of the Company's common stock valued at $60.8 million. RailTex   
owned and operated 25 short line freight railroads with approximately 4,100     
miles of track concentrated in the southeastern, midwestern, Great Lakes and New
England regions of the United States and eastern Canada. In connection with the 
acquisition, we entered into a credit agreement providing $330 million of senior
term loans and $50 million of senior revolving loans. In addition, a wholly     
owned subsidiary of the Company issued $95 million of subordinated bridge notes 
and another wholly owned subsidiary issued $50 million of asset sale bridge     
notes, in connection with the acquisition.                                      

         Set forth below is a discussion of the historical results of operations
for the Company's North American, international railroad operations and         
discontinued trailer manufacturing operations and motor carrier operations as   
well as a discussion of corporate overhead.                                     

NORTH AMERICAN RAILROAD OPERATIONS                                              

       The Company's historical results of operations include the operations
of its acquired railroads from the dates of acquisition as follows:             

                                                        [Enlarge/Download Table]

                                                                                       
NAME OF RAILROAD                                     DATE OF ACQUISITION               
----------------                                     -------------------               
Evansville Terminal Company ("ETC")                  July 1, 1996                      
                                                       (disposed of September 30, 1997)
Cascade and Columbia River Railroad                  September 6, 1996                 
Otter Tail Valley Railroad                           October 1, 1996                   
Gettysburg Railway and Gettysburg Scenic Rail Tours  November 18, 1996                 
                                                       (disposed of October 31, 1997)  
Minnesota Northern Railroad                          December 28, 1996                 
St. Croix Valley Railroad                            September 8, 1997                 
Ventura County Railroad                              September 1, 1998                 
E&N Railway                                          January 6, 1999                   
RaiLink properties (6 railroads)                     August 1, 1999                    
Toledo, Peoria and Western Railroad                  September 1, 1999                 

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         As a result, the results of operations for the years ended December 31,
1999, 1998 and 1997 are not comparable in various material respects and are not 
indicative of the results which would have occurred had the acquisitions been   
completed at the beginning of the periods presented.                            

     The acquisition of RailTex occurred after the periods presented and
RailTex's results of operations are not included in the discussion.             

        The following table sets forth the operating revenues and expenses (in
thousands) for the Company's North American railroad operations for the periods 
indicated. All results of operations discussed in this section are for the      
Company's North American railroads only, unless otherwise indicated.            

                    YEARS ENDED DECEMBER 31,
                    ------------------------
                  1999      1998      1997
                  ----      ----      ----
Operating Revenue:                                                              
Transportation revenue          $38,842   $15,388   $14,737             
Other revenue                     2,095       802     1,277             
                   -------   -------   -------
Total operating revenue              40,937    16,190    16,014                 
                   -------   -------   -------
Operating Expenses:                                                             
Maintenance of way                5,486     1,974     2,231             
Maintenance of equipment          1,912       675       678             
Transportation                   12,232     3,605     3,799             
Equipment rental                  1,039       347       599             
General and administrative        6,927     3,095     2,457             
Depreciation and amortization     3,594     1,570     1,337             
                   -------   -------   -------
Total operating expenses             31,190    11,266    11,101                 
                   -------   -------   -------
Operating income                      9,747     4,924     4,913                 
Interest and other expense        5,472     2,852     2,842             
                   -------   -------   -------
Income before income taxes          $ 4,275   $ 2,072   $ 2,071                 
                   =======   =======   =======

COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE YEARS           
ENDED DECEMBER 31, 1999 AND 1998                                                

        OPERATING REVENUES. Transportation revenue increased $23.4 million, or
152%, to $38.8 million for the year ended December 31, 1999 from $15.4 million  
for the year ended December 31, 1998. The increase was primarily due to         
increased carloads resulting from 1999 acquisitions. The transportation revenue 
per carload decreased to $238 from $303 per car primarily due to the acquisition
of a rail line in Canada that hauls a significant amount of bridge traffic at a 
lower rate per car than the Company's other rail lines and intermodal traffic on
the newly acquired TPW which also moves at a lower rate per car than the        

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Company's other rail lines. Carloads handled totaled 154,991 for the year ended 
December 31, 1999, an increase of 105,472, or 213%, compared to 49,519 for the  
year ended December 31, 1998. The increase was primarily due to the acquisitions
of E&N Railroad, the RaiLink properties and TPW, which moved 7,839, 77,328 and  
16,981 carloads, respectively, for the year ended December 31, 1999. The        
Company's "same railroad" car loadings and revenue increased 2% and 5%,         
respectively, for the year ended December 31, 1999 compared to the year ended   
December 31, 1998.                                                              

        Other revenue increased $1.3 million, or 161%, to $2.1 million for the
year ended December 31, 1999 from $0.8 million for the year ended December 31,  
1998. Other revenues for 1999 and 1998 consist of gain on sales of railroad     
assets, easement sales, railroad lease and rental income and other miscellaneous
income. The increase was primarily due to acquisitions of the RaiLink properties
and TPW, which had $0.7 million and $0.4 million, respectively, in other revenue
for the year ended December 31, 1999.                                           

    OPERATING EXPENSES. Operating expenses increased $19.9 million, or
177%, to $31.1 million for the year ended December 31, 1999 from $11.3 million  
for the year ended December 31, 1998. The increase was primarily due to the     
acquisitions of E&N Railroad, the RaiLink properties and TPW, which had $4.4    
million, $11.1 million and $3.4 million, respectively, in operating expenses for
the year ended December 31, 1999 and the write-off of $0.6 million in costs     
related to the discontinuance of the Delaware Valley Railway. Operating         
expenses, as a percentage of transportation revenue, were 80.3% and 73.2% for   
1999 and 1998, respectively. Exclusive of the write-off of costs at the Delaware
Valley Railway, the operating ratio was 78.7% for 1999. The increase was due    
primarily to higher operating ratios at the railroads acquired in 1999 compared 
to the Company's previously existing railroads. Management anticipates an       
improvement in the operating ratio over the next twelve months, exclusive of    
seasonality, as the new operations are assimilated into the Company's North     
American operations.                                                            

      Maintenance of way expenses increased approximately $3.5 million, or
178%, to $5.5 million for the year ended December 31, 1999 from $2.0 million for
the year ended December 31, 1998. The increase was primarily due to the         
maintenance of way expenses at E&N Railroad, the RaiLink properties and TPW of  
$0.4 million, $2.3 million and $0.4 million, respectively, for the year ended   
December 31, 1999.                                                              

   Maintenance of equipment increased $1.2 million, or 183%, to $1.9
million for the year ended December 31, 1999 from $0.7 million for the year     
ended December 31,1998. The increase was primarily due to the maintenance of    
equipment expenses at E&N Railroad, the RaiLink properties and TPW of $0.2      
million, $0.8 million and $0.2 million, respectively, for the year ended        
December 31, 1999.                                                              

  Transportation expense increased $8.6 million, or 239%, to $12.2
million for the year ended December 31, 1999 from $3.6 million for the year     
ended December 31, 1998. The increase was primarily due to the transportation   
expenses at E&N Railroad, the RaiLink properties and TPW of $1.5 million, $5.1  
million and $1.6 million, respectively, for the year ended December 31, 1999. In

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addition, the Company's transportation expenses for 1999 were negatively        
impacted by the increasing fuel prices throughout the year. Fuel prices have    
continued to increase this year, which may continue to have a negative impact on
operating results.                                                              

       Equipment rental increased $0.7 million, or 199%, to $1.0 million for
the year ended December 31, 1999 from $0.3 million for the year ended December  
31, 1998. The increase was primarily due to the equipment rental expenses at E&N
Railroad and TPW of $1.0 million and $0.4 million, respectively, for the year   
ended December 31, 1999 partially offset by increased earnings on certain of the
Company's leased rail car fleets.                                               

         General and administrative expenses increased $3.8 million, or 124%, to
$6.9 million for the year ended December 31, 1999 from $3.1 million for the year
ended December 31, 1998. The increase was primarily due to general and          
administrative expenses at E&N Railroad, the RaiLink properties and TPW of $1.1 
million, $1.6 million and $0.4 million, respectively, for the year ended        
December 31, 1999 and the write-off of costs at DVRC of $0.6 million.           

        Depreciation and amortization increased $2.0 million, or 129%, to $3.6
million for the year ended December 31, 1999 from $1.6 million for the year     
ended December 31, 1998. The increase was primarily due to the acquisitions in  
1999.                                                                           

         INTEREST AND OTHER EXPENSES. Interest and other expenses increased $2.6
million, or 92%, to $5.5 million for the year ended December 31, 1999 from $2.9 
million for the year ended December 31, 1998. The increase in interest expense  
was primarily due to increased borrowings in connection with the acquisitions of
E&N Railroad, RaiLink and TPW.                                                  

COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE YEARS ENDED     
DECEMBER 31, 1998 AND 1997                                                      

        OPERATING REVENUES. Transportation revenues increased $0.7 million, or
4.4%, to $15.4 million for the year ended December 31, 1998 from $14.7 million  
for the year ended December 31, 1997. The transportation revenue per carload    
decreased to $303 from $308 per car primarily due to the difference in product  
mix hauled between 1998 and 1997. Carloads handled totaled 49,519 for the year  
ended December 31, 1998, an increase of 3,312, or 7.2%, compared to 46,207 for  
the year ended December 31, 1997.                                               

      Other revenues decreased $0.5 million, or 37.2%, to $0.8 million for
the year ended December 31, 1998 from $1.3 million for the year ended December  
31, 1997. Other revenues for 1998 and 1997 consist of gain on sales of railroad 
assets, easement sales, railroad lease and rental income and other miscellaneous
income. The decrease was primarily due to certain gains on sale of assets during
1997 with no corresponding sales of assets in 1998.                             

         OPERATING EXPENSES. Operating expenses increased $0.2 million, or 1.8%,
to $11.3 million for the year ended December 31, 1998 from $11.1 million for the

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year ended December 31, 1997. Operating expenses, as a percentage of            
transportation revenue, were 73.2% and 75.3% for 1998 and 1997, respectively.   

       Maintenance of way expenses decreased $0.2 million, or 11.5%, to $2.0
million for the year ended December 31, 1998 from $2.2 million for the year     
ended December 31, 1997 primarily due to increased track work being performed as
part of scheduled maintenance programs at the West Texas and Lubbock Railroad   
("WTLR") and the Huron and Eastern Railway ("HESR") during 1997.                

    Maintenance of equipment expenses remained fairly constant at $0.7
million for the years ended December 31, 1998 and 1997.                         

         Transportation expense decreased $0.2 million, or 5.1%, to $3.6 million
for the year ended December 31, 1998 from $3.8 million for the year ended       
December 31, 1997 primarily due to the dispositions of ETC, Gettysburg Railway  
and Gettysburg Scenic Rail Tours in 1997.                                       

        Equipment rental decreased $0.3 million, or 42.0%, to $0.3 million for
the year ended December 31, 1998 from $0.6 million for the year ended December  
31, 1997. The decrease is primarily due to increased utilization of the         
Company's leased railcar fleet. Cascade and Columbia River Railroad ("CCRR") and
Minnesota Northern Railroad ("MNR") equipment rental expenses decreased by 78.8%
and 137.4% respectively due to increased earnings offsetting equipment rental   
expense on their railcar fleets.                                                

       General and administrative expenses increased $0.6 million, or 26.0%,
to $3.1 million for the year ended December 31, 1998 from $2.5 million for the  
year ended December 31, 1997. MNR had selling, general and administrative       
expenses of $0.5 million in 1998 compared to $0.3 million for the year ended    
December 31, 1997, an increase of $0.2 million. Otter Tail Valley Railroad had  
selling, general and administrative expenses of $0.3 million in 1998 compared to
$0.2 million for the year ended December 31, 1997, an increase of approximately 
$0.1 million. St. Croix Valley Railroad had selling, general and administrative 
expenses of $0.1 million for the year ended December 31, 1998, an increase of   
$0.1 million from $15,000 in 1997.                                              

         Depreciation and amortization increased $0.3 million, or 17.4%, to $1.6
million for the year ended December 31, 1998 from $1.3 million for the year     
ended December 31, 1997.                                                        

       INTEREST AND OTHER EXPENSES. Interest and other expenses remained
fairly constant at $2.9 million for the years ended December 31, 1998 and 1997. 

INTERNATIONAL RAILROAD OPERATIONS                                               

 All results of operations discussed in this section are for the
Company's international railroads only, unless otherwise indicated. The results 
of international railroad operations for the years ended December 31, 1998 and  
1997 include only Ferronor. The results of operations for the year ended        
December 31, 1999 also include the operations of Freight Victoria from May 1,   

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1999 to December 31, 1999. As a result, the results of operations for the year  
ended December 31, 1999 are not comparable to the prior years in certain        
material respects and are not indicative of the results which would have        
occurred had the acquisition been consummated at the beginning of the respective
periods.                                                                        

        The following table sets forth the operating revenues and expenses (in
thousands) for the Company's international railroad operations for the periods  
indicated.                                                                      

                                                        [Enlarge/Download Table]

                                                    FOR THE YEAR ENDED                   
                                                       ENDED DECEMBER 31,                
                                         ---------------------------------------------   
                                         1999                  1998               1997   
                                         ----                  ----               ----   
                                                                                         
Revenue:                                                                                 
       Transportation revenue         $    80,069             $  14,915         $  7,287 
       Other revenue                        2,404                 1,009              775 
                                      -----------            ----------       ---------- 
Total revenue                              82,473                15,924            8,062 
                                      -----------             ---------        --------- 
Operating expenses:                                                                      
       Transportation                      54,706                 8,982            5,113 
       General and administrative           7,391                 1,724            1,137 
       Depreciation and amortization        4,660                   706              267 
                                      -----------             ---------        --------- 
Total operating expenses                   66,757                11,412            6,517 
                                      -----------             ---------        --------- 
Operating income                           15,716                 4,512            1,545 
Other income (expense)                     (6,867)               (1,257)             319 
Minority interest in earnings              (1,551)               (1,672)            (851)
                                      -----------             ---------        --------- 
Income before income taxes            $     7,298               $ 1,583          $ 1,013 
                                      ===========             =========        ========= 

COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE YEARS ENDED      
DECEMBER 31, 1999 AND 1998                                                      

FERRONOR.                                                                       

   OPERATING REVENUES. Transportation revenue increased $4.2 million, or
28%, to $19.1 million for the year ended December 31, 1999 from $14.9 million   
for the year ended December 31, 1998. Ferronor's carloads handled totaled 93,835
for the year ended December 31, 1999, an increase of 25,819, or 38%, compared to
68,016 for the year ended December 31, 1998. The increase in both carloads and  
revenue is due to Ferronor commencing movement of iron ore out of the El        
Algarrabo mine in late March 1998 and, the Los Colorados mine in July 1998 and  
nitrates out of the Minsal mine during 1999. These increases were offset        
slightly by a decrease in the international traffic out of Argentina and Bolivia
due to the slow down in the world economy in the second quarter of 1998.        

       OPERATING EXPENSES. Operating expenses increased $4.0 million, or 35%, to
$15.4 million for the year ended December 31, 1999 from $11.4 million for the   
year ended December 31, 1998. The increase was due to Ferronor commencing       
movement of iron ore out of the El Algarrabo mine in late March 1998 and, the   
Los Colorados mine in July 1998 and nitrates out of the Minsal mine during 1999.
Operating expenses, as a percentage of transportation revenue, were 80.7% and   
76.5% for the years ended December 31, 1999 and 1998, respectively. The         
operating ratio increase was due primarily to the loss in 1999 of international 
traffic which is typically higher margin business.                              

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       OTHER INCOME (EXPENSE). Other income (expense) decreased $0.6 million, or
46%, to $0.7 million for the year ended December 31, 1999 from $1.3 million for 
the year ended December 31, 1998. The decrease in net expense was due primarily 
to an exchange rate gain of $0.5 million recorded in 1999.                      

FREIGHT VICTORIA                                                                

      OPERATING REVENUES. Operating revenues were $63.4 million for the period
May 1, 1999 through December 31, 1999. These revenues consisted of $48.5 million
of freight revenue, $12.4 million of track access fees and $2.4 million of other
operating revenue.                                                              

      OPERATING EXPENSES. Operating expenses were $51.3 million for the period
May 1, 1999 through December 31, 1999. These expenses consisted of $10.0 million
of maintenance of way costs, $5.8 million of maintenance of equipment costs,    
$26.9 million of transportation costs, $5.2 million of general and              
administrative costs and $3.4 million in depreciation. Freight Victoria's       
operating ratio for the eight month period ended December 31, 1999 was 81.0%.   

      OTHER INCOME (EXPENSE). Other income (expense) was a net expense of $6.2
million. This amount primarily consisted of $7.6 million in interest expense and
$3.3 million in amortization of funding costs related to the bridge financing   
partially offset by a $4.1 million casualty gain recognized in the fourth       
quarter of 1999. Additionally, Freight Victoria recognized an exchange rate gain
of $0.2 million in for the period.                                              

      INCOME TAX BENEFIT. Freight Victoria recognized an income tax benefit of
$2.8 million during 1999 based upon enacted tax law changes in Australia.       

COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE YEARS ENDED      
DECEMBER 31, 1998 AND 1997.                                                     

   OPERATING REVENUES. Transportation revenue increased $7.6 million, or
105%, to $14.9 million for the year ended December 31, 1998 from $7.3 million   
for the year ended December 31, 1997. Ferronor's carloads handled totaled 68,016
for the year ended December 31, 1998, an increase of 45,083, or 196.6%, compared
to 22,933 carloads for the year ended December 31, 1997. The increase was       
partially due to the prior year period including only ten months of operations. 
In addition, Ferronor began moving iron ore out of the El Algarrabo mine in late
March 1998 and the Los Colorados mine in July 1998. These moves have            
significantly increased Ferronor's car loadings and operating revenue.          

       OPERATING EXPENSES. Operating expenses increased $4.9 million, or 75%, to
$11.4 million for the year ended December 31, 1998 from $6.5 million for the    
year ended December 31, 1997. The increase was partially due to the prior year  
period including only ten months of operations in addition to Ferronor          
commencing movement of iron ore out of the El Algarrabo mine in late March 1998 
and the Los Colorados mine in July 1998. Operating expenses, as a percentage of 
transportation revenue, were 76.5% and 89.4% for the years ended December 31,   
1998 and 1997, respectively. The improvement was primarily due to cost          
reductions implemented by the Company including a reduction in employees.       

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      OTHER INCOME (EXPENSE). Other income (expense) decreased $1.6 million to
$(1.3) million for the year ended December 31, 1998 from $0.3 million for the   
year ended December 31, 1997. The primary reasons for the decrease were the     
interest expense on the capital project financings and certain gains on sale of 
assets recognized in 1997 with no corresponding gains in 1998.                  

TRAILER MANUFACTURING OPERATIONS                                                

   The discussion of results of operations that follows reflects the
results of KSI for the periods indicated and KSC from January 1, 1998, the      
effective date of the Company's acquisition of Fabrex, Inc. and its affiliate.  
As a result, the results of operations for the year ended December 31, 1998 are 
not comparable to the prior year in certain material respects.                  

  In November 1999, the Company adopted a plan to sell its trailer
manufacturing operations. This business has been classified as a discontinued   
operation and the results of operations have been excluded from continuing      
operations in the consolidated statements of operations for all periods         
presented.                                                                      

 The following table sets forth the income and expense items (in
thousands) of the Company's trailer manufacturing operations for the years ended
December 31, 1999, 1998 and 1997 and the percentage relationship of income and  
expense items to net sales:                                                     

                                                        [Enlarge/Download Table]

                                                   FOR THE YEAR ENDED DECEMBER 31,                  
                                      1999                     1998                   1997          
                               ------------------    --------------------      ---------------------
                                                                                                    
Net sales                       $44,281      100%       $39,887       100%       $22,941        100%
Cost of goods sold               33,117     74.8%        28,583      71.7%        16,544       72.1%
                               --------                --------                 --------            
Gross profit                     11,164     25.2%        11,304      28.3%         6,397       27.9%
Selling, general and                                                                                
   administrative                 3,915      8.8%         3,324       8.3%         1,969        8.6%
Depreciation and amortization     1,007      2.3%           835       2.1%           473        2.1%
                               --------                --------                 --------            
Income from operations            6,242     14.1%         7,145      17.9%         3,955       17.2%
Other expenses                       49      0.1%           222       0.6%           230        1.0%
                               --------                --------                 --------            
Income before income taxes     $  6,193     14.0%      $  6,923      17.4%      $  3,725       16.2%
                               ========                ========                 ========            

COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE YEARS ENDED    
DECEMBER 31, 1999 AND 1998                                                      

       NET SALES. Net sales increased $4.4 million, or 11%, to $44.3 million
for the year ended December 31, 1999 from $39.9 million for the year ended      

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December 31, 1998. The net sales increase consisted of an increase of $5.6      
million in sales at KSC from 1998 to 1999 and a decrease of $1.2 million in     
KSI's sales from 1998 to 1999. KSI sold 710 trailers for the year ended December
31, 1999 and 895 trailers for the year ended December 31, 1998. The decrease in 
KSI's sales volume decreased net sales by $6.4 million. KSC sold 405 trailers   
for the year ended December 31, 1999 and 234 trailers for the year ended        
December 31, 1998. The increase in KSC's sales volume increased net sales by    
$6.5 million. KSI's average price per trailer sold was $41,500 for the year     
ended December 31, 1999 and $34,700 for the year ended December 31, 1998. The   
increase in average price per trailer increased KSI's sales by $4.8 million.    
KSC's average price per trailer sold was $34,900 for the year ended December 31,
1999 and $37,900 for the year ended December 31, 1998. The decrease in average  
price per trailer decreased KSC's sales by $0.9 million. Sales to governmental  
agencies represented 36%, 48% and 37% of KSI's net sales for 1999, 1998 and     
1997, respectively. The trailer manufacturing division had a backlog of orders  
consisting of $16.4 million at December 31, 1999 compared to $22.2 million at   
December 31, 1998.                                                              

        COST OF GOODS SOLD. Cost of goods sold increased $4.5 million, or 16%,
to $33.1 million for the year ended December 31, 1999 from $28.6 million for the
year ended December 31, 1998. The cost of goods sold increase consisted of an   
increase of $5.1 million at KSC from 1998 to 1999 and a decrease of $0.6 million
in KSI's cost of goods sold from 1998 to 1999. Cost of goods sold was 74.8% of  
net sales for the year ended December 31, 1999 compared to 71.7% for the year   
ended December 31, 1998. The increase was due to a higher percentage of sales   
being from KSC, which has a lower gross profit margin on its trailers then KSI. 
KSI's and KSC's cost of goods sold were 69.0% and 85.2%, respectively, for the  
year ended December 31, 1999 compared to 68.1% and 81.8%, respectively, for the 
year ended December 31, 1998. KSC's cost of goods sold percentage was higher in 
1999 due to the utilization of the new facility being at a lower rate of        
production than the old KSC facility and also the change in production mix.     

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 18%, to $3.9 million for the 
year ended December 31, 1999 from $3.3 million for the year ended December 31,  
1998. KSC's selling, general and administrative increased $0.6 million from 1998
to 1999, while KSI's selling, general and administrative expenses remained      
fairly constant between the periods.                                            

COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE YEARS ENDED    
DECEMBER 31, 1998 AND 1997                                                      

  NET SALES. Net sales increased $17.0 million, or 73.9%, to $39.9
million for the year ended December 31, 1998 from $22.9 million for the year    
ended December 31, 1997. The net sales increase consisted of $10.2 million in   
sales from KSC in 1998 and an increase of $6.8 million in KSI's sales. KSI sold 
895 trailers for the year ended December 31, 1998 and 730 trailers for the year 
ended December 31, 1997. The increase in KSI's sales volume increased net sales 
by $5.0 million. KSC sold 234 trailers for the year ended December 31, 1998.    
KSI's average price per trailer sold was $34,700 for the year ended December 31,
1998 and $30,500 for the year ended December 31, 1997. The increase in average  

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price per trailer increased KSI's sales by $1.8 million. Sales to governmental  
agencies represented 48% and 37% of KSI's net sales for 1998 and 1997,          
respectively. KSI's backlog as of December 31, 1998 was $18.3 million compared  
to $19.7 million at December 31, 1997. KSC's backlog as of December 31, 1998 was
$3.7 million.                                                                   

    COST OF GOODS SOLD. Cost of goods sold increased $12.0 million, or
72.8%, to $28.6 million for the year ended December 31, 1998 from $16.6 million 
for the year ended December 31, 1997. The cost of goods sold increase consisted 
of $8.4 million from KSC in 1998 and an increase of $3.6 million in KSI's cost  
of goods sold. Cost of goods sold was 71.7% for the year ended December 31, 1998
compared to 72.1% for the year ended December 31, 1997. KSI's and KSC's cost of 
goods sold were 68.2% and 81.7%, respectively, for 1998.                        

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.3 million, or 68.8%, to $3.3 million for   
the year ended December 31, 1998 from $2.0 million for the year ended December  
31, 1997. KSC's selling, general and administrative expenses were $0.9 million  
for 1998, while KSI's selling, general and administrative expenses increased    
$0.4 million for 1998. The increase was primarily related to KSI's increased    
sales during the year as discussed above.                                       

RESULTS OF MOTOR CARRIER OPERATIONS                                             

   The discussion of results of operations that follows reflects the
results of Steel City Carriers and RIS for the years ended December 31, 1998 and
1997. Since the Company's acquisition of Steel City Carriers in February 1995,  
its performance and development have not met the Company's expectations.        
Accordingly, in March 1997 the Company adopted a formal plan to discontinue its 
motor carrier operations and refocus the Company's efforts on expanding its core
railroad operations. The Company's Board of Directors approved the plan of      
discontinuance on March 20, 1997. Motor Carrier operations are included as      
discontinued operations for the first quarter of 1998 and for all of 1997 and   
1996. Motor Carrier operations are included in continuing operations from April 
1, 1998 to December 1, 1998.                                                    

  Effective December 1, 1998, the Company ceased all motor carrier
operations and leased substantially all of the operating assets of Steel City   
Carriers, Ltd. to Laidlaw Carriers, Inc., an operating subsidiary of Ontario,   
Canada-based Contrans Corporation. The leases are for a period of 18 to 24      
months. In addition, the Company has entered into an agreement to sell its      
Ontario real estate that was previously used in the motor carrier operations.   

        The following table sets forth the operating revenues and expenses (in
thousands) for the Company's motor carrier operations for the years ended       
December 31, 1998 and 1997.                                                     

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                                        FOR THE YEAR ENDED
                                        DECEMBER 31,
                                          1998            1997
                                          ----            ----
Transportation revenue                             $ 6,080       $ 7,133        
Operating expenses:                                                             

Transportation                                5,279         6,348 
General and administrative                      620           599 
Depreciation and amortization                   401         1,120 
                                           -------     ---------
Total operating expenses                             6,300         8,067        
                                            ------        ------
Operating income (expense)                            (220)         (934)       
Other expense                                         (317)         (187)       
                                             -------      --------
Loss before income taxes                            ($ 537)      ($1,121)       
                                              ======      ========

COMPARISON OF MOTOR CARRIER OPERATIONS FOR THE YEARS ENDED                      
DECEMBER 31, 1998 AND 1997                                                      

      The results of motor carrier operations have been included in continuing
operations commencing April 1, 1998, as disposal of the segment was not         
completed within twelve months. The results of motor carrier operations have    
been included as discontinued operations for the year ended December 31, 1997,  
as previously reported.                                                         

       OPERATING REVENUE. Operating revenue decreased $1.0 million, or 14.8%, to
$6.1 million for the year ended December 31, 1998 from $7.1 million for the year
ended December 31, 1997. The decrease was primarily due to Steel City ceasing   
motor carrier operations effective November 30, 1998 and due to a temporary shut
down at one of Steel City's largest customers during the third quarter of 1998. 

      OPERATING EXPENSES. Operating expenses decreased $1.8 million, or 21.9%,
to $6.3 million for the year ended December 31, 1998 from $8.1 million for the  
year ended December 31, 1997. Operating expenses, as a percentage of operating  
revenue, were 103.6% and 113.1% for the years ended December 31, 1998 and 1997, 
respectively.                                                                   

      Transportation expense decreased $1.0 million, or 16.8%, to $5.3 million
for the year ended December 31, 1998 from $6.3 million for the year ended       
December 31, 1997. The decrease was primarily due to variable costs related to  
the decreased level of operating revenue.                                       

  General and administrative expenses remained fairly constant at $0.6
million for the years ended December 31, 1998 and 1997.                         

     Depreciation and amortization decreased $0.7 million, or 64.2%, to $0.4
million for the year ended December 31, 1998 from $1.1 million for the year     
ended December 31, 1997. During 1997, the Company wrote off goodwill of         
approximately $0.7 million.                                                     

     Other expense increased $0.1 million, or 69.5%, to $0.3 million for the
year ended December 31, 1998 from $0.2 million for the year ended December 31,  
1997.                                                                           

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CORPORATE OVERHEAD                                                              

Corporate overhead, which benefits all of the Company's business  
segments, has not been allocated to the business segments for this analysis.    
Corporate overhead services performed for the Company's subsidiaries include    
overall strategic planning, marketing, accounting, finance, cash management,    
payroll, engineering and tax return preparation. The Company believes that this 
presentation will facilitate a better understanding of the changes in the       
results of the Company's operations. Corporate overhead, which is included in   
selling, general and administrative expenses in the consolidated statements of  
income, increased $1.1 million, or 27%, to $5.2 million for the year ended      
December 31, 1999 from $4.1 million for the year ended December 31, 1998.       
Corporate overhead increased $0.9 million, or 28.0%, to $4.1 million for the    
year ended December 31, 1998 from $3.2 million for the year ended December 31,  
1997. The increases in each of the specified periods were related to the        
additional costs incurred to manage the acquired subsidiaries and to establish a
strong management team to handle the Company's continued growth.                

LIQUIDITY AND CAPITAL RESOURCES - COMBINED OPERATIONS                           

     The discussion of liquidity and capital resources that follows reflects
the consolidated results of the Company, including all subsidiaries.            

       The Company's cash provided by operating activities was $21.5 million for
the year ended December 31, 1999. This amount includes $9.9 million in net      
income and $14.1 million in depreciation and amortization.                      

    Cash used in investing activities was $58.7 million for the year ended
December 31, 1999. The primary use of cash during 1999 was for the purchase of  
property, plant and equipment with an aggregate cost of approximately $51.4     
million. Approximately $10.8 million of these purchases were for the purchase of
E&N Railroad's assets. The Company also used $8.5 million for acquisitions      
during 1999.                                                                    

Cash provided by financing activities was $43.6 million for 1999, 
consisting of net proceeds of $11.9 million from the private placement of       
restricted common stock and $4.1 million from the sale of preferred stock. In   
addition the Company's net borrowings increased $31.9 million primarily due to  
the above mentioned purchase of E&N Railroads assets. Partially offsetting these
amounts was cash used for deferred loan costs of $2.4 million.                  

   In February 2000, the Company entered into a credit agreement and two
bridge note facilities in connection with the acquisition of RailTex and the    
refinancing of substantially all of the Company's and RailTex's existing debt.  
The credit agreement provides (1) a $125 million Term A loan, (2) a $205 million
Term B loan, and (3) a $50 million revolving credit facility which includes $30 
million of U.S. dollar denominated loans, $10 million of Canadian dollar        
denominated loans and $10.0 million of Australian dollar denominated loans. The 
Term A loan and the revolving loans mature on December 31, 2005 and the Term B  
loans mature December 31, 2006. At the Company's option, the senior credit      
facilities will bear interest at either (1) the alternative base rate (defined  
as greater of (i) The Bank of Nova Scotia's prime rate and (ii) the Federal     
Funds Effective Rate plus 0.005%) plus 1.75% for the revolving credit facilities
and for the term A loan facilities and 2.00% for the term B loan facility, or   
(2) the reserve-adjusted LIBO rate plus 3.00% for the revolving credit facility 
and for the term A loan facility and 3.25% for the term B loan facility;        
PROVIDED, that the additional amounts added to ABR and the LIBO rate for the    
Revolving Credit Facilities and the Term A loan facility discussed above will be
subject to adjustment based on changes in the Company's leverage ratio effective
two fiscal quarters after the closing of the Senior Credit Facilities. The      
default rate under the Senior Credit Facilities is 2.0% above the otherwise     
applicable rate. The loans are collateralized by substantially all of           

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the Company's assets other than those of KSI and its subsidiaries and Ferronor. 
The loans are guaranteed by all the Company's subsidiaries other than KSI and   
its subsidiaries and Ferronor. Freight Victoria guarantees only the Australian  
dollar revolving loans and the Company's Canadian subsidiaries guarantee only   
the Canadian dollar revolving loans. The loans are provided by a syndicate of   
banks with Donaldson, Lufkin & Jenrette as syndication agent and The Bank of    
Nova Scotia as administrative agent.                                            

Pursuant to the refinancing of RailAmerica's and RailTex's debt in
February 2000, the Company will be taking an extraordinary charge in the first  
quarter of 2000 for the loss on early extinguishment of debt.                   

     The Company's new credit facilities include numerous covenants imposing
significant financial and operating restrictions on its business. The covenants 
place restrictions on RailAmerica's ability to, among other things:             

o        incur more debt;                                     
      o        pay dividends, redeem or repurchase its stock or make other
distributions;                          
o        make acquisitions or investments;                    
o        use assets as security in other transactions;        
o        enter into transactions with affiliates;             
o        merge or consolidate with others;                    
o        dispose of assets or use asset sale proceeds;        
o        create liens on its assets; and                      
o        extend credit.                                       

      The new credit facilities also contain financial covenants that will
require the Company to meet a number of financial ratios and tests. The         
Company's ability to meet these ratios and tests and to comply with other       
provisions of the new credit facilities can be affected by events beyond its    
control. RailAmerica's failure to comply with the obligations in the new credit 
facilities could result in an event of default under the new credit facilities, 
which, if not cured or waived, could permit acceleration of the indebtedness or 
other indebtedness which could have a material adverse effect on the Company.   

   Interest on the new credit facility is payable at variable rates.
Fluctuations in the market interest rate will affect the cost of the Company's  
borrowings. The effect of a 1% increase in interest rates would result in an    
increase in interest expense of $3.3 million for the year ended December 31,    
2000.                                                                           

   In February 2000, in connection with the RailTex acquisition, the
Company's wholly-owned subsidiary, RailAmerica Transportation, Inc., issued $95 
million of subordinated bridge notes, under a securities purchase agreement with
DLJ Bridge Finance, Inc. These notes mature on February 4, 2001 and have an     
initial interest rate of 13% per annum, which rate increases every three months 
based on the highest specified rates. The Company anticipates that it will repay
the subordinated bridge notes through the issuance of additional long-term debt 
and/or equity securities. In February 2000, the                                 

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Company's wholly-owned subsidiary Palm Beach Rail Holding, Inc., issued $55     
million of asset sale bridge notes, under a securities purchase agreement with  
DLJ Bridge Finance, Inc. These notes mature on February 4, 2001 and have an     
initial interest rate of 15% per annum, which rate increases every three months 
based on the highest of specified rates. The asset sale bridge notes are        
collateralized by the assets of Kalyn/Siebert, L.P. and its subsidiaries, which 
are discontinued operations held for sale. The Company intends to repay a       
portion of the asset sale bridge notes from the proceeds of the sale of its     
trailer manufacturing operations, in addition will explore available            
alternatives to repay any remaining balance on the notes. There can be no       
assurance that the Company will be able to repay any or all of these bridge     
notes.                                                                          

       In connection with the issuance of the subordinated bridge notes, the
purchasers of such notes are entitled to receive warrants to purchase common    
stock at an exercise price of $7.75 per share commencing in May 2001 to the     
extent the subordinated bridge notes are then outstanding. In connection with   
the issuance of the asset sale bridge notes, the purchasers of such notes are   
entitled to receive warrants to purchase common stock at an exercise price of   
$7.75 per share commencing in August 2000 to the extent the asset sale bridge   
notes are then outstanding. The maximum number of shares issuable upon exercise 
of all these warrants would be 1,604,330, subject to specified anti-dilution    
adjustments.                                                                    

    In January 1999, the Company completed a private offering of $11.6
million of its Series A Convertible Redeemable Preferred Stock ("Preferred      
Stock"). The Company sold 464,400 shares of its Preferred Stock at a price of   
$25 per share. The Preferred Stock pays annual dividends of 7.5%, is convertible
into shares of the Company's common stock at a price of $8.25 per share and is  
non-voting. The Preferred Stock is mandatorily redeemable 5 years from its      
issuance. The December 31, 1998 balance sheet includes 300,600 shares which were
issued during 1998. The remainder of the shares were issued in January 1999. The
carrying value of the Preferred Stock is the par value less issuance costs. The 
issuance costs are being amortized on a straight-line basis over the life of the
Preferred Stock. 86,000 shares of the Preferred Stock were converted in late    
1999 and an additional 80,000 were converted in early 2000.                     

In March 1999, the Company completed a private offering of    
approximately $12.5 million of restricted Common Stock. Pursuant to the         
offering, the Company sold approximately 1.4 million shares of its $.001 par    
value common stock at a price of $8.8125 per share and issued approximately     
210,000 warrants to purchase an equivalent number of shares of common stock at  
an exercise price of $10.125 per share within one year of the transaction's     
closing date. First London acted as placement agent and received approximately  
$0.4 million in fees and cost reimbursement and one-year warrants to purchase   
141,653 shares of Common Stock at an exercise price of $10.125. All warrants    
related to this transaction expired on March 3, 2000 unexercised.               

        A majority of the proceeds from the two private offerings were used to
fund a $19 million deposit with the government of Victoria, Australia. This     
deposit was used as part of the purchase price of the assets of V/Line Freight  
Corporation, which closed April 30, 1999.                                       

      In August 1999, the Company issued $22.5 million aggregate principal
amount of its junior convertible subordinated debentures. Interest on the       
debentures accrues at the rate of 6% per annum and is payable semi-annually,    
commencing January 31, 2000. The debentures are convertible, at the option of   
the holder, into shares of RailAmerica at a conversion price of $10 per share,  
subjected to adjustment in selected circumstances. The debentures 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 but unpaid interest thereon to the date of     
redemption, in whole or in part, if the closing price of RailAmerica's common   
stock is above 200% of the conversion price for 10 consecutive trading days.    

   As of December 31, 1999, the Company had working capital of $24.0
million compared to working capital of $18.5 million as of December 31, 1998.   

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Cash on hand was $11.6 million as of December 31, 1999 compared to $5.1 million 
as of December 31, 1998. The increases were primarily related to the acquisition
of Freight Victoria and sale of the Company's interest in Great Southern        
Railway. The Company's cash flows from operations historically have been        
sufficient to meet our ongoing operating requirements, capital expenditures for 
property, plant and equipment, and to satisfy the Company's interest            
requirements.                                                                   

       The Company expects that its future cash flows will be sufficient for
its current and contemplated operations for at least the next twelve months. The
Company anticipates using cash flows and borrowings for anticipated capital     
expenditures of $8.5 million for the upgrading of existing North American rail  
lines and purchases of locomotives and equipment. In addition, the Company      
anticipates spending $22.7 million of capital expenditures over the next twelve 
months on the newly acquired RailTex properties. The Company anticipates capital
expenditures of $10.6 million over the next twelve months primarily related to  
new Ferronor contracts received since its acquisition by the Company. Ferronor  
closed on a debt financing in the first quarter of 1999 that was used to fund   
certain of the capital expenditures. Additionally, Ferronor has a commitment    
letter to fund the remainder of the expansion and anticipates closing on this   
financing during 2000. Freight Victoria's capital expenditures are estimated to 
be $18.5 million over the next twelve months and the Company anticipates paying 
for these through cash generated from Freight Victoria's operations. The Company
does not presently anticipate any other significant capital expenditures over   
the next twelve months. To the extent possible, the Company will seek to finance
any further acquisitions of property, plant and equipment in order to allow its 
cash flow from operations to be devoted to other uses, including debt reduction 
and acquisition requirements.                                                   

       The Company anticipates debt service for the next twelve months to be
approximately $56 million including principal and interest. It is anticipated   
that a portion of the debt service will be paid from the operating cash flow of 
Freight Victoria. A material change in the currency exchange rate between the   
U.S. dollar and the Australian dollar could adversely affect the Company's      
ability to service the debt.                                                    

  The Company's long-term business strategy includes the selective
acquisition of additional transportation-related businesses. Accordingly, the   
Company may require additional equity and/or debt capital in order to consummate
acquisitions or undertake major development activities. It is impossible to     
predict the amount of capital that may be required for such acquisitions or     
development, and there is no assurance that sufficient financing for such       
activities will be available on terms acceptable to the Company, if at all. As  
of March 1, 2000, the Company had $38.0 million of availability under the       
revolving line of credit facility.                                              

INFLATION                                                                       

   Inflation in recent years has not had a significant impact on the
Company's operations. The Company believes that inflation will not adversely    
affect the Company in the future unless it increases substantially and the      
Company is unable to pass through the increases in its freight rates.           

IMPACT OF YEAR 2000                                                             

    The "Year 2000 Issue" is the result of computer programs that were
written using two digits rather than four to define the applicable year. If the 
Company's computer programs with date-sensitive functions are not Year 2000     
compliant, they may recognize a date "00" as the Year 1900 rather than the Year 

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2000. This could result in a system failure or miscalculations causing          
disruptions of operations, including, among other things, a temporary inability 
to process transactions, inability to interchange information with connecting   
railroads or engage in similar normal business activities.                      

       As of the date of this annual report, the Company has not experienced
any significant adverse impact on the Company's operations from the transition  
to the Year 2000. The Company cannot assure that its operations have not been   
affected in a manner that is not yet apparent or in a manner that will arise in 
the future. In addition, computer programs that were date sensitive to the Year 
2000 may not have been programmed to process the Year 2000 as a leap year, and  
negative effects from this remain unknown. As a result, the Company will        
continue to monitor its Year 2000 compliance and the Year 2000 compliance of our
suppliers and customers. However, the Company does not anticipate any Year 2000 
problems that are reasonably likely to have a material adverse effect on the    
Company's operations.                                                           

         Readers are cautioned that forward-looking statements contained in this
Impact of Year 2000 discussion should be read in conjunction with the Company's 
disclosures under the heading "Cautionary Statement for Purposes of the "Safe   
Harbor" Provisions of the Private Securities Litigation Reform Act of 1995"     
which appears at the beginning of this annual report on Form 10-K.              

NEW ACCOUNTING PRONOUNCEMENTS                                                   

        In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"   
which establishes accounting and reporting standards for derivative instruments 
and hedging activities. SFAS No. 133 requires all derivatives to be measured at 
fair value and recognized at either assets or liabilities on the balance sheet. 
Furthermore, the accounting for changes in the fair value of a derivative (i.e. 
gains and losses) depends on the intended use of the derivative.                

ITEM 7A.  MARKET RISK                                                           

   FOREIGN CURRENCY. The Company's foreign currency risk arises from
owning and operating railroads in Canada, Chile and Australia. At December 31,  
1999, the Company had not entered into any transactions to manage this risk.    

   The financial position and results of operations of the Company's
Canadian, Chilean and Australian subsidiaries are measured using the local      
currency as the functional currency. Assets and liabilities are translated into 
U.S. dollars at exchange rates in effect at year-end, while revenues and        
expenses are translated at average exchange rates prevailing during the year.   
The resulting translation gains and losses are charged directly to accumulated  
other comprehensive income, a component of stockholders' equity, and are not    
included in income until realized through the sale or liquidation of the        
investment. At December 31, 1999, the accumulated other comprehensive income    
totaled $3.5 million, or 5% of total stockholders' equity.                      

        It is anticipated that a portion of the debt service will be paid from
the operating cash flow of Freight Victoria. A material change in the currency  
exchange rate between the U.S. dollar and the Australian dollar could adversely 
affect the Company's ability to service the debt.                               

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     INTEREST RATES. The Company's interest rate risk results from owing
variable rate debt obligations, as an increase in interest rates would result in
lower earnings and increased cash outflows. At December 31, 1999, the Company   
had not entered into any transactions to manage this risk.                      

     The interest rate on the new credit facility is payable at variable
rates. Fluctuations in the market interest rate will affect the cost of the     
Company's borrowings. The effect of a 1% increase in interest rates on the      
Company's $330 million variable rate debt would result in an increase in        
interest expense of $3.3 million for the year ended December 31, 2000.          

         DIESEL FUEL. The Company is exposed to risk as a result of fluctuations
in diesel fuel prices, as an increase in the price of diesel fuel would result  
in lower earnings and increased cash outflows. At December 31, 1999, the Company
had not entered into any transactions to manage this risk although RailTex has  
entered into a contract to hedge against fuel prices with a cap which fixed the 
price of 725,000 gallons of diesel fuel per month for the period July 1999 to   
June 2000 at $0.4500 per gallon. The cost of the cap was approximately $0.2     
million.                                                                        

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                            

        The Consolidated Financial Statements of the Company, the accompanying
notes thereto and the independent auditor's report 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 of
the Company is hereby incorporated by reference from the Company's definitive   
proxy statement relating to its 2000 Annual Meeting of Stockholders to be filed 
with the Commission pursuant to Regulation 14A on or before April 29, 2000.     

ITEM 11.  EXECUTIVE COMPENSATION                                                

     Information concerning the executive compensation of the Company is
hereby incorporated by reference from the Company's definitive proxy statement  
relating to its 2000 Annual Meeting of Stockholders to be filed with the        
Commission pursuant to Regulation 14A on or before April 29, 2000.              

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT        

        Information concerning the security ownership of the Company is hereby
incorporated by reference from the Company's definitive proxy statement relating
to its 2000 Annual Meeting of Stockholders to be filed with the Commission      
pursuant to Regulation 14A on or before April 29, 2000.                         

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                        

       Information concerning certain relationships and related transactions
of the Company is hereby incorporated by reference from the Company's definitive
proxy statement relating to its 2000 Annual Meeting of Stockholders to be filed 
with the Commission pursuant to Regulation 14A on or before April 29, 2000.     

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PART IV                                                                         

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K      

(a)    Exhibits                                                                 

     2.1      Amended and Restated Stock Purchase Agreement, dated as of
               August 3, 1999 by and among RailAmerica, Inc., Florida Rail
         Lines, Inc. Bank Austria AG, Grand Cayman Branch, CSX
                  Transportation, Inc., Delaware Otsego Corporation, The Brenner
     Group and The Toledo, Peoria and Western Railroad
Corporation(8)                              
      2.2      Agreement and Plan of merger, dated as of October 14, 1999,
                  among RailAmerica, Inc., Cotton Acquisition Corp. and RailTex,
Inc.(9)                                     
        3.1      Amended and Restated Articles of Incorporation of Registrant,
as amended(2)                               
3.2      By-laws of Registrant(1)                             
        4.1      Form of Common Stock Rights Agreement, dated as of January 6,
              1998, between the Registrant 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 the Company and American Stock
Transfer & Trust Company(10)                
  4.4      Warrant Agreement, dated as February 4, 2000, among the
Company and RailAmerica Funding, Inc.       
        4.5      Asset Bridge Warrant Agreement, dated as of February 4, 2000,
            among the Company and RailAmerica Holdings Funding, Inc.
       10.41    Employment Agreement between Gary O. Marino and RailAmerica,
Inc.(7)+                                    
   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)+
        10.55    Confidential Private Placement Memorandum dated September 20,
1996.(3)                                    
       10.56    Stock Purchase Agreement, dated as of September 20, 1996, by
                 and among Otter Tail Valley Railroad Company, Inc. and Dakota
Rail, Inc.(4)                               
         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(6)+                                    
        10.64    Sale of Assets Agreement dated February 22, 1999 by and among
                  RailAmerica, Inc., Freight Victoria Limited and V/Line Freight
Corporation 10.2 Primary Infrastructure (11)
         10.65    Lease dated April 30, 1999 by and among the Director of Public
Transport and Freight Victoria Limited(12)  
    10.66    Asset Purchase Agreement, dated December 17, 1998, by and
                  among Canadian Pacific Railway Company and E&N Railway Company
      (1998) Ltd., a subsidiary of RailAmerica, Inc.(13)
    10.67    Noncompete Agreement, dated December 1999, by and between
Ronald A. Rittenmeyer and the Company(14)   
        10.68    Purchase Agreement, dated as of November 4, 1998 by and among
             RailTex Global Investments, L.L.C., RailTex International
         Holdings, Inc. and GEEMF II Latin America, L.L.C.(15)
     10.69    Memorandum of Understanding, dated as of October 29, 1999,
providing for the                           

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            sale by RailTex Global Investments, LLC of its shares in
          Ferrovia Centro Atlantica, S.A. (English and Portugese
language versions)(16)                      
    10.70    Purchase Agreement, dated as of November 10, 1999, by and
             bewteen RailTex International Holdings, Inc. and GEEMF II
Latin America, L.L.C.(17)                   
       10.71    Credit Agreement, dated as of February 4, 2000, by and among
           the Company and Palm Beach Rail Holdings, Inc., each as
                  guarantor, RailAmerica Transportation Corp., RaiLink, Ltd. And
         Freight Victoria Limited, each as a borrower, various
                financial institutions from time to time parties thereto, as
              the lenders, DLJ Capital Funding, Inc., as the syndication
               agent, the lead arranger and the sole book running manager,
                The Bank of Nova Scotia, as the administrative agent for the
                  Lenders and ING (U.S.) Capital LLC and Fleet National Bank, as
the documentation agents for the lenders    
       10.72    Securities Purchase Agreement, dated as of February 4, 2000,
                 among RailAmerica Transportation Corp., and the Company, Palm
                Beach Holdings, Inc., and all of the Restricted Subsidiaries
                  (as defined in the Credit Agreement) of the Company, each as a
              guarantor, and RailAmerica Funding, Inc. as the purchaser.
  10.73    Asset Bridge Securities Purchase Agreement, dated as of
               February 4, 2000, among Palm Beach Rail Holdings, Inc., and
         the Company, Kalyn/Siebert I, Inc., KS Boca, Inc. and
             Kalyn/Siebert, L.P., each as a guarantor, and RailAmerica
Holdings Funding, Inc., as the purchaser    
        10.74    Equity Registration Rights Agreement, dated as of February 4,
         2000, among the Company and RailAmerica Funding, Inc.
      10.75    Debt Registration Rights Agreement, dated as of February 4,
         2000, among the Company and RailAmerica Funding, Inc.
         10.76    Asset Bridge Equity Registration Rights Agreement, dated as of
                February 4, 2000, among the Company and RailAmerica Funding,
Inc.                                        
       99.1     Petition for Exemption, dated November 8, 1999, filed before
                  the Surface Transportation Board, finance Docket No. 33813, by
RailAmerica, Inc. and RailTex, Inc.(18)     
21.1     Subsidiaries of Registrant                           
23.1     Consent of PricewaterhouseCoopers LLP                
23.2     Consent of Arthur Andersen Langton Clarke            
27       Financial Data Schedule                              

----------                                                                      

(1)      Incorporated by reference to the same exhibit number filed as part of  
       the Registrant's Registration Statement on Form S-1, Registration No.
33-49026.                                                     
(2)      Incorporated by reference to the same exhibit number filed as part of  
     the Company's Form 10-QSB for the quarter ended September 30, 1995,
         filed with the Securities and Exchange Commission on November 12, 1995.
(3)      Incorporated by reference to the exhibit A filed as part of the        
        Company's Form 8-K as of September 30, 1996, filed with the Securities
and Exchange Commission on October 17, 1996.                  
(4)      Incorporated by reference to the exhibit 2.1 filed as part of the      
      Company's Form 8-K as of October 11, 1996, filed with the Securities
and Exchange Commission on October 25, 1996.                  
(5)      Incorporated by reference to the same exhibit number filed as part of  
        the Company's Form 10-KSB for year ended December 31, 1995, filed with
the Securities and Exchange                                   

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Commission on March 31, 1997.                                 
(6)      Incorporated by reference to exhibit No. 4.1 filed as part of the      
   Registrant's Statement on Form 8-A, filed with the Securities and
Exchange Commission on January 6, 1998.                       
(7)      Incorporated by reference to the same exhibit number filed as part of  
     the Company's Form 10-Q for the quarter ended March 31, 1998, filed
with the Securities and Exchange Commission on May 14, 1998.  
(8)      Incorporated by reference to exhibit 2.1 filed as part of the Company's
 Form 8-K as of September 3, 1999, filed with the Securities and
Exchange Commission on September 20, 1999.                    
(9)      Incorporated by reference to exhibit 2.1 filed as part of the Company's
         Form 8-K as of October 14, 1999, filed with the Securities and Exchange
Commission on October 19, 1999.                               
(10)     Incorporated by reference to exhibit 4.1 filed as part of the Company's
         Form 8-K as of January 13, 2000, filed with the Securities and Exchange
Commission on January 26, 2000.                               
(11)     Incorporated by reference to exhibit 10.1 filed as part of the         
        Company's Form 8-K as of April 30, 1999, filed with the Securities and
Exchange Commission on May 17, 1999.                          
(12)     Incorporated by reference to exhibit 10.2 filed as part of the         
        Company's Form 8-K as of April 30, 1999, filed with the Securities and
Exchange Commission on May 17, 1999.                          
(13)     Incorporated by reference to exhibit 10.64 filed as part of the        
         Company's Form 10-Q as of March 31, 1999, filed with the Securities and
Exchange Commission on May 17, 1999.                          
(14)     Incorporated by reference to exhibit 10.1 filed as part of the         
Company's Registration Statement on Form S-4, Registration No.
333-93611.                                                    
(15)     Incorporated by reference to exhibit 10.56 filed as part of the Form   
    10-K filed for RailTex, Inc. for the year ended December 31, 1998,
      filed with the Securities and Exchange Commission on March 30, 1999.
(16)     Incorporated by reference to exhibit 10.60 filed as part of the Form   
        10-Q filed for RailTex, Inc. for the quarter ended September 30, 1999,
         filed with the Securities and Exchange Commission on November 12, 1999.
(17)     Incorporated by reference to exhibit 10.61 filed as part of the Form   
        10-Q filed for RailTex, Inc. for the quarter ended September 30, 1999,
         filed with the Securities and Exchange Commission on November 12, 1999.
(18)     Incorporated by reference to exhibit 99.1 filed as part of the         
      Company's Form 8-K as of November 8, 1999, filed with the Securities
and Exchange Commission on November 12, 1999.                 
(19)     Incorporated by reference to the exhibit of the same number filed as   
      part of the Company's Form 10-K for the year ended December 31, 1998
      filed with the Securities and Exchange Commission on March 31, 1999.
+        Executive Compensation Plan or Arrangement.                            

(b)      Reports on Form 8-K.                                                   

        The Company filed the following reports on Form 8-K during the quarter
ended December 31, 1999:                                      

        1.       Current Report on Form 8-K, dated October 19, 1999, was filed
               with the Securities and Exchange Commission on November 12,
            1999 in connection with the Company's acquisition of the
common stock of RailTex, Inc.               

     2.       Current Report on Form 8-K/A, dated September 3, 1999, was
                 filed with the Securities and Exchange Commission on November
                12, 1999 in connection with the Company's acquisition of the
                 stock of The Toledo, Peoria and Western Railroad Corporation.

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SIGNATURES

       In accordance with Section 13 or 15(d) of the Securities Exchange act
of 1934, the Company 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, Chief Executive Officer
(Principal Financial officer)       

By: /s/ Larry W. Bush                       
   ---------------------------------------
Larry W. Bush, Controller           
(Principal Accounting Officer)        

Dated  March 27, 2000                       

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

                                                        [Enlarge/Download Table]

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

/s/ Gary O. Marino             Chairman, President, Chief Executive     March 27, 2000
-----------------------------  Officer and Director                                   
Gary O. Marino                                                                        

/s/ Donald D. Redfearn         Chief Administrative Officer, Executive  March 27, 2000
-----------------------------  Vice President, Secretary and Director                 
Donald D. Redfearn                                                                    

/s/ John H. Marino             Assistant Secretary and Director         March 27, 2000
-----------------------------                                                         
John H. Marino                                                                        

/s/ Douglas R. Nichols         Director                                 March 27, 2000
-----------------------------                                                         
Douglas R. Nichols                                                                    

/s/ Richard Rampell            Director                                 March 27, 2000
-----------------------------                                                         
Richard Rampell                                                                       

/s/ Charles Swinburn           Director                                 March 27, 2000
-----------------------------                                                         
Charles Swinburn                                                                      

/s/ John M. Sullivan           Director                                 March 27, 2000
-----------------------------                                                         
John M. Sullivan                                                                      

/s/ Ferd. C. Meyer, Jr.        Director                                 March 27, 2000
-----------------------------                                                         
Ferd C. Meyer, Jr.                                                                    

/s/ William G. Pagonis         Director                                 March 27, 2000
-----------------------------                                                         
William G Pagonis                                                                     


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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 7:                                         

                                                                [Download Table]

                                                                   PAGES  
                                                                   -----  

                                                                          
Report of Independent Certified Public Accountants                  F-2   

Report of Independent Certified Public Accountants                  F-3   

Consolidated Balance Sheets - December 31, 1999 and 1998            F-4   

Consolidated Statements of Income - For the Years Ended                   
       December 31, 1999, 1998 and 1997                             F-5   

Consolidated Statement of Stockholders' Equity - For the Years            
       Ended December 31, 1999, 1998 and 1997                       F-6   

Consolidated Statements of Cash Flows - For the Years Ended               
       December 31, 1999, 1998 and 1997                             F-7   

Notes to Consolidated Financial Statements                      F-8 - F-35


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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders of                                                          
RailAmerica, Inc.                                                               

In our opinion, based upon our audits and the report of other auditors, the     
accompanying consolidated balance sheets and the related consolidated statements
of income, stockholders' equity and cash flows present fairly, in all material  
respects, the financial position of RailAmerica, Inc. and its subsidiaries at   
December 31, 1999 and 1998, and the results of their operations and their cash  
flows for each of the three years in the period ended December 31, 1999, in     
conformity with accounting principles generally accepted in the United States.  
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 did not audit the financial statements of Empresa De          
Transporte Ferroviario S.A., a 55% owned subsidiary of the Company, which       
statements reflect total assets of $87,555,000 and $74,306,000 as of December   
31, 1999 and 1998, respectively, and total revenues of $19,115,000 and          
$15,312,000 for the years ended December 31, 1999 and 1998. Those statements    
were audited by other auditors whose report thereon has been furnished to us,   
and our opinion expressed herein, insofar as it relates to the amounts included 
for Empresa De Transporte Ferroviario S.A., is based solely on the report of the
other auditors. We conducted our audits of these statements in accordance with  
auditing standards generally accepted in the United States, 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 and the report of other      
auditors provide a reasonable basis for the opinion expressed above.            

PricewaterhouseCoopers LLP                                                      

Ft. Lauderdale, Florida                                                         
March 15, 2000                                                                  

F-2 

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 REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of                                                          
Ferronor S.A.:                                                                  

We have audited the balance sheets of Empresa de Transporte Ferroviario S.A     
("Ferronor") as of December 31, 1999 and 1998, and the related statements of    
income and cash flows for the years ended December 31, 1999 and 1998 and for the
ten-month period ended December 31, 1997. 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 have conducted our audits in accordance with generally accepted auditing     
standards in Chile, which are substantially consistent with those followed in   
the United States of America. Those standards 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. An 
audit also includes assessing the accounting principles used and the significant
estimates made by the management, as well as evaluating the overall financial   
statement presentation. We believe that our audits provide a reasonable basis   
for our opinion.                                                                

In our opinion, the financial statements referred to above present fairly, in   
all material respect, the financial position of Ferronor as of December 31, 1999
and 1998 and the results of its operations and its cash flow for the years ended
December 31, 1999 and 1998 and for the ten-month period ended December 31, 1997 
in conformity with generally accepted accounting principles in the United States
of America.                                                                     

Charles A. Bunce                               ARTHUR ANDERSEN - LANGTON CLARKE 

February 4, 2000 Santiago, Chile                                                

F-3 

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RAILAMERICA, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 December 31,1999 and 1998

                                                        [Enlarge/Download Table]


                                                                               1999          1998          
                                                                          --------------    ---------------
                                                                                                           
                                            ASSETS                                                         
Current assets:                                                                                            
  Cash                                                                  $    11,597,540   $      5,085,402 
  Accounts and notes receivable                                              40,856,772          7,733,238 
  Inventories                                                                 9,928,789          3,647,885 
  Other current assets                                                        3,500,166          1,480,637 
  Net assets of discontinued operation                                       14,995,915         13,882,586 
                                                                          --------------    ---------------
        Total current assets                                                 80,879,182         31,829,748 

Property, plant and equipment, net                                          347,617,262         91,875,650 

Notes receivable, less current portion                                        2,122,843          1,284,200 
Investment in affiliates                                                      4,666,776          1,938,942 
Other assets                                                                  8,642,071          4,035,372 
                                                                          --------------    ---------------
        Total assets                                                    $   443,928,134   $    130,963,912 
                                                                          ==============    ===============

                             LIABILITIES AND STOCKHOLDERS' EQUITY                                          
Current liabilities:                                                                                       
  Current maturities of long-term debt                                  $    17,811,326   $      3,557,430 
  Accounts payable                                                           23,731,732          7,004,497 
  Accrued expenses                                                           15,379,461          2,775,962 
                                                                          --------------    ---------------
        Total current liabilities                                            56,922,519         13,337,889 
                                                                          --------------    ---------------
Long-term debt, less current maturities                                     145,016,269         62,769,869 
Subordinated debt                                                           100,000,000                 -- 
Convertible subordinated debt                                                22,448,642                 -- 
Other liabilities                                                            16,374,169            427,288 
Deferred income taxes                                                        15,382,013          4,848,869 
Minority interest                                                             9,488,693          7,937,992 
Commitments and contingencies                                                                              
Redeemable convertible preferred stock, $0.01 par value,                                                   
  $25 liquidation value, 1,000,000 shares authorized;                                                      
  378,400 and 300,600 outstanding, respectively                               8,829,844          6,881,684 
Stockholders' equity:                                                                                      
  Common stock, $0.001 par value, 30,000,000 shares authorized;                                            
    12,610,725 issued and 11,894,136 outstanding at December 31, 1999;                                     
    10,207,477 issued and 9,631,188 outstanding at December 31, 1998             12,611             10,207 
  Additional paid-in capital                                                 52,304,578         28,277,533 
  Retained earnings                                                          18,170,824          9,285,122 
  Accumulated other comprehensive income                                      3,485,717            470,820 
  Treasury stock (716,589 and 576,289 shares, respectively, at cost)         (4,507,745)        (3,283,361)
                                                                          --------------    ---------------
        Total stockholders' equity                                           69,465,985         34,760,321 
                                                                          --------------    ---------------
        Total liabilities and stockholders' equity                      $   443,928,134   $    130,963,912 
                                                                          ==============    ===============

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 INCOME 
For the years ended December 31, 1999, 1998 and 1997

                                                        [Enlarge/Download Table]


                                                     1999                  1998               1997     
                                                 ---------------    ----------------   ----------------
                                                                                                       
Operating revenue:                                                                                     
  Transportation - railroad                    $    118,910,941   $      30,303,562  $      22,023,717 
  Other                                               6,461,383           2,700,421          2,472,188 
  Motor Carrier                                              --           4,252,329                 -- 
                                               ----------------   -----------------  ----------------- 
        Total operating revenue                     125,372,324          37,256,312         24,495,905 
                                               ----------------   -----------------  ----------------- 
Operating expenses:                                                                                    
  Transportation - railroad                          75,375,742          15,702,487         12,502,153 
  Selling, general and administrative                19,549,612           9,075,571          6,840,467 
  Depreciation and amortization                       9,179,239           2,543,115          1,788,594 
  Motor Carrier                                              --           4,438,039                 -- 
                                               ----------------   -----------------  ----------------- 
        Total operating expenses                    104,104,593          31,759,212         21,131,214 
                                               ----------------   -----------------  ----------------- 
        Operating income                             21,267,731           5,497,100          3,364,691 
Interest and other expense                          (20,490,358)         (4,944,113)        (3,641,164)
Other income                                          6,012,072             232,070          1,000,382 
Minority interest in income of subsidiary            (1,550,700)         (1,671,750)          (851,243)
                                               ----------------   -----------------  ----------------- 
      Income from continuing                                                                           
          operations before income taxes              5,238,745            (886,693)          (127,334)
Provision for income taxes                             (786,979)         (1,000,000)          (415,000)
                                               ----------------   -----------------  ----------------- 
     Income from continuing operations                6,025,724             113,307            287,666 
Discontinued operations:                                                                               
  Estimated loss on disposal of discontinued                                                           
    segments (net of income tax benefit                                                                
    of $277,000)                                             --                  --           (452,402)
  Income from operations of discontinued                                                               
    segments (less applicable income tax                                                               
    provisions of $2,300,000, $2,500,000, and                                                          
    $1,200,000)                                       3,895,512           4,287,842          2,103,935 
                                               ----------------   -----------------  ----------------- 
        Net income                             $      9,921,236   $       4,401,149  $       1,939,199 
                                               ================   =================  ================= 

Net income available to common stockholders    $      8,885,702   $       4,401,149  $       1,939,199 
                                               ================   =================  ================= 

Basic earnings per common share                                                                        
    Continuing operations                      $           0.45   $            0.01  $            0.02 
    Discontinued operations                                0.35                0.45               0.21 
                                               ----------------   -----------------  ----------------- 
        Net income                             $           0.80   $            0.46  $            0.23 
                                               ================   =================  ================= 

Diluted earnings per common share                                                                      
    Continuing operations                      $           0.43   $            0.01  $            0.02 
    Discontinued operations                                0.34                0.44               0.20 
                                               ----------------   -----------------  ----------------- 
        Net income                             $           0.77   $            0.45  $            0.22 
                                               ================   =================  ================= 

Weighted average common shares                                                                         
    outstanding:                                                                                       
    Basic                                            11,089,614           9,552,866          8,303,938 
                                               ================   =================  ================= 
    Diluted                                          11,664,871           9,777,866          8,586,938 
                                               ================   =================  ================= 

The accompanying notes are an integral part of the
consolidated financial statements.

F-5 

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RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 For the year ended December 31, 1999, 1998 and 1997

                                                        [Enlarge/Download Table]


                                                     Stockholders' Equity                                     
                                ----------------------------------------------------------------------------  
                                  Number of                     Additional        Common                      
                                   Shares            Par          Paid-in          Stock            Retained  
                                   Issued           Value         Capital       Subscribed          Earnings  
                               ----------------   --------    --------------   ------------      ------------ 

                                                                                                              
Balance, January 1, 1997             6,125,410   $      6,125   $ 11,773,036   $  2,340,000      $  2,944,774 

Net income                                  --             --             --             --         1,939,199 

Issuance of common stock             1,720,627          1,721      7,163,206     (2,340,000)               -- 

Treasury stock received for                                                                                   
  sale of subsidiaries                      --             --             --             --                -- 

Stock incentive plan issuance               --             --             --             --                -- 

Exercise of stock options              202,933            203        747,837             --                -- 

Exercise of warrants                 1,080,594          1,081      3,666,653             --                -- 

Cumulative translation                      --             --             --             --                -- 
                                  ------------   ------------   ------------   ------------      ------------ 

Balance, December 31, 1997           9,129,564   $      9,130   $ 23,350,732   $         --      $  4,883,973 

Net income                                  --             --             --             --         4,401,149 
Other comprehensive income                                                                                    
  Cumulative translation                    --             --             --             --                -- 

  Total comprehensive income                                                                                  

Issuance of common stock               138,786            138        677,039             --                -- 

Purchase of treasury stock                  --             --             --             --                -- 

Exercise of stock options              237,950            238        870,637             --                -- 

Tax benefit exercise of options             --             --        178,000             --                -- 

Exercise of warrants                   167,000            167        934,501             --                -- 

Conversion of debt                     534,177            534      2,266,624             --                -- 
                                  ------------   ------------   ------------   ------------      ------------ 

Balance, December 31, 1998          10,207,477         10,207     28,277,533             --         9,285,122 

Net income                                  --             --             --             --         9,921,236 
Other comprehensive income                                                                                    
  Cumulative translation                    --             --             --             --                -- 

  Total comprehensive income                                                                                  

Issuance of common stock             1,437,888          1,438     12,027,787             --                -- 

Purchase of treasury stock                  --             --             --             --                -- 

Exercise of stock options              141,168            141        580,669             --                -- 

Tax benefit exercise of options             --             --        152,000             --                -- 

Conversion of debt                     563,520            564      3,332,268             --                -- 

Conversion of preferred stock          260,672            261      2,006,244             --                -- 

Issuance of warrants                        --             --      5,928,077             --                -- 

Preferred stock dividends                                                                                     
  and accretion                             --             --             --             --        (1,035,534)
                                  ------------   ------------   ------------   ------------      ------------ 

Balance, December 31, 1999          12,610,725   $     12,611   $ 52,304,578   $         --      $ 18,170,824 
                                  ============   ============   ============   ============      ============ 

                                                                              

                                                         [Enlarge/Download Table]
                                                                                               
                                                                                                

                                                           Stockholders' Equity                 
                                ----------------------------------------------------------------
                                         Other                                                  
                                     Comprehensive           Treasury                           
                                         Income                Stock                Total       
                                ----------------------   ------------------   ------------------

                                                                                                
Balance, January 1, 1997          $     67,441                 $ (1,139,269)     $ 15,992,107   

Net income                                  --                           --         1,939,199   

Issuance of common stock                    --                           --         4,824,927   

Treasury stock received for                                                                     
  sales of subsidiaries                     --                     (479,629)         (479,629)  

Stock incentive plan issuance               --                      173,516           173,516   

Exercise of stock options                   --                           --           748,040   

Exercise of warrants                        --                           --         3,667,734   

Cumulative translation                 (52,068)                          --           (52,068)  
                                  ------------                   ----------      ------------   

Balance, December 31, 1997        $     15,373                 $ (1,445,382)     $ 26,813,826   

Net income                                  --                           --         4,401,149   
Other comprehensive income                                                                      
  Cumulative translation               455,447                                        455,447   
                                                                                 ------------   
  Total comprehensive income                                                        4,856,596   
                                                                                 ------------   

Issuance of common stock                    --                           --           677,177   

Purchase of treasury stock                  --                   (1,837,979)       (1,837,979)  

Exercise of stock options                   --                           --           870,875   

Tax benefit exercise of options             --                           --           178,000   

Exercise of warrants                        --                           --           934,668   

Conversion of debt                          --                           --         2,267,158   
                                  ------------                   ----------      ------------   

Balance, December 31, 1998             470,820                   (3,283,361)       34,760,321   

Net income                                  --                           --         9,921,236   
Other comprehensive income                                                                      
  Cumulative translation             3,014,897                           --         3,014,897   
                                                                                 ------------   
  Total comprehensive income                                                       12,936,133   
                                                                                 ------------   

Issuance of common stock                    --                           --        12,029,225   

Purchase of treasury stock                  --                   (1,224,384)       (1,224,384)  

Exercise of stock options                   --                           --           580,810   

Tax benefit exercise of options             --                           --           152,000   

Conversion of debt                          --                           --         3,332,832   

Conversion of preferred stock               --                           --         2,006,505   

Issuance of warrants                        --                           --         5,928,077   

Preferred stock dividends                                                                       
  and accretion                             --                           --        (1,035,534)  
                                  ------------                  -----------      ------------   

Balance, December 31, 1999        $  3,485,717                  $(4,507,745)     $ 69,465,985   
                                  ============                  ===========      ============   


The accompanying notes are an integral part of the
consolidated financial statements.

F-6 

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RAILAMERICA, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999, 1998 and 1997

                                                        [Enlarge/Download Table]


                                                             1999                1998               1997      
                                                       ----------------    ----------------   ----------------
                                                                                                              
Cash flows from operating activities:                                                                         
  Net income                                         $       9,921,236   $       4,401,149  $       1,939,199 
  Adjustments to reconcile net income to net                                                                  
    cash provided by operating activities:                                                                    
      Depreciation and amortization                         14,133,502           4,156,546          3,053,728 
      Minority interest in income of subsidiary              1,550,701           1,671,750            851,243 
      Equity interest in earnings of affiliate                (230,109)                 --                 -- 
      Gain on insurance settlement                          (4,069,278)                 --                 -- 
      Loss (gain) on sale or disposal of properties            118,426             (76,791)          (608,380)
      Write-off of excess of costs over net assets                  --                  --            729,681 
      Write-off of deferred acquisition costs                   38,855             176,179             76,292 
      Deferred income taxes                                  3,401,804             912,967            382,122 
      Employee stock grants                                         --                  --             15,188 
      Foregiveness of debt                                          --             (32,809)                -- 
      Changes in operating assets and liabilities,                                                            
        net of acquisitions and dispositions:                                                                 
        Accounts receivable                                 (2,246,205)           (885,983)        (3,037,697)
        Inventories                                         (2,270,833)         (6,921,847)        (1,294,501)
        Other current assets                                (1,830,526)         (1,157,666)           124,247 
        Accounts payable                                     3,243,680           2,410,602           (606,499)
        Accrued expenses                                     3,326,059             720,498            714,409 
        Other liabilities                                   (2,294,441)                 --                 -- 
        Deposits and other                                  (1,292,753)            368,476            (47,264)
                                                     -----------------   -----------------  ----------------- 
          Net cash provided by operating activities         21,500,118           5,743,071          2,291,768 
                                                     -----------------   -----------------  ----------------- 

Cash flows from investing activities:                                                                         
  Purchase of property, plant and equipment                (51,391,127)        (28,128,546)        (7,455,848)
  Proceeds from sale of properties                             165,610           1,806,127            331,654 
  Proceeds from sale of equity interest                        998,441                  --                 -- 
  Acquisitions, net of cash acquired                        (8,453,218)         (1,757,033)        (7,389,903)
  Deposit on purchase agreement                                     --          (1,962,067)                -- 
  Investment in Great Southern Railway                              --                  --           (596,665)
  Loan receivable from Great Southern Railway                       --                  --         (1,193,330)
  Cash held in discontinued                                   (656,367)           (674,468)              (472)
  Deferred acquisition costs and other                         638,881            (612,956)          (457,168)
                                                     -----------------   -----------------  ----------------- 
          Net cash used in investing activities            (58,697,780)        (31,328,943)       (16,761,732)
                                                     -----------------   -----------------  ----------------- 

Cash flows from financing activities:                                                                         
  Proceeds from issuance of long-term debt                 182,085,208          56,006,737         31,453,500 
  Principal payments on long-term debt                    (150,182,917)        (35,723,969)       (25,449,364)
  Sale of convertible preferred stock                        4,095,000           7,515,000                 -- 
  Sale of common stock                                      11,868,058           1,032,168          8,163,962 
  Proceeds from exercise of stock options                      580,810             870,875            748,041 
  Preferred stock dividends paid                              (843,024)                 --                 -- 
  Purchase of treasury stock                                (1,224,384)         (1,837,979)                -- 
  Deferred financing costs paid                               (333,400)           (603,549)          (286,724)
  Deferred loan costs paid                                  (2,421,445)           (333,071)          (294,361)
                                                     -----------------   -----------------  ----------------- 
          Net cash provided by financing activities         43,623,906          26,926,212         14,335,054 
                                                     -----------------   -----------------  ----------------- 

Effect of exchange rates on cash                                85,894                  --                 -- 
                                                     -----------------   -----------------  ----------------- 
Net increase (decrease) in cash                              6,512,138           1,340,340           (134,910)
Cash, beginning of period                                    5,085,402           3,745,062          3,879,972 
                                                     -----------------   -----------------  ----------------- 
Cash, end of period                                  $      11,597,540   $       5,085,402  $       3,745,062 
                                                     =================   =================  ================= 

The accompanying notes are an integral part of the
consolidated financial statements.

F-7 

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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 majority-owned subsidiaries (the
     "Company"). All significant inter-company balances and transactions
have been eliminated. Certain prior period amounts have been  
         reclassified to conform to the 1999 presentation. The Company announced
       a plan to sell its trailer manufacturing operation during 1999 and it
     is included as a discontinued operation for all periods reported in
these consolidated financial statements.                      

        All of RailAmerica's consolidated subsidiaries are wholly owned except
  Empresa de Transporte Ferrovario, S.A. ("Ferronor") in which the
         Company has a 55% equity interest. In accordance with the Shareholders'
 Agreement between RailAmerica and Andres Pirrazzoli y Cia, Ltda
     ("APCO"), RailAmerica controls the appointment of a majority of the
        Board of Directors of Ferronor, including the Chairman. APCO maintains
       certain minority rights under the shareholders Agreement, such as the
right to request the General Manager's removal under certain  
circumstances. The Company considered these minority rights in
    determining whether to consolidate Ferronor and has concluded that
 consolidation is appropriate based upon the Company's ownership
         position, and its level of control of the Board of Directors and senior
management.                                                   

      In July 1999, the Company acquired a 26.3% equity interest in Quebec
     Railway Corporation ("QRC") as part of its RaiLink acquisition. The
Company accounts for the investment using the equity method of
accounting.                                                   

         The Company's principal operations include rail transportation in North
         America, Chile and Australia. The Company hauls varied products for its
         customers corresponding to their local operating areas, primarily paper
    and forest products and agricultural commodities in North America,
    agricultural commodities in Australia and iron ore and nitrates in
Chile.                                                        

Use of Estimates                                              

      The preparation of financial statements in conformity with generally
      accepted accounting principles 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.                                         

Inventories                                                   

    Inventories, which are recorded at cost, consist of replacement or
    repair parts for equipment and track that are charged to property,
plant and equipment when utilized.                            

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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 -------

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued                  

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.                                                  

Concentration of Credit Risk                                  

    The Company maintains its cash in demand deposit accounts which at
      times may exceed FDIC insurance limits. As of December 31, 1999, the
  Company had approximately $3.4 million of cash in excess of FDIC
insurance limits.                                             

Property, Plant and Equipment                                 

      Property, plant and equipment are recorded at historical cost. Costs
       assigned to property purchased as part of an acquisition are based on
        the fair value of such assets on the date of acquisition. Improvements
   are capitalized, and expenditures for maintenance and repairs are
 charged to operations as incurred. Gains or losses on sales and
    retirements of properties are included in the determination of the
results of operations.                                        

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

Buildings and improvements                            20-33 years 
Railroad track and improvements                        3-40 years 
Locomotives, transportation and other equipment        5-20 years 
Office equipment                                       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.                 

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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 -------

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued                  

Revenue Recognition                                           

      Transportation - The Company recognizes transportation revenue after
        services are provided. For the years ended December 31, 1999, 1998 and
      1997, approximately 27%, 62% and 59%, respectively, of the Company's
 North American railroad transportation revenue was derived from
         interchanging with BNSF and for the years ended December 31, 1999, 1998
  and 1997, and approximately 14%, 30% and 32%, respectively, from
interchanging with CSX. For the year ended December 31, 1999, 
approximately 19% and 25% of the Company's North American     
     transportation revenue was derived from interchanging with Canadian
    National Railroad and Canadian Pacific Railroad, respectively. The
       Company had two customers in Chile who each represented more than 10%
      of the Chilean transportation revenue and two costumers in Australia
which represented 21% and 19%, respectively, of the Australian
transportation revenue.                                       

Commercial Trailer Sales - The Company's discontinued trailer 
        manufacturing operations recognize revenue from the commercial sale of
  trailers when title and risk of ownership are transferred to the
    customer, which generally is upon shipment or customer pick-up. In
      certain instances prior to shipment or customer pick-up, the Company
         receives full payment for a trailer. At that time, the Company issues a
         certificate of title or statement of origin to the customer and revenue
       is recognized. In these cases, the customer has made a fixed, written
         commitment to purchase, the trailer has been completed and is available
        for pick-up or delivery, and the customer has requested the Company to
    hold the trailer until the customer determines the most economical
       means of taking possession. In such cases, the Company has no further
    obligation except to segregate the trailer and hold it for a short
      period of time, as is customary in the industry, generally less than
      one month, until pick-up or delivery. Trailers are built to customer
  specifications and no right of return or exchange privileges are
granted.                                                      

 Governmental Trailer Sales - The Company's discontinued trailer
         manufacturing operations recognize revenue from the sale of trailers to
governmental agencies when title and risks of ownership are   
     transferred, which is upon completion, inspection and acceptance of
     trailers by the governmental agency. At that time, the governmental
         agency has made a fixed written commitment to purchase in the form of a
       contract, the trailer has been completed and is available for pick-up
       or delivery, and the governmental agency has requested the Company to
hold the trailer until the governmental agency determines the 
    appropriate means of taking possession. The Company has no further
    obligation except to segregate the trailer and hold it for a short
      period of time, as is customary in the industry, generally less than
     one month, until pick-up or delivery. The trailers are built to the
    government's specifications pursuant to a written contract and are
     inspected and accepted for delivery by the governmental agency. The
       contract terms provide for prepayments by the government of up to 90%
   of the trailer's cost. These prepayments are recorded as advances
        against the inventory. Sales to governmental agencies represented 23%,
        35% and 37% of the Company's manufacturing revenue for the years ended
December 31, 1999, 1998 and 1997, respectively.               

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1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued                  

Foreign Currency Translation                                  

    The financial statements and transactions of the Company's foreign
    operations are maintained in their functional currency. 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 United States
   dollars, are accumulated in the cumulative translation adjustment
  account, which is a component of accumulated other comprehensive
      income. 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. The aggregate gain on foreign
  currency translation for 1999 was $0.7 million. As a result of a
        decline in the value of the Australian dollar against the U.S. dollar,
       the Company recorded a transaction loss of approximately $2.6 million
during the first quarter of fiscal year 2000.                 

        During 1999, Ferronor changed its functional currency from the Chilean
Peso to the U.S. dollar, as the U.S. dollar has become more   
      representative of the primary economic environment in which Ferronor
       operates. Factors influencing this change include the Ferronor's cash
flows, sales price, sales market and financing indicator      
   considerations. This change has been accounted for prospectively.

Recent Accounting Pronouncements                              

        In June 1998, the Financial Accounting Standards Board ("FASB") issued
  SFAS No. 133, "Accounting for Derivative Instruments and Hedging
       Activities," which establishes accounting and reporting standards for
      derivative instruments and hedging activities. SFAS No. 133 requires
       all derivatives to be measured at fair value and recognized at either
         assets or liabilities on the balance sheet. Furthermore, the accounting
       for changes in the fair value of a derivative (i.e. gains and losses)
depends on the intended use of the derivative.                

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2.       EARNINGS PER SHARE                                                     

   Basic earnings per share is calculated using the weighted average
         number of common shares outstanding during the year. For the year ended
    December 31, 1999, income from continuing operations is reduced by
    preferred stock dividends and accretion for the basic earnings per
share computation.                                            

        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 and warrants. Options and
       warrants totaling 1.8 million were excluded from the diluted earnings
   per share calculation as the exercise prices of these options and
   warrants were greater than the average market price of the Common
        Stock. Assumed conversion of $26.5 million of convertible debt and the
       convertible preferred stock are anti-dilutive and are not included in
the calculation.                                              

   The following is a summary of the net income available for common
      stockholders and weighted average shares for the diluted calculation
(in thousands):                                               

                                                                [Download Table]

                                              1999          1998        1997 
                                            --------      --------    -------

                                                                             
Income from continuing operations            $  6,026    $    113   $    288 
Preferred stock dividends and accretion        (1,036)       --         --   
Interest on convertible debt                       42        --         --   
                                             --------    --------   -------- 
Income available to common stockholders      $  5,032    $    113   $    288 
                                             ========    ========   ======== 

Weighted average shares outstanding            11,090       9,553      8,304 
Assumed conversion of options and warrants        379         225        283 
Assumed conversion of convertible debt            196        --         --   
                                             --------    --------   -------- 
Weighted average shares outstanding            11,665       9,778      8,587 
                                             ========    ========   ======== 

3.      DISCONTINUED OPERATIONS:                                              

  In November 1999, the Company adopted a plan to sell its trailer
     manufacturing operations. This business has been accounted for as a
         discontinued operation and the results of operations have been excluded
         from continuing operations in the consolidated statements of operations
for all periods presented.                                    

        Total revenue for the trailer manufacturing segment was $44.3 million,
        $39.9 million and $22.9 million for the years ended December 31, 1999,
         1998 and 1997, respectively. Income before income taxes for the trailer
       manufacturing segment was $6.2 million, $6.9 million and $3.7 million
     for the years ended December 31, 1999, 1998 and 1997, respectively.
     Total assets in this division as of December 31, 1999 and 1998 were
         $28.8 million and $28.1 million respectively. Total liabilities in this
        division as of December 31, 1999 and 1998 were $13.9 million and $14.3
million, respectively.                                        

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3.      DISCONTINUED OPERATIONS, continued                                    

     In March 1997, the Company adopted a formal plan to discontinue its
      motor carrier division. The motor carrier division consists of Steel
      City Carriers and RailAmerica Intermodal Services, both wholly-owned
     subsidiaries of the Company. During the fourth quarter of 1997, the
         Company re-evaluated the carrying amount of Steel City Carriers' assets
   and recorded an impairment charge of approximately $730,000. This
  amount was determined based on what the Company believes it will
recover through the final disposition of the remaining assets.

   Operating results of the discontinued operations, as shown below,
   include the operations of the Motor Carrier segment for the three
       months ended March 31, 1998 and the year ended December 31, 1997. The
      motor carrier operations have been included in continuing operations
       for the nine months ended December 31, 1998, since the disposition of
the segment was not completed by April 1998.                  

  Effective December 1, 1998, the Company ceased all motor carrier
    operations and leased substantially all of the operating assets of
   Steel City Carriers, Ltd. to Laidlaw Carriers, Inc., an operating
      subsidiary of Ontario, Canada-based Contrans Corporation. The leases
   are for a period of 18 to 24 months. In addition, the Company has
    entered into an agreement to sell its Ontario real estate that was
previously used in its motor carrier operations.              

       Total revenue for the motor carrier segment was $1.8 million and $7.1
  million for the three months ended March 31, 1998 and year ended
         December 31, 1997, respectively. Loss before income taxes for the motor
        carrier segment was $0.1 million and $1.1 million for the three months
      ended March 31, 1998 and year ended December 31, 1997, respectively.

4.      ACQUISITIONS:                                                         

         On September 3, 1999, the Company, through its wholly-owned subsidiary,
Florida Rail Lines, Inc., completed the acquisition of all the
     outstanding common stock of The Toledo, Peoria and Western Railroad
Corporation ("TPW") from CSX Transportation, Delaware Ostego  
        Corporation, and other shareholders for an aggregate purchase price of
   $18 million (including the repayment of indebtedness), subject to
     certain adjustments. The Company funded the acquisition through its
         revolving line of credit. TPW is headquartered in East Peoria, Illinois
       and provides rail freight services to customers in the midwest United
     States and operates over rail lines running from Fort Madison, Iowa
       across North Central Illinois to Logansport, Indiana. TPW has certain
   unsettled litigation and contingencies outstanding whose ultimate
outcome will impact the purchase price allocation.            

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4.      ACQUISITIONS, continued                                               

 On July 26, 1999, the Company acquired approximately 98% of the
      outstanding shares of RaiLink Ltd ("RaiLink"). Through the Company's
     wholly-owned Canadian subsidiary, RL Acquisition Corp., the Company
       commenced an all cash-bid in May 1999 for all of the common shares of
        RaiLink at a price of CDN$8.75 per share pursuant to a Pre-Acquisition
       Agreement dated May 17, 1999 between the Company and RaiLink. RaiLink
     had approximately 8.36 million common shares outstanding on a fully
        diluted basis, giving the transaction an equity value of approximately
        CDN$73.2 million (approximately USD$49.8 million). As more than 90% of
   the outstanding shares were acquired under the offer, the Company
 acquired the remainder of the shares pursuant to the compulsory
     acquisition provisions of applicable Canadian law. A portion of the
   accrued liabilities assumed represented severance costs which the
       Company has accrued in accordance with EITF No. 95-3, "Recognition of
  Liabilities in Connection with a Purchase Business Combination."
      RaiLink is a regional railway company based in Edmonton, Alberta and
      provides freight transportation services to the national railways of
       Canada and to a wide variety of shippers. RaiLink and its 26.3% owned
      affiliate, Quebec Railway Corporation, currently operate 11 regional
      railways covering approximately 2,500 miles of track in Alberta, the
        Northwest Territories, Ontario, Quebec and New Brunswick. A portion of
       the funding for the transaction was provided by a consortium of banks
         with National Bank of Canada, as agent, through the Company's revolving
         line of credit. The balance of the funding came from a private offering
of the Company's junior convertible subordinated debt.        

     On April 30, 1999, the Company, through its wholly owned Australian
      subsidiary, Freight Victoria Limited ("Freight Victoria"), completed
       the acquisition of the assets and liabilities comprising the railroad
       freight business of V/Line Freight Corporation ("VLF"), a corporation
        established by the Government of the State of Victoria, Australia. VLF
was established in March 1997 as part of Victoria's public    
         transportation privatization process and assumed many of the activities
        formerly carried out by the V/Line Freight business unit of the Public
Transportation Corporation of the Government of Victoria.     

         Under the Sale of Assets Agreement (the "Agreement") dated February 22,
    1999 by and between the Company, Freight Victoria and VLF, Freight
   Victoria acquired all of the locomotives, wagons, motor vehicles,
  equipment, stock, spare parts inventory and accounts receivable,
  certain business, brand and trade names and trade marks, and the
        outstanding business contracts of VLF for a purchase price of AUD$73.4
       million in cash (approximately U.S.$49.0 million). The purchase price
has been allocated to assets acquired. In connection with the 
   acquisition, Freight Victoria also entered into other agreements,
       including a primary infrastructure lease (the "Infrastructure Lease")
with the Director of Public Transport of Australia and various
facilities leases, access agreements, maintenance and service 
agreements and other miscellaneous agreements. Pursuant to the
        Infrastructure Lease, Freight Victoria received a 45-year lease of the
         non-electrified intrastate Victorian railway tracks and infrastructure.

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4.       ACQUISITIONS, continued                                                

       Pursuant to certain other agreements, Freight Victoria is responsible
     for, among other things, track and rolling stock maintenance, train
       control, access to the railway infrastructure by other rail operators
        and safety and signaling. Under a letter issued by Freight Victoria in
        connection with its bid for the VLF business, Freight Victoria prepaid
in cash the net present value of the rental payments for the  
         Infrastructure Lease totaling AUD$80.8 million (approximately U.S.$54.0
   million). Freight Victoria commenced operations of the rail-based
freight business on May 1, 1999.                              

     In August 1998, the Company, through its newly formed, wholly-owned
        subsidiary, VCRR, entered into a long term lease/purchase agreement to
        operate a 13-mile rail line serving the Port of Hueneme and the Oxnard
       Harbor District in Oxnard, California, located approximately 50 miles
         north of Los Angeles. VCRR's operations commenced September 1, 1998 and
    are included in the results of domestic rail operations as of that
date.                                                         

 In January 1998, the Company acquired, through its wholly-owned
  subsidiary Kalyn, all of the outstanding stock of Canadian truck
         trailer manufacturer Fabrex, Inc. and its affiliate, Services Remorques
      Plus, Inc. (collectively "Fabrex") for approximately $1.5 million in
     cash and 70,000 shares of RailAmerica common stock, $.001 par value
   ("Common Stock"), and assumption of approximately $1.0 million of
    long-term debt. Fabrex's operations have been combined into KSC, a
       wholly-owned subsidiary of Kalyn. Fabrex, a manufacturer of specialty
       bulk-hauling truck trailers used in the solid waste, agricultural and
      construction industries, was founded in 1985 and is located in Trois
Rivieres, Quebec.                                             

      On February 19, 1997, the Company acquired, through its wholly-owned
subsidiary, RailAmerica de Chile, S.A., a majority interest in
         Ferronor, a 1,400 mile railroad serving northern Chile. The Company was
     joined in the purchase of Ferronor by Andres Pirrazzoli y Cia, Ltda
         ("APCO"). The purchase price paid by RailAmerica/APCO for substantially
       all of the stock of Ferronor, was approximately $12.3 million and was
funded 55% by RailAmerica and 45% by APCO.                    

         All of the above acquisitions were accounted for as purchases and their
         results have been included since the date of acquisition. The following
  unaudited pro forma summary presents the consolidated results of
        operations as if the above referenced acquisitions had occurred at the
        beginning of 1999 and 1998 and do not purport to be indicative of what
         would have occurred had the acquisitions been made as of those dates or
    of results which may occur in the future. (In thousands except net
income per share)                                             

                                                                [Download Table]


                                              1999        1998    
                                            --------    -------   
                                                                  
Operating revenue                           $ 187,607  $  167,778 
Income from continuing operations           $   5,262  $       46 
Earnings per share - continuing operations                        
      Basic                                 $    0.37  $    (0.09)
      Diluted                               $    0.36  $    (0.09)


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4.      ACQUISITIONS, continued                                               

      The significant adjustments related to the above years represent the
inclusion of revenue on new agreements, elimination of certain
    operating costs, elimination of costs related to the acquisitions,
       inclusion of depreciation differences on the revaluation of property,
       plant and equipment, additional interest expense based on an increase
     in long-term obligations, amortization of intangible assets and the
related income tax effects.                                   

5.      GREAT SOUTHERN RAILWAY LIMITED                                        

   On October 31, 1997, the Company acquired a minority interest, of
         approximately 11.4%, in the Great Southern Railway Limited ("GSR"). GSR
     completed the acquisition of the assets and business comprising the
       passenger rail service of the Australian National Railway Commission.
         The Company has invested $0.6 million in equity of GSR, $1.2 million in
     uncollateralized subordinated notes (the "Notes"). The Company sold
      both its interest in the equity of GSR and the Notes to the majority
       shareholder of GSR in October 1999. The Company received $0.9 million
        in cash and a note for $1.3 million due March 15, 2000. A gain of $0.3
       million is included in the 1999 consolidated statement of income. The
  remaining note is included in current assets in the consolidated
   balance sheet as of December 31, 1999 and was paid in March 2000.

6.      PROPERTY, PLANT AND EQUIPMENT:                                        

       Property, plant and equipment consist of the following as of December
31, 1999 and 1998 (in thousands):                             

                                                                [Download Table]

                                                       1999             1998    
                                                  --------------  --------------

                                                                                
Land                                             $      34,345    $     19,301  
Buildings and improvements                               8,683           5,275  
Railroad track and improvements                        186,670          44,700  
Locomotives, transportation and other equipment        135,309          31,104  
                                                 -------------    ------------  
                                                       365,007         100,380  
Less accumulated depreciation                           17,390           8,504  
                                                 -------------    ------------  
                                                 $     347,617    $     91,876  
                                                 =============    ============  

       Depreciation expense was approximately $9.2 million, $3.0 million and
    $1.8 million for the years ended December 31, 1999, 1998 and 1997,
respectively.                                                 

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6.      PROPERTY, PLANT AND EQUIPMENT, continued                              

    In January 1999, the Company through a newly formed subsidiary E&N
       Railway Company Ltd. ("ENR") acquired certain assets of the Esquimalt
        and Nanaimo Railway ("E&N") from the Canadian Pacific Railway ("CPR").
         The transaction included the purchase of a 68-mile section of rail line
      between Port Alberni, British Columbia and Nanaimo, British Columbia
and the lease of a 113-mile section of rail line from         
 Victoria-to-Nanaimo and from Parksville-to-Courtenay on British
    Columbia's Vancouver Island. The purchase of the assets of the E&N
  Railway accounted for approximately $10.8 million of fixed asset
additions for year ended December 31, 1999.                   

7.      INVESTMENT IN AFFILIATE:                                              

       As of December 31, 1999, the Company`s recorded investment in QRC was
       $4.7 million and the Company's underlying equity in net assets of QRC
      was $4.5 million. The difference is treated as goodwill and is being
       amortized over a 20 year period. The Company recorded $0.2 million in
       income, net of amortization, from this investment in the consolidated
statement of operations for 1999.                             

8.      OTHER ASSETS:                                                         

        Other assets consist of the following as of December 31, 1999 and 1998
(in thousands):                                               

                                                                [Download Table]


                              1999          1998    
                          ------------  ------------
                                                    
Deferred loan costs, net   $     6,657   $      608 
Deposits and other               1,985        3,427 
                           -----------   ---------- 
                           $     8,642   $    4,035 
                           ===========   ========== 

       Deferred loan costs are being amortized utilizing the interest method
over the term of the respective term loans.                   

9.      RELATED PARTY TRANSACTIONS:                                           

        First London Securities Corporation ("First London"), of which Douglas
Nichols, a director of the Company, is President and principal
        shareholder, served as the exclusive placement agent for the Company's
         private placement which had a final close in January 1999. A portion of
 the private placement was received by the Company and closed in
      December 1998 (see Note 13 Redeemable Preferred stock). First London
received a total of $0.8 million in placement fees and cost   
      reimbursements during December 1998 and the first quarter of 1999 on
      this transaction and two-year warrants to purchase 140,727 shares of
Common Stock at an exercise price of $8.25 per share.         

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9.      RELATED PARTY TRANSACTIONS, continued                                 

During 1997, the Company sold all the outstanding stock of its
      wholly-owned subsidiary Gettysburg Scenic Rail Tours, Inc. ("GSRT"),
certain railroad equipment and substantially all the assets of
         Gettysburg Railway ("GBR") to a company owned by its Vice Chairman. The
        sale price for GSRT and the railroad equipment was $0.5 million, which
      consisted of cash of $0.1 million and 62,602 shares of the Company's
   common stock valued at $0.4 million. A gain of approximately $0.2
    million was recognized on the transaction and is included in other
     income (expense) in the consolidated income statement for 1997. The
 sale price for substantially all of the assets of GBR was $1.45
   million, which consisted of cash of $0.3 million, an $0.8 million
         promissory note due June 30, 1998 and a $0.35 million mortgage note, at
an interest rate of 8.5% with a maturity of June 30, 2003. The
   promissory note and mortgage note are collateralized by the land,
buildings and track assets of Gettysburg Railway. A gain of   
     approximately $0.2 million was recognized on the transaction and is
included in other operating income in the consolidated income 
     statement. The $800,000 promissory notes maturity date was extended
until June 2000.                                              

         As of December 31, 1999, $1.15 million of notes receivable from related
       parties is included in notes receivable, less current portions on the
consolidated balance sheet.                                   

10.      LONG-TERM DEBT:                                                        

        Long-term debt consists of the following at December 31, 1999 and 1998
(in thousands):                                               

                                                        [Enlarge/Download Table]

                                                                           1999        1998   
                                                                        ----------  ----------
                                                                                              
Revolving line of credit.  See below                                     $ 121,005    $ 44,207

Various equipment notes, with interest imputed at rates from 8.12% to                         
     11.63%, due in fixed monthly installments of $114 (including                             
     interest) with varying maturities through November 2004. Certain                         
     equipment serves as collateral.                                         3,381       4,457

Burlington Northern Santa Fe ("BNSF") rail facilities installment                             
     purchase obligation, annual payments of $250, including interest                         
     at 10%, maturing in October 2116. If car loads at OTVR fall below                        
     7,250 in a year, BNSF will credit payments on this debt                                  
     at a rate of $250 per car.                                              2,139       2,139


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10.      LONG-TERM DEBT, continued                                              

                                                        [Enlarge/Download Table]


                                                                                               
Credit facilities with various financial institutions,                                         
     ranging in monthly interest rates from                                                    
     0.77% to 1.495%, maturing from 30 to 90 days                             4,180       1,481

Credit facilities with Banco de Desarrollo, see below                        10,261       7,782

Credit facility with Banco Security, interest rate of                                          
     0.0928% monthly                                                          5,102          --

Note payable to Compania Minera del Pacifico, bearing interest at LIBOR                        
     plus 2.5% due in monthly installments (including interest)maturing                        
     in 2003. Certain Ferronor assets serve                                                    
     as collateral.                                                           1,765       2,822

Mortgage note payable, bearing interest at 7.85%, due in fixed                                 
     monthly installments of $46 (including interest), with                                    
     a final payment of $4,827 in January 2010.  Corporate                                     
     office building serves as collateral                                     6,000          --

Debenture payable, interest at 6.5%, maturing December 31, 2000                                
     Certain rail line serves as collateral                                   4,085          --

Capital lease obligations                                                     1,042       1,459

Other long-term debt                                                          3,867       1,980
                                                                         ----------  ----------
                                                                            162,827      66,327
   Less current maturities                                                   17,811       3,557
                                                                         ----------  ----------
          Long-term debt, less current maturities                         $ 145,016  $   62,770
                                                                          =========  ==========

         Ferronor refinanced certain short-term debt as of January 28, 1999 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 (7.08% at December 31, 1999) plus 1.75% 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% and is payable in 120 equal monthly
installments (including interest).                            

       In February 2000, the Company entered into a credit agreement and two
      bridge note facilities in connection with the acquisition of RailTex
     and the refinancing of most of the Company's and RailTex's existing
     debt. The credit agreement provides (1) a $125 million Term A loan,
         initially bearing interest at LIBOR plus 3.00%, (2) a $205 million Term
       B loan, initially bearing interest at LIBOR plus 3.25%, and (3) a $50
      million revolving credit facility which includes $30 million of U.S.
      dollar denominated loans, $10 million of Canadian dollar denominated
        loans and $10.0 million of Australian dollar denominated loans with an
      initial interest rate of LIBOR plus 3.00%, or a Canadian equivalent.
         The loans are provided by a syndicate of banks with Donaldson, Lufkin &
Jenrette as syndication agent and The Bank of Nova Scotia as  
  administrative agent. All of the stock of all the Company's U.S.
subsidiaries serve as collateral for the credit facilities.   

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10.      LONG-TERM DEBT, continued                                              

    The Term A loans requires principal payments of 5% in 2000, 10% in
      2001, 15% in 2002, 20% in 2003, 25% in both 2004 an 2005. The Term B
    loan requires principal payments of 1% per year through 2005 and a
      balloon maturity at December 31, 2006. The revolving loans mature on
December 31, 2005.                                            

    The Company's new credit facilities include covenants which impose
         financial and operating restrictions on RailAmerica's ability to, among
other things:                                                 

o        incur more debt;                                     
      o        pay dividends, redeem or repurchase its stock or make other
distributions;                          
o        make acquisitions or investments;                    
o        use assets as security in other transactions;        
o        enter into transactions with affiliates;             
o        merge or consolidate with others;                    
o        dispose of assets or use asset sale proceeds;        
o        create liens on its assets; and                      
o        extend credit.                                       

      The new credit facilities also contain financial covenants that will
     require the Company to meet a number of financial ratios and tests.

    In February 2000, the Company, through its wholly-owned subsidiary
      RailAmerica Transportation, Inc., issued $95 million of subordinated
     bridge notes, under a securities purchase agreement with DLJ Bridge
  Finance, Inc. These notes mature on February 4, 2001 and have an
    initial interest rate of 13% per annum, which rate increases every
         three months based on the highest specified rates. The Company, through
         its wholly-owned subsidiary Palm Beach Holding, Inc. issued $55 million
        of asset sale bridge notes, under a securities purchase agreement with
     DLJ Bridge Finance, Inc. These notes mature on February 4, 2001 and
      have an initial interest rate of 15% per annum, which rate increases
       every three months based on the highest of specified rates. The asset
      sale bridge notes are collateralized by the assets of Kalyn/Siebert,
       L.P. and its subsidiaries, which are discontinued operations held for
sale.                                                         

       In connection with the issuance of the subordinated bridge notes, the
       purchasers of such notes are entitled to receive warrants to purchase
        common stock at an exercise price of $7.75 per share commencing in May
        2001 to the extent the subordinated bridge notes are then outstanding.
     In connection with the issuance of the asset sale bridge notes, the
       purchasers of such notes are entitled to receive warrants to purchase
    common stock at an exercise price of $7.75 per share commencing in
August 2000 to the extent the asset sale bridge notes are then
         outstanding. The maximum number of shares issuable upon exercise of all
       these warrants would be 1,604,330, subject to specified anti-dilution
adjustments.                                                  

      In connection with the February 2000 debt refinancing, including the
         refinancing of RailTex's debt, the Company will record an extraordinary
charge in the first quarter of 2000.                          

         The aggregate annual maturities of long-term debt are as follows net of
    discount amortization taking into effect the above refinancing (in
thousands):                                                   

2000                           $ 17,811       
2001                             18,827       
2002                             23,938       
2003                             29,324       
2004                             35,309       
Thereafter                       37,618       
                        --------
                        $162,827
                        ========

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10.      LONG-TERM DEBT, continued                                              

     During the years ended December 31, 1999, 1998 and 1997 interest of
    approximately $1,386, $465 and $69, respectively, was capitalized.

Capital Leases                                                

         The Company entered into equipment finance leases for certain tractors,
      trailers and other equipment expiring at various times through 2003.
        These leases are accounted for as capital leases. The financing of the
      purchase of the tractors, trailers and equipment under these capital
   leases was capitalized using the interest rate appropriate at the
inception of the respective leases.                           

      Minimum annual lease commitments at December 31, 1999 are as follows
(in thousands):                                               

                                                                [Download Table]

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

                                                             
2000                                    $   427    $  2,977  
2001                                        451       2,631  
2002                                        218       2,242  
2003                                         75       1,870  
2004                                         --       1,033  
Thereafter                                   --       1,163  
                                         ------     -------  
       Total                              1,171    $ 11,916  
                                                   ========  
     Less amount representing interest     129               
                                         -----               
       Present value of future minimum                       
            lease payments               1,042               
  Less current portion                     355               
                                         -----               
       Noncurrent portion               $  687               
                                         =====               

       Rental expense under operating leases was approximately $3.4 million,
      $2.7 million and $0.9 million for the years ended December 31, 1999,
1998 and 1997, respectively.                                  

11.      SUBORDINATED DEBT:                                                     

        To facilitate the acquisition of VLF, Freight Victoria obtained a $100
        million bridge loan from Barclays Bank PLC under a senior secured loan
     facility. Upon the execution of the facility, the Company issued to
       Barclays Bank PLC warrants to acquire 750,000 shares of the Company's
       Common Stock at an exercise price of $9.75 per share. On November 30,
   1999, in accordance with the terms of the bridge loan the Company
      issued additional warrants to acquire 50,000 shares of the Company's
       Common Stock to Barclays Bank PLC at an exercise price of $7.7875 per
       share and increased the interest rate by 200 basis points. The bridge
loan was refinanced in February 2000 in conjunction with the  
acquisition of RailTex (see note 10).                         

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12.      CONVERTIBLE SUBORDINATED DEBT:                                         

      In August 1999, the Company issued $22.5 million aggregate principal
       amount of its junior convertible subordinated debentures. Interest on
   the debentures accrues at the rate of 6% per annum and is payable
semi-annually, commencing January 31, 2000. The debentures are
         convertible, at the option of the holder, into shares of RailAmerica at
a conversion price of $10, subjected to adjustment in selected
    circumstances. The debentures 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 but unpaid interest thereon to the date
of redemption, in whole or in part, if the closing price of   
         RailAmerica's common stock is above 200% of the conversion price for 10
consecutive trading days.                                     

 In addition to the bridge loan the Company issued AUD$3 million
   (approximately U.S.$2.0 million) in convertible debt to a certain
vendor of Freight Victoria ("Vendor Debt"). The Vendor Debt is
         convertible into the Company's common stock at the current market price
 or convertible into Freight Victoria stock at the option of the
       Company. The Company also issued $2.64 million of convertible debt in
     lieu of cash payments for fees owed to its investment banker in the
        transaction. The convertible debt bears interest at 6%, is convertible
         into the Company's common stock at $9.83 per share and was converted in
July 1999 into 272,415 shares of common stock.                

13.      REDEEMABLE PREFERRED STOCK:                                            

    In January 1999, the Company completed a private offering of $11.6
million of its Series A Convertible Redeemable Preferred Stock
       ("Preferred Stock"). The Company sold 464,400 shares of its Preferred
    Stock at a price of $25 per share. The Preferred Stock pays annual
       dividends of 7.5%, is convertible into shares of the Company's common
      stock at a price of $8.25 per share and is non-voting. The Preferred
         Stock is mandatorily redeemable 5 years from its issuance. The December
         31, 1998 balance sheet includes 300,600 shares which were issued during
    1998. The remainder of the shares were issued in January 1999. The
      carrying value of the Preferred Stock is the par value less issuance
      costs. The issuance costs will be amortized on a straight-line basis
      over the life of the Preferred Stock. 86,000 shares of the Preferred
      Stock were converted in the fourth quarter of 1999 and 88,000 shares
were converted in the first quarter of 2000.                  

14.      COMMON STOCK TRANSACTIONS:                                             

         On August 24, 1998, the Company's Board of Directors authorized a share
     repurchase program to buy back up to 1,000,000 shares of its Common
  Stock (limited to $2 million per year pursuant to the new credit
   facilities). Purchases will be made from time to time in the open
    market and will continue until all of such shares are purchased or
         until the Company determines to terminate the repurchase program. As of
    December 31, 1999, the Company had purchased 445,400 shares with a
         total cost of $3.1 million. The Company purchased 172,500 shares with a
total cost of $1.1 million in the first quarter of 2000.      

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14.      COMMON STOCK TRANSACTIONS, continued                                   

In March 1999, the Company completed a private placement of   
         approximately $12.5 million of restricted common stock. Pursuant to the
    offering, the Company sold approximately 1.4 million shares of its
       common stock at a price of $8.8125 per share and issued approximately
       212,000 warrants to purchase an equivalent number of shares of common
        stock at an exercise price of $10.125 per share within one year of the
     transaction's closing date. First London Securities Corporation, of
    which Douglas Nichols, a director of the Company, is President and
principal shareholder, acted as placement agent and received  
        approximately $0.4 million in fees and cost reimbursement and one-year
         warrants to purchase 141,504 shares of the Company's common stock at an
exercise price of $10.125. All of the warrants issued for this
transaction expired on March 3, 2000.                         

         In August 1999, the Company issued warrants to purchase an aggregate of
         676,363 shares of common stock to the investors in the private offering
of $22.5 million principal amount of its junior convertible   
subordinated debentures described in Note 7. The warrants are 
     exercisable during the five-year period ending August 5, 2004 at an
 exercise price of $10.50 per share, subject to adjustment under
       selected circumstances. Warrants to purchase 200,000 shares of common
    stock at an exercise price of $10.50 per share during the two-year
        period ending July 31, 2001 were issued in connection with the private
offering to the placement agent.                              

15.      OTHER REVENUE:                                                         

       Other revenue as of December 31, 1999, 1998 and 1997 consisted of the
following (in thousands):                                     

[CAPTION]                                                                       

                                                                [Download Table]

                                      1999             1998             1997      
                                ---------------- ---------------- ----------------
                                                                                  
Gain on sale of properties and                                                    
    easements                   $         266      $         695   $       1,251  
Rental income                           2,850              1,484             857  
Maintenance revenue                     1,703                 --              --  
Other                                   1,642                521             364  
                                -------------      -------------   -------------  
                                $       6,461      $       2,700   $       2,472  
                                =============      =============   =============  

16.      INCOME TAX PROVISION:                                                  

        Income before income taxes for the years ended December 31, 1999, 1998
and 1997 consists of (in thousands):                          

                                                                [Download Table]

                           1999    1998          1997    
                           ----    ----          ----    
                                                         
Domestic              $  (2,978)  $  (2,327)  $   (1,140)
Foreign Subsidiaries      8,217       1,440        1,013 
                      ---------   ---------   ---------- 
                       $  5,239   $    (887)  $     (127)
                      =========   =========   ========== 

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16.      INCOME TAX PROVISION, continued                                        

       The provision for income taxes for the years ended December 31, 1999,
1998 and 1997 consists of (in thousands):                     

                          1999       1998     1997
                          ----       ----     ----
Federal income taxes:                                         
Current                   $    15    $   232    $  --   
Deferred                    1,234      1,039        708 
                         -------    -------    -------
                           1,249      1,271        708
                         -------    -------    -------
State income taxes:                                           

Current                       149        281        161 
Deferred                     (106)       (55)       (26)
                         -------    -------    -------
                              43        226        135
                         -------    -------    -------
Foreign income taxes:                                         

Current                       857         33       --   
Deferred                    2,197       --         (306)
Change in tax law          (2,835)      --         --   
                         -------    -------    -------
Total income tax provision   $ 1,511    $ 1,530    $   537    
                         =======    =======    =======

      The following summarizes the total income tax provisions for each of
  the years ended December 31, 1999, 1998 and 1997 (in thousands):

Continuing operations        ($  787)   $ 1,570    $   963    
Discontinued operations        2,298        (40)      (426)   
                         -------    -------    -------
Total income tax provision   $ 1,511    $ 1,530    $   537    
                         =======    =======    =======

     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]


                                                   1999        1998       1997   
                                                ---------   ----------  ---------
                                                                                 
Income tax provision, at 35%                      $ 1,833    $ 2,113    $ 1,259  
Statutory federal Surtax exemption                    (52)       (60)       (36) 
State income tax, net of federal benefit              (48)       147         90  
Benefit due to difference between U.S. &                                         
     Chilean tax rates                               (295)      (316)      (192) 
Benefit due to utilization of Chilean net                                        
     operating loss carryforwards                    --         (306)      (152) 
Benefit due to reduction in Canadian tax                                         
      rate for manufacturing companies               --          (42)      --    
Benefit due to difference between U.S. &                                         
       Australian tax rates                          (266)      --         --    
Net Benefit due to tax law changes in Australia    (2,835)      --         --    
Amortization of warrants not deductible               602       --         --    
Non-deductible expenses, net                          320         45         33  
Other, net                                            124        107         60  
Valuation allowance                                  (170)      (118)       (99) 
                                                  -------    -------    -------  
                                                  $  (787)   $ 1,570    $   963  
                                                  =======    =======    =======  

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16.      INCOME TAX PROVISION, continued                                        

   The Company joins in the filing of 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 Canadian subsidiaries file Canadian and provincial income tax
        returns. The Company's Chilean and Australian subsidiaries file income
tax returns in their respective jurisdictions.                

    The components of deferred income tax assets and liabilities as of
December 31, 1999 and 1998 are as follows (in thousands):     

                                                  1999          1998
                                                  ----          ----
Deferred tax assets:                                          
  Net operating loss carry forwards           $  7,667    $  2,798
  Alternative minimum tax credit                   790         766
Accrued Expense (net of deferred expense)      4,478        --
  Other                                            108         205
                                              --------    --------
      Total deferred assets                     13,043       3,769
   Less:  valuation allowance                      (321)       (491)
                                              --------    --------
      Total deferred assets, net                12,722       3,278

Deferred tax liabilities:                                     

  Property, plant and equipment                 29,162      11,339
Minority Investments                             836        --
  Installment Sales                                180         181
Capital Lease Obligation                         859        --
Deferred Revenue                                 495        --
                                              --------    --------
   Net deferred tax liability                  $(18,810)   $ (8,242)
                                              ========    ========

         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 $0.3 million at December 31, 1999 and $0.5 million at
      December 31, 1998, respectively. The valuation allowance at December
   31, 1999 is comprised of $0.2 million, which relates to prior and
         current year state net operating losses, and $0.1 million which relates
     to prior and current year Chilean net operating losses of Ferronor.

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16.      INCOME TAX PROVISION, continued                                        

   The following is a summary of net operating loss carryforwards by
jurisdiction as of December 31, 1999 (in thousands):          

                                                                [Download Table]


                   AMOUNT  EXPIRATION PERIOD
                   ------  -----------------

                                            
U.S. - Federal  $   5,536  2003 - 2019      
U.S. - State       16,064  2000 - 2019      
Chile               1,069  None             
Australia          10,938  None             
Canada              2,741  2004 - 2006      
                ---------                   
                 $ 36,348                   
                =========                   

     As part of certain acquisitions, the Company acquired net operating
    loss carry forwards for federal and state income tax purposes. The
        utilization of the acquired tax loss carry forwards is further limited
        by the Internal Revenue Code Section 382 to approximately $0.1 million
   each year. These tax loss carry forwards expire in the years 2001
through 2010.                                                 

      No provision was made in 1999 for U.S. income taxes on undistributed
       earnings of the Chilean, 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.       

      The provision includes a one-time income tax benefit of $3.4 million
    due to legislation passed in Australia during the third quarter of
        1999, which permits the Company's Australian subsidiary to deduct, for
       income tax purposes, a larger amount of depreciation than is reported
       for financial statement purposes. Additionally, during December 1999,
         Australian tax regulations were passed which will ultimately reduce the
        statutory tax rate in Australia from 36% to 30%. A one-time income tax
 provision of $0.6 million was recorded to revalue the Company's
Australian net deferred tax assets due to this rate reduction.

17.      OTHER INCOME:                                                          

Included in other income for 1999 was a fourth quarter gain on
       insurance settlement of $4.1 million from an accident which destroyed
   certain locomotives and railcars in Australia. In addition, other
        income for 1999 includes $0.7 million in exchange gains from Australia
 and Chile and $0.3 million in gain on the sale of the Company's
minority interest in GSR.                                     

18.      STOCK OPTIONS:                                                         

      In July 1992, the Company implemented a stock option plan (the "1992
 Plan") for certain officers, consultants, employees and outside
       directors of the Company. The aggregate number of shares which may be
issued pursuant to the 1992 Plan is 250,000 shares which are  
exercisable at date of grant and have a ten year life.        

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18.      STOCK OPTIONS, continued                                               

         Effective January 1, 1995, the Company implemented two new stock option
         plans: the 1995 Stock Incentive Plan and the 1995 Non-Employee Director
      Stock Option Plan. Each plan calls for 250,000 shares to be reserved
         for future issuance. Options granted under the Stock Incentive Plan are
exercisable at the date of grant. Options granted under the   
         Non-Employee Director Stock Option Plan are 1/3 exercisable at the date
      of grant, 1/3 exercisable at the first anniversary of the grant date
      and 1/3 exercisable at the second anniversary of the grant date. All
     the options granted under the Stock Incentive Plan and Non-Employee
         Director Stock Option Plan have a ten year life from the date of grant.
         In June 1997, the Company's stockholders approved a 750,000 increase in
        the number of shares of common stock reserved for issuance pursuant to
         the Company's 1995 Stock Incentive Plan, bringing total shares reserved
under this plan to 1,000,000.                                 

   Under an employment agreement dated November 1994, Mr. Marino was
    granted ten-year non-qualified options to purchase an aggregate of
         350,000 shares of the Company's common stock at exercise prices ranging
from $3.10 to $4.15. Options to purchase 175,000 shares were  
      immediately exercisable and options to purchase 87,500 shares became
exercisable on each of March 1, 1996 and 1997.                

     Effective January 1, 1998, Mr. Marino entered into a new employment
agreement with the Company under which he was granted ten-year
         non-qualified options to purchase 300,000 shares of common stock of the
    Company at exercise prices varying from $7.25 to $9.50. All of the
options are immediately exercisable.                          

      During June 1998, the Company implemented the 1998 Omnibus Executive
         Incentive Compensation Plan ("1998 Plan"). The 1998 Plan supersedes the
         1992 Plan and the 1995 Stock Incentive Plan. The 1998 Plan provides for
       grants of stock options, stock appreciation rights, restricted stock,
      deferred stock, other stock-related awards and performance or annual
        incentive awards. The aggregate number of shares to be issued pursuant
   to the 1998 Plan are 930,000 shares. Options for 76,000 shares of
   common stock of the Company, at an exercise price of $6.125, were
  issued pursuant to the 1998 Plan as of July 1, 1998. Options for
        126,000 shares of common stock of the Company, at an exercise price of
      $8.75, were issued pursuant to the 1998 Plan as of April 1999. These
        options vest ratably over a three year period on each anniversary date
       and mature ten years after the grant date. Options for 725,000 shares
     of common stock of the Company, at an exercise price of $9.00, were
       issued pursuant to the 1998 Plan as of January 1, 2000. These options
  are subject to shareholder approval at the Company's 1999 Annual
Shareholders Meeting.                                         

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18.      STOCK OPTIONS, continued                                               

       In July 1998, the Company issued, options to purchase an aggregate of
        150,000 shares of common stock to certain employees at exercise prices
       equal to $6.125 per share. The options vest ratably over a three year
        period on each anniversary date and mature June 30, 2008. During 1999,
         the Company issued options to purchase an aggregate of 25,000 shares of
         common stock of the Company at an exercise price of $7.8125, options to
       purchase 153,500 shares of common stock of the Company at an exercise
       price of $8.75 and options to purchase 125,500 shares of common stock
         of the Company at an exercise price of $9.75. All of these options vest
       ratably over a three year period from the date of grant and mature in
ten years from the date of grant.                             

         The Company has adopted the disclosure-only provisions of Statements of
     Financial Accounting Standards No. 123, "Accounting for Stock-Based
        Compensation". Accordingly, no compensation costs have been recognized
      for the stock options issued during 1999, 1998 and 1997 as all stock
   options were granted with an exercise price at least equal to the
  market price on the date of grant. Had compensation cost for the
        Company's stock options issued been determined based on the fair value
         at the grant date for awards in 1999, 1998 and 1997 consistent with the
         provisions of SFAS No. 123, the Company's net income and net income per
        share would have been reduced to the pro forma amounts indicated below
(in thousands except per share information):                  

                                                        [Enlarge/Download Table]

                                                1999             1998          1997     
                                          --------------  --------------  --------------
                                                                                        
Net income - as reported                  $       9,921   $        4,401  $        1,939
                                          =============   ==============  ==============
Net income - pro forma                    $       8,972   $        3,562  $        1,152
                                          =============   ==============  ==============

Basic net income per share - as reported         $ 0.80           $ 0.46          $ 0.23
                                                 ======           ======          ======
Basic net income (loss) per share -                                                     
         pro forma                               $ 0.72           $ 0.37          $ 0.14
                                                 ======           ======          ======

    These calculations only take into account the options issued since
      January 1, 1995. 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 1999, 1998
and 1997: dividend yield 0.0%; expected volatility of 45%-55%;
         risk-free interest rate of 5.50% -7.8%; and expected lives of 10 years.
       The weighted average fair value of options granted for 1999, 1998 and
1997 were $5.86, $3.97, and $3.08, respectively.              

       Information regarding the above options for 1999, 1998 and 1997 is as
follows:                                                                        

                                                                [Download Table]

                                             WEIGHTED 
                                              AVERAGE 
                                NUMBER OF     EXERCISE
                                  SHARES       PRICE  
                                ---------    ---------

                                                      
Outstanding at January 1, 1997   1,124,000     $3.74  
Granted                            363,500     $5.00  
Exercised                         (202,933)    $3.69  
Forfeited                          (33,667)    $4.21  
                                 ---------            

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18.      STOCK OPTIONS, continued                                               

                                                                [Download Table]


                                                   
Outstanding at December 31, 1997  1,250,900   $4.10
Granted                             551,000   $7.35
Exercised                          (237,950)  $3.66
Forfeited                           (78,450)  $3.58
                                  ---------        
Outstanding at December 31, 1998  1,485,500   $5.40
Granted                             455,000   $8.97
Exercised                           (89,667)  $4.35
Forfeited                           (10,833)  $5.09
                                  ---------        
Outstanding at December 31, 1999  1,840,000   $6.34
                                  =========        

The following table summarizes information about stock options
outstanding at December 31, 1999:                                               

                                                        [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    
--------------------------------------------------------------------------------------------------

                                                                                                  
$3.40-$5.00        836,750            5.92              $4.24           836,750          $4.24    
$5.01-$7.00        248,250            8.50              $6.13            80,916          $6.13    
$7.01-$9.50        755,000            8.80              $8.74           308,333          $8.36    
                 ---------                                            ---------                   
                 1,840,000                                            1,225,999                   
                 =========                                            =========                   

     In January 1995, the Company established an Employee Stock Purchase
      Plan open to 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 January 1 or December 31, of any
        given year, whichever is lower. For the years ended December 31, 1999,
  1998 and 1997, 16,500, 18,289 and 23,433 shares of common stock,
respectively, were sold to employees under this plan.         

19.      NONCASH INVESTING AND FINANCING ACTIVITIES:                            

    In April 1999, the Company issued 750,000 warrants, valued at $3.0
       million to purchase shares of its Common Stock as part of the Freight
         Victoria acquisition financing. The Company issued an additional 50,000
         warrants, valued at $0.2 million to purchase the Company's Common Stock
      in November 1999 as part of the financing. The Company also issued a
       $2.6 million convertible note in connection with the Freight Victoria
     financing. This note was converted into the Company's stock in July
1999.                                                         

     In August 1999, the Company issued 876,363 warrants, valued at $2.7
       million, to purchase the Company's Common Stock pursuant to a private
offering of its junior convertible subordinated debentures.   

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19.      NONCASH INVESTING AND FINANCING ACTIVITIES, continued                  

        During 1999, $0.7 million of convertible notes were converted into the
     Company's Common Stock. In addition, $2.0 million of the redeemable
     convertible preferred stock was converted into the Company's Common
Stock during 1999.                                            

         The Company issued 20,000 shares of common stock to the Company's Chief
  Executive Officer for a $95,000 note receivable during 1997. The
     Company issued 30,000 shares of common stock to the Company's Chief
Executive Officer for a $97,500 note receivable during 1998.  

                                                        [Enlarge/Download Table]


                                                        1999          1998         1997  
                                                      --------      --------     --------
                                                                                         
Acquisition of businesses:                                                               
     Common stock issued for businesses acquired       $    --     $     453   $    --   
     Warrants issued for business acquired                 3,031        --          --   
     Debt issued for business acquired                   173,493        --          --   
     Acquisition costs accrued                               238          31          90 
     Details of acquisitions:                                                            
         Working capital components, other than cash      (7,294)       (801)      2,867 
         Property and equipment                         (209,624)     (2,482)    (16,071)
         Other assets                                     (4,234)       (962)        (31)
         Deferred loan costs                              (6,959)       --          --   
         Goodwill                                           --          (355)       --   
         Notes payable and loans payable                  35,466       1,921         340 
         Deferred income taxes payable                     7,430         440        --   
         Minority interest                                  --          --         5,415 
                                                       ---------   ---------   --------- 
              Net cash used in acquisitions            $  (8,453)  $  (1,757)  $  (7,390)
                                                       =========   =========   ========= 

      Cash paid for interest during 1999, 1998 and 1997 was $16.3 million,
         $5.7 million and $3.9 million, respectively. Cash paid for income taxes
    during 1999, 1998 and 1997 was $1.3 million, $0.2 million and $0.2
million, respectively.                                        

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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 -------

20.      FAIR VALUE OF FINANCIAL INSTRUMENTS:                                   

Management believes that the fair value of its long-term debt 
        approximates its carrying value for the revolving line of credit based
     on the variable nature of the financing and for all other long-term
        debt based on current borrowing rates available with similar terms and
maturities.                                                   

21.      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 RaiLink,
        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
(in thousands).                                               

Change in benefit obligation                                  
    Benefit obligation at August 1, 1999             $ 2,710
    Service cost                                          26
    Interest cost                                         79
    Plan participants' contributions                      38
                                                     -------
    Benefit obligation at December 31, 1999            2,853
                                                     -------
Change in plan assets                                         
    Fair value of plan assets at August 1, 1999        2,445
    Actuarial return on plan assets                      132
    Employer contributions                                37
    Plan participants' contributions                      41
                                                     -------
    Fair value of plan assets at December 31, 1999     2,655
                                                     -------
Funded status                                            (198)
  Unrecognized net actuarial loss                     --
  Unrecognized prior service costs                    --
                                                     -------
     Accrued benefit cost                             $  (198)
                                                     =======
Rate Assumptions                                              
     Discount rate                                       7.00%
     Expected return on plan assets                      8.00%
     Rate of compensation increase                       4.50%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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21.      PENSION AND OTHER BENEFIT PROGRAMS, continued                          

Components of net periodic benefit cost for August 1, 1999 to 
December 31, 1999                                             

        Service cost                                   $  25
        Interest cost                                     79
         Expected return on plan assets                   (82)
        Net obligation at date of adoption                17
                                                       -----
        Net periodic pension cost                      $  39
                                                       =====

       Freight Victoria's employees participate in the Victorian governments
      superannuation funds. The contributions made by Freight Victoria for
the period May 1, 1999 to December 31, 1999 are as follows (in
thousands):                                                   

     Victorian Superannuation Fund                $ 62
     State Superannuation Fund                     647
     Transport Fund                                194
     Freight Victoria Fund                          53
                                                  ----
       Total contributions                        $956
                                                  ====

Victorian Superannuation Fund (VICSUPER SCHEME)               
       1.       Contributions are made in accordance with the Superannuation
Guarantee (Administration) Act of 1992.     

State Superannuation Fund                                     
  1.       Contributions are made in accordance with the actuarial
             calculations as advised by the State Superannuation Fund.

        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
         period August 1, 1999 to December 31, 1999 for the defined contribution
members was $0.1 million.                                     

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 six years of service. Employer 
       contributions during the years ended December 31, 1999, 1998 and 1997
were approximately $81,000, $66,000 and $40,000, respectively.

22.      OTHER LIABILITIES                                                      

Other liabilities principally are accrued employee benefits in
      Australia and consist of the following at December 31, 1999 and 1998
(in thousands):                                               

      1999        1998
     --------    -------

Long service leave       $ 7,663     $  --                    
Annual leave               6,087        --                    
Other leave types          2,182        --                    
Deferred revenue             442        427                   
      -------    -------
      $16,373    $   427
      =======    =======

23.      COMMITMENTS AND CONTINGENCIES:                                         

        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.

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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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23.      COMMITMENTS AND CONTINGENCIES, continued                               

    The Company has a $4.9 million obligation, under certain events of
       default or line abandonment occurs, to the Canadian National Railroad
         in connection with its Coronado and Bonnyville property. The obligation
        bears no interest and has no pre-defined terms of payment or maturity.

24.      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 and the International rail transportation
       segment includes the operations of Company's railroad subsidiaries in
       Chile and Australia. During 1999, the Company's trailer manufacturing
         segment was classified as a discontinued operation and is reported that
way for all period presented.                                 

         Business segment information for the year ended December 31, 1999, 1998
and 1997 (dollar amounts in thousands):                       

                                                        [Enlarge/Download Table]

                                                      NORTH AMERICAN    INTERNATIONAL              
                                    CONSOLIDATED         RAILROADS        RAILROADS        OTHER   
                                    ------------       -------------    --------------     -----   

YEAR ENDED DECEMBER 31, 1999:                                                                      
                                                                                                   
Revenue                            $      125,372   $      40,937     $      82,473     $    1,962 
Depreciation and amortization      $        9,179   $       3,594     $       4,660     $      925 
Income (loss) before income taxes  $        5,239   $       4,275     $       6,897*    $   (5,933)
Interest expense                   $       16,287   $       5,709     $       9,157     $    1,421 
Total assets                       $      428,932   $     174,343     $     214,599     $   39,990 
Capital expenditures               $       50,702   $      22,461     $      24,946     $    3,295 

YEAR ENDED DECEMBER 31, 1998:                                                                      
                                                      NORTH AMERICAN    INTERNATIONAL              
                                    CONSOLIDATED         RAILROADS        RAILROADS        OTHER   
                                    ------------       -------------    --------------     -----   

Revenue                            $       37,256   $      16,191     $      15,924     $    5,141 
Depreciation and amortization      $        2,543   $       1,570     $         706     $      267 
Income (loss) before income taxes  $         (887)  $       2,072     $       1,754     $   (4,713)
Interest expense                   $        4,479   $       2,822     $         789     $      868 
Total assets                       $      117,081   $      53,692     $      39,780     $   23,609 
Capital expenditures               $       24,767   $       6,343     $      12,807     $    5,617 

YEAR ENDED DECEMBER 31, 1997:                                                                      

                                                      NORTH AMERICAN    INTERNATIONAL              
                                    CONSOLIDATED         RAILROADS        RAILROADS        OTHER   
                                    ------------       -------------    --------------     -----   

Revenue                            $       24,496   $      16,014     $       8,062     $      420 
Depreciation and amortization      $        1,789   $       1,337     $         267     $      185 
Income (loss) before income taxes  $         (127)  $       2,071     $       1,013     $   (3,211)
Interest expense                   $        3,275   $       2,739     $         341     $      195 
Total assets                       $       83,585   $      53,134     $      23,115     $    7,336 
Capital expenditures               $        6,756   $       3,963     $       2,290     $      503 


F-33

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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 -------

24.      SEGMENT INFORMATION, continued                                         

         Geographical segment information for the years ended December 31, 1999,
1998 and 1997 (dollar amounts in thousands):                  

                                                        [Enlarge/Download Table]


                           CONSOLIDATED    UNITED STATES       CANADA         CHILE      AUSTRALIA 
                           ------------    -------------       ------         -----      --------- 

YEAR ENDED DECEMBER 31, 1999:                                                                      
                                                                                                   
Revenue                     $    125,372    $     22,720   $     20,179   $  19,115     $   63,358 
Depreciation and                                                                                   
     amortization           $      9,179    $      2,428   $      2,091   $   1,231     $    3,429 
Income(loss) before                                                                                
     income taxes           $      5,239    $     (2,978)  $        919   $   1,473     $    5,825*
Interest expense            $     16,287    $      3,926   $      3,203   $   1,595     $    7,563 
Total assets                $    428,932    $    115,295   $     99,038   $  52,022     $  162,577 
Capital expenditures        $     50,702    $     13,915   $     11,841   $  13,389     $   11,557 

YEAR ENDED DECEMBER 31, 1998:                                                                      

                           CONSOLIDATED    UNITED STATES       CANADA         CHILE      AUSTRALIA 
                           ------------    -------------       ------         -----      --------- 

Revenue                     $     37,256    $     17,080   $      4,252   $  15,924     $     --   
Depreciation and                                                                                   
     amortization           $      2,543    $      1,837   $         --   $     706     $     --   
Income (loss) before                                                                               
     income taxes           $       (887)   $     (2,327)  $       (142)  $   1,580     $      2   
Interest expense            $      4,479    $      3,104   $        109   $   1,266     $     --   
Total assets                $    117,081    $     74,628   $      2,672   $  37,786     $  1,995   
Capital expenditures        $     24,767    $     11,747   $        213   $  12,807     $     --   

YEAR ENDED DECEMBER 31, 1997:                                                                      

                           CONSOLIDATED    UNITED STATES         CHILE             AUSTRALIA       
                           ------------    -------------         -----             ---------       

 Revenue                       $  24,496     $    16,434     $     8,062           $       --      
 Depreciation and                                                                                  
     amortization              $   1,789     $     1,521     $       268           $       --      
 Income (loss) before                                                                              
     income taxes              $    (127)    $    (1,140)    $     1,013           $       --      
 Interest expense              $   3,275     $     2,933     $       342           $               
 Total assets                  $  83,585     $    60,470     $    21,261           $    1,854      
 Capital expenditures          $   6,756     $     4,466     $     2,290           $       --      

* - Amount includes $4.1 million casualty gain.             

          Identifiable assets consist of $425 million from continuing operations
       and $15 million from discontinued operations (not included in above
amounts).                                                   

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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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25.      SUBSEQUENT EVENTS:                                                     

On February 4, 2000, the Company acquired RailTex, Inc. for   
         approximately $128 million in cash and approximately 6.6 million shares
       of the Company's common stock valued at $60.8 million. Railtex, which
       operates 25 railroads over 4,100 mile of rail lines in North America,
       became a wholly-owned subsidiary of the Company. RailTex shareholders
         received $13.50 in cash and two-thirds of a share of RailAmerica common
       stock in exchange for each share of RailTex stock. In connection with
        the acquisition, the Company entered into a credit agreement providing
       $330 million of senior term loans and $50 million of senior revolving
         loans. In addition, a wholly-owned subsidiary of the Company issued $95
    million of subordinated bridge notes and $55 million of asset sale
bridge notes.                                                 

26.      UNAUDITED QUARTERLY FINANCIAL DATA:                                    

      Quarterly financial data for 1999 is as follows (in thousands except
per share amounts)                                            

                                                                [Download Table]

                                        FIRST      SECOND      THIRD    FOURTH 
                                       QUARTER     QUARTER    QUARTER   QUARTER
                                       -------     -------    -------   -------
                                                                               
Operating revenue                       $ 10,225   $ 28,088  $ 38,901  $ 48,157
Operating income                        $  1,628   $  4,373  $  6,600  $  8,667
Income from continuing                                                         
  operations                            $     54   $  1,334  $  2,278  $  2,375
Net income                              $  1,203   $  2,748  $  3,287  $  2,683
Basic income (loss) from                                                       
  continuing operations per share       $  (0.02)  $   0.10  $   0.18  $   0.18
Diluted income (loss) from continuing                                          
  operations per share                  $  (0.02)  $   0.09  $   0.16  $   0.16

      Quarterly financial data for 1998 is as follows (in thousands except
per share amounts)                                            

                                                                [Download Table]

                                    FIRST      SECOND      THIRD    FOURTH  
                                   QUARTER     QUARTER    QUARTER   QUARTER 
                                   -------     -------    -------   ------- 

                                                                            
Operating revenue                   $  5,853   $  9,117  $ 10,848  $ 11,439 
Operating income                    $    612   $  1,216  $  1,581  $  2,089 
Income (loss) from                                                          
  continuing operations             $   (172)  $    170  $    193  $    (77)
Net income                          $    603   $  1,332  $  1,361  $    910 
Basic income (loss) from                                                    
  continuing operations per share   $  (0.02)  $   0.02  $   0.02  $  (0.01)
Diluted income (loss) from                                                  
  continuing operations per share   $  (0.02)  $   0.02  $   0.02  $  (0.01)

    The above amounts differ from what was included in the Form 10-Q's
      filed throughout the period due to the trailer manufacturing segment
       being included in discontinued operations for all periods reported in
these consolidated financial statements.                      

F-35

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		49
		1/1/95		79		80
		9/30/95		50
		11/12/95		50
		12/31/95		30		50
		3/1/96		79
		7/1/96		31
		9/6/96		31					8-K
		9/20/96		49
		9/30/96		50					10-C, 10QSB, 8-K
		10/1/96		31
		10/11/96		50					8-K/A, 8-K
		10/17/96		50					8-K, 10-C
		10/25/96		50					8-K
		11/18/96		31
		12/28/96		31
		12/31/96		30					10KSB/A, 10KSB
		1/1/97		58
		2/19/97		67					8-K, S-8
		3/1/97		79
		3/6/97		29					8-K
		3/20/97		40
		3/31/97		51					NT 10-Q, 10-Q/A, 10KSB, 10-Q
		9/8/97		31
		9/30/97		31					10-Q
		10/31/97		31		68
		12/31/97		9		86			10-K
		1/1/98		38		79
		1/6/98		49		51
		3/31/98		51		65			10-K, 10-Q
		4/1/98		40		41
		5/14/98		51					10-Q
		6/30/98		70					10-Q
		7/1/98		79
		8/24/98		74
		9/1/98		31		67
		11/4/98		49
		11/30/98		41
		12/1/98		40		65
		12/17/98		49
		12/31/98		9		86			10-K
		1/1/99		4
		1/6/99		31
		1/28/99		71
		2/22/99		49		66
		3/30/99		51
		3/31/99		51					10-Q/A, 10-Q, 10-K
		4/30/99		11		66			DEF 14A, 8-K/A, 8-K
		5/1/99		11		84
		5/17/99		51		66			8-K, 10-Q
		7/26/99		66					8-K/A, 8-K
		8/1/99		30		84
		8/3/99		49
		9/1/99		30		31
		9/3/99		51		65			8-K/A, 8-K
		9/20/99		51					8-K, S-3
		9/30/99		51					10-Q
		10/14/99		49		51			8-K
		10/19/99		51					8-K
		10/29/99		49
		11/8/99		50		51			8-K
		11/10/99		50
		11/12/99		51					8-K/A, 8-K
		11/30/99		73
For The Period Ended		12/31/99		1		86			10-K/A
		1/1/00		79
		1/13/00		49		51			8-K
		1/26/00		51					8-K, 8-A12G/A
		1/31/00		44		74
		2/4/00		31		87			8-K, S-3/A, 3
		3/1/00		45
		3/3/00		44		75
		3/15/00		54		68
		3/21/00		29
		3/23/00		1
		3/27/00		52
Filed On / Filed As Of		3/30/00
		4/29/00		48
		9/30/00		18					10-Q
		12/31/00		43		71			10-K405
		2/4/01		43		72
		7/31/01		75					4
		6/30/03		70					10-Q
		5/31/04		27
		7/31/04		44		74
		8/5/04		75
		12/31/05		42		72			10-K
		12/31/06		42		72
		6/30/08		80
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