Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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. o

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, or non-accelerated filer (as defined in Exchange Act Rule 12b-2)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2005 computed by reference to the average bid and asked prices of registrant’s common stock reported on the New York Stock Exchange on such date was $455.3 million.

The number of shares outstanding of registrant’s Common Stock, $.001 par value per share, as of March 10, 2006 was 38,826,067.

The information required by Part III (Items 10, 11, 12, 13 and 14) will be incorporated by reference from the registrant’s Definitive Proxy Statement for its 2006 Annual Meeting of Stockholders to be filed with the Commission pursuant to Regulation 14A.

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

ITEM 1. BUSINESS

GENERAL

     We are a leading owner and operator of short line and regional freight railroads in North America. We own, lease and/or operate a diversified portfolio of 43 railroads with approximately 8,000 miles of track located in the United States and Canada. Through our diversified portfolio of rail lines, we operate in numerous geographic regions with varying concentrations of commodities hauled. We seek to grow both through the expansion of the traffic base on our existing railroads and acquisitions of additional North American railroads.

     Pursuant to this strategy, we have completed the following acquisitions since 2000:

     In addition, as part of our strategy, we continually review our portfolio of railroads. Our review is based on past and projected cash flows, infrastructure needs, marketing opportunities, operating complexity, as well as other qualitative factors.

     Based on these reviews, we have divested the following railroads since 2000:

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

     Our Internet website address is www.railamerica.com. We make available free of charge, on or through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. We also make available on our website other reports filed with the SEC under the Securities Exchange Act of 1934, as amended, including proxy statements and reports filed by officers and directors under Section 16(a) of that Act. These reports may be found by selecting the option entitled “SEC FILINGS” in the “INVESTOR RELATIONS” section on our website. Additionally, our corporate governance guidelines, board committee charters, code of business conduct and ethics and code of ethics for principal executive officers and senior financial officers are available on our website and in print to any stockholder who requests them. Information contained in or connected to our website is not part of this report.

     OPERATING SAFELY AND EFFICIENTLY. We are focused on operating safe railroads in an efficient manner. Through training, supervision and safety programs, we have reduced our Federal Railroad Administration, or FRA, personal injury frequency ratio from 5.83 in 1999 to 2.24 in 2005. The FRA personal injury frequency ratio is measured as reportable injuries per 200,000 man hours worked. In addition, we manage each of our railroads as an individual profit center allowing local management to make decisions on how to operate the railroad efficiently and profitably. We support the individual railroad operations with centralized purchasing, accounting, human resources, information technology, legal and other services, allowing us to realize synergies and economies of scale based on our size.

     PROVIDING SUPERIOR CUSTOMER SERVICE. We strive to increase our revenue by providing consistent, innovative, cost-efficient and reliable service to our customers. We work with customers, potential customers, industrial development organizations and our Class I interchange partners to develop creative transportation solutions. Our decentralized management structure is an important element of our marketing strategy. We give significant discretion with respect to sales and marketing activities to our local marketing managers and the General Managers of each railroad. As part of our marketing efforts, we often schedule more frequent rail service, help customers negotiate price and service levels with interchange partners and assist customers in obtaining the quantity and type of rail equipment required for their operations. We occasionally provide non-scheduled train service on short notice to accommodate customers’ special or emergency needs. We consider all of our employees to be customer service representatives and encourage them to initiate and maintain regular contact with shippers.

     CONTINUE TO GROW THROUGH SELECTIVE ACQUISITIONS. Over the last eleven years, we have completed twenty-nine acquisitions of railroad companies which owned or had equity interests in 65 railroads, for total consideration in excess of $780 million.

     We seek acquisition candidates that enable us to form geographic clusters of short lines, thereby affording management economies of scale as well as marketing and operating synergies. To be considered by us, acquisition candidates must typically be profitable, generate strong cash flows, have potential for further growth and possess well-maintained infrastructures.

     Acquisition opportunities in North America generally come from three sources. First, certain of the Class I railroads have been selling or leasing branch lines over the past several years. We entered into a lease for a branch line from CSX during 2005. We believe, based on our strong operating performance and relationships with the Class I railroads, we are a logical choice to acquire additional properties in the future. Second, as the short line industry itself continues to consolidate, we believe our industry reputation, demonstrated access to capital, breadth of geographic coverage and ability to efficiently evaluate and negotiate prospective transactions place us in a good position to acquire other independent short lines or short line holding companies. Third, as industrial companies sell their railroad operations, we believe our cost-effective and customer oriented approach makes us a strong candidate to acquire these railroads. We acquired four short line railroads from Alcoa, Inc. during 2005.

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

     ANALYZE AND DIVEST OF POOR PERFORMING RAILROADS. We continually review our portfolio of railroads. Our review is done based on past and projected cash flows, infrastructure needs, marketing opportunities, operating complexity, as well as other qualitative factors. If after performing our analysis, we determine that a railroad is not meeting our internal criteria for continued ownership we develop a strategy to improve the operations of the railroad either through changes in the operating plan and/or new marketing initiatives. These changes are made working in conjunction with our Class I interchange partners. If, after a period of time, the railroad continues to not meet our internal criteria, we consider other strategic options for the railroad, including divestiture.

     The U.S. railroad industry is dominated by Class I railroads, that operated approximately 97,500 miles of track in 2004. In addition to large railroad operators, there were more than 540 short line and regional railroads, operating approximately 43,000 miles of track in 2004.

     The railroad industry is subject to regulation by various government agencies, including the Surface Transportation Board, or STB. For regulatory purposes, the STB classifies railroads into three groups: Class I, Class II and Class III, based on annual operating revenue. For 2004, the Class I railroads each had operating revenue of at least $289.4 million, Class II railroads each had revenue of $23.1 million to $289.3 million, and Class III railroads each had revenue of less than $23.1 million. These thresholds are adjusted annually for inflation.

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

     As a result of deregulation in 1980, Class I railroads have been able to concentrate on core, long-haul routes, while selling or leasing many of their low-density branch lines to smaller and more cost-efficient freight railroad operators such as our

company. Divesting branch lines allows Class I railroads to increase car velocity, focus investment on their core network, lower their cost structure and focus on the long-haul versus short-haul business. 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 normally increases after divestiture by Class I railroads. Consequently, these transactions often result in net increases in the divesting carriers’ freight traffic because much of the business originating or terminating on branch lines feeds into divesting carriers’ core routes.

     In 2005 the majority of the Class I railroad short line spin-offs were derived from CSX Transportation and Burlington Northern Santa Fe Railway. The other Class I railroads created a limited number of short line railroad opportunities. Class I railroads have been divesting short line candidates via a variety of means: (a) outright sale for cash consideration, (b) lease of the railroad right-of-way for a period ranging from 10 to 25 years, or (c) lease of the land and a sale of the track and track-related structures. Currently, the Class I railroads appear to favor leases over sales.

     We currently own, lease or operate 43 rail properties in North America, of which 42 are short line freight railroads that provide transportation services for both on-line customers and Class I railroads that interchange with our rail lines. Short line railroads are typically less than 350 miles long, serve a particular class of customers in a small geographic area and interchange with Class I railroads. Short line rail operators primarily serve customers on their line by transporting products to and from interchange points with the Class I railroads. Each of our North American rail lines is typically the only rail carrier directly serving its customers. The ability to haul heavy and large quantities of freight as part of a long-distance haul makes our rail services generally a more effective, lower-cost alternative to other modes of transportation, including motor carriers. In addition to our 42 short line railroads, we operate a tourist railroad in Hawaii.

     UNITED STATES. We own, lease or operate 37 short line rail properties and one tourist railroad in the United States with approximately 7,000 miles of track. Our railroads are geographically diversified and operate in 26 states. We have clusters of rail properties in the Southeastern, Southwestern, Midwestern, Great Lakes, New England and Pacific Coast regions of the United States. We believe that this cluster strategy provides economies of scale and helps achieve marketing and operational synergies.

     CANADA. We own, lease or operate 5 short line rail properties in Canada with approximately 1,000 miles of track. Our Canadian properties are geographically diversified and operate in four provinces.

     Rail traffic may be categorized as interline, local or bridge traffic. Interline traffic either originates or terminates with customers located along a rail line and is interchanged with other rail carriers. Local traffic both originates and terminates on the same rail line and does not involve other carriers. Bridge traffic passes over the line from one connecting rail carrier to another without the carload originating or terminating on the line.

     Interline and local traffic combined generated 89%, 88% and 87% of our total freight revenue in 2005, 2004 and 2003, respectively. We believe that high levels of interline and local traffic provide us with greater stability of revenue because this traffic represents shipments to or from customers located along our lines and cannot be easily diverted to other rail carriers, unlike bridge traffic.

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

     The following table summarizes freight revenue by type of traffic carried by our North American railroads in 2005, 2004 and 2003 in dollars and as a percentage of total freight revenue.

     All of our short line properties interchange traffic with Class I railroads. The following table summarizes our significant connecting carriers in 2005, 2004 and 2003 by freight revenue and carloads as a percentage of total interchanged (interline and bridge) traffic.

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

     In 2005, we served approximately 1,700 customers in North America. These customers shipped and/or received a wide variety of products. Although most of our North American railroads have a well-diversified customer base, several of the smaller rail lines have one or two dominant customers. In 2005, 2004 and 2003, our ten largest North American customers accounted for approximately 25%, 24% and 26% of our North American transportation revenue, respectively. No individual customer accounted for more than 10% of our revenue for the years ended 2005, 2004 and 2003.

     The following table sets forth, by number and percentage, the carloads hauled by our North American railroads during the years ended December 31, 2005, 2004 and 2003.

     Currently, we have approximately 2,000 full-time employees, including 110 full-time corporate employees. Approximately 900 of our railroad employees are subject to collective bargaining agreements.

     We endeavor to conduct safe railroad operations for the benefit and protection of employees, customers and the communities served by our railroads. Our safety program, led by our Vice President of Safety and Operating Practices, involves all of our employees and is administered by each Regional Vice President. Operating personnel are trained and certified in train operations, hazardous materials handling, personal safety and all other areas subject to governmental rules and regulations. Each U.S. employee involved in train operations is subject to pre-employment and random drug testing whether or not required by federal regulation. We believe that each of our North American railroads complies in all material respects with federal, state, provincial and local regulations. Additionally, each railroad is given flexibility to develop more stringent safety rules based on local requirements or practices. We also participate in committees of the AAR, governmental and industry sponsored safety programs including Operation Lifesaver (the national grade crossing awareness program) and the American Short Line and Regional Railroad Association Safety Committee. Our FRA reportable injury frequency ratio, measured as reportable injuries per 200,000 man hours worked, was 2.24 in 2005 as compared to 2.80 in 2004. For 2005, the industry average for all railroads was 2.28 while the industry average for short line railroads was 3.49.

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

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

     As a result of the 1980 Staggers Rail Act, railroads have received considerable rate and market flexibility including the ability to obtain wholesale exemptions from numerous provisions of the Interstate Commerce Act. The Staggers Rail Act allowed the deregulation of all containerized and truck trailer traffic handled by railroads. Requirements for the creation of new short line railroads or the expansion of existing short line railroads were substantially expedited and simplified under the exemption process. On regulated traffic, railroads and shippers are permitted to enter into contracts for rates and provision of transportation services without the need to file tariffs. Moreover, on regulated traffic, the Staggers Rail Act allows railroads considerable freedom to raise or lower rates without objection from captive shippers. While the ICC Termination Act retained maximum rate regulation on traffic over which railroads have exclusive control, the new law relieved railroads from the requirements of filing tariffs and rate contracts with the STB on all traffic other than agricultural products.

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

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

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

     Acquisition of additional railroad operations in Canada, whether federally or provincially regulated, may be subject to review under the Investment Canada Act, or ICA, a federal statute which applies to the acquisition of a Canadian business or establishment of a new Canadian business by a non-Canadian. In the case of an acquisition that is subject to review, the non-Canadian investor must observe a statutory waiting period prior to completion and satisfy the Minister responsible for the administration of the ICA that the investment will be of net benefit to Canada, giving regard to certain evaluative factors set out in the legislation.

     Any contemplated acquisitions may also be subject to the provisions of the Competition Act (Canada), or CA. The CA contains provisions relating to premerger notification as well as substantive merger provisions. An acquisition that exceeds certain financial thresholds set out in the CA may be subject to notification and observance of a statutory waiting period prior to completion, during which time the Commissioner of Competition (the “Commissioner”) will evaluate the impact of the

acquisition upon competition. In addition, the Commissioner has the jurisdiction under the CA to review an acquisition that is a “merger” within the meaning of the CA in certain circumstances, even where notification is not filed.

     Railroad industry personnel are covered by the Railroad Retirement System instead of Social Security. Our contributions under the Railroad Retirement System have been approximately triple those of employees in industries covered by Social Security. The Railroad Retirement System, funded primarily by payroll taxes on covered employers and employees, includes a benefit roughly equivalent to Social Security (Tier I), an additional benefit similar to that allowed in some private defined-benefit plans (Tier II), and other benefits. For 2005, the Railroad Retirement System required up to a 20.25 percent contribution by railroad employers on eligible wages, while the Social Security and Medicare Acts only required a 7.65 percent contribution on similar wage bases.

     We have substantial debt and debt service requirements which could have adverse consequences on our business. As of December 31, 2005, we had indebtedness of $433.9 million and, as a result, we incur significant interest expense. The degree to which we are leveraged could have important consequences, including the following:

     A default could result in acceleration of our indebtedness and permit our senior lenders to foreclose on our assets. Our competitors may operate on a less leveraged basis and may have significantly greater operating and financing flexibility than we do.

     As of December 31, 2005, we had $5.0 million of outstanding borrowings under our revolving credit facility. This facility allows us to borrow a total of $100 million for any purpose and we may borrow up to an additional $25 million of term debt in connection with acquisitions if we meet specified conditions. If new debt is added to our current debt levels, the related risks that we face would intensify. As of March 10, 2006, we had $1.5 million outstanding under the revolving credit facility.

     The credit agreement governing our senior credit facilities contains covenants that significantly restrict our operations. Our credit facilities contain numerous covenants imposing restrictions on our ability to, among other things:

     Our credit facilities also contain financial covenants that require us to meet a number of financial ratios and tests. Our failure to comply with the obligations in our credit facilities could result in events of default under the credit facilities, which, if not cured or waived, could permit acceleration of our indebtedness, allowing our senior lenders to foreclose on our assets.

     Rising fuel costs could materially adversely affect our business. Fuel costs were approximately 11% of our revenue for the year ended December 31, 2005, 9% for the year ended December 31, 2004 and 7% for the year ended December 31, 2003. Fuel prices and supplies are influenced significantly by international, political and economic circumstances. If fuel supply shortages or unusual price volatility were to arise for any reason, the resulting higher fuel prices would significantly increase our operating costs. During 2005, we offset a portion of higher fuel costs through our fuel surcharge program. However, to the extent that we are unable to maintain and expand the existing fuel surcharge program, increases in fuel prices could have an adverse effect on our operating results, financial condition or liquidity.

     As part of our railroad operations, we frequently transport hazardous materials. We are required to transport hazardous materials to the extent of our common carrier obligation. An accidental release of hazardous materials could result in significant loss of life and extensive property damage. The associated costs could have an adverse effect on our operating results, financial condition or liquidity.

     The availability of qualified personnel and an aging workforce may adversely affect our operations. Changes in demographics, training requirements and the availability of qualified personnel, particularly train crew members, could negatively affect our service levels. Our efforts to attract and retain qualified personnel may be hindered due to increased demand in the job market. Unpredictable increases in demand for rail services may exacerbate these risks and may have an adverse effect on our operating results, financial condition or liquidity.

     Some of our employees belong to labor unions and strikes or work stoppages could adversely affect our operations. Many of our employees are union-represented. Our union employees work under collective bargaining agreements with various labor organizations. Our inability to negotiate acceptable contracts with these unions could result in, among other things, strikes, work stoppages or other slowdowns by the affected workers. If our union-represented employees were to engage in a strike, work stoppage or other slowdown, or other employees were to become unionized or their terms and conditions in future labor agreements were renegotiated, we could experience significant disruption of our operations higher ongoing labor costs.

     Our inability to integrate acquired businesses successfully could have adverse consequences for our business. Our acquisition program could be materially affected by the availability of suitable candidates and competition from other companies for the purchase of available candidates. We have acquired many railroads since we commenced operations in 1992 and intend to continue our acquisition program. The success of our acquisition program will depend on, among other things the availability of suitable candidates and competition from other companies for the purchase of available candidates. Financing for acquisitions may come from several sources, including cash on hand and proceeds from the incurrence of indebtedness or the issuance of additional common stock, preferred stock, convertible debt or other securities. The issuance of any additional securities could result in dilution to our stockholders.

     Acquisitions result in greater administrative burdens and operating costs and, to the extent financed with debt, additional interest costs. The process of integrating our acquired businesses may be disruptive to our business and may cause an interruption of, or a loss of momentum in, our business.

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

     Because we depend on Class I railroads for our operations, our business and financial results may be adversely affected if our relationships with Class I carriers deteriorates. The railroad industry in the United States and Canada is dominated by a small number of Class I carriers that have substantial market control and negotiating leverage. Almost all of the traffic on our North American railroads is interchanged with Class I carriers. Our ability to provide rail service to our customers in North America depends in large part upon our ability to maintain cooperative relationships with Class I carriers with respect to, among other matters, freight rates, car supply, reciprocal switching, interchange, trackage rights and fuel surcharges. In addition, loss of customers or service interruptions or delays by our Class I interchange partners relating to customers who ship over our track, may decrease our revenue.

     Class I carriers are also sources of potential acquisition candidates as they continue to divest branch lines. Failure to maintain good relationships may adversely affect our ability to negotiate acquisitions of branch lines.

     We are subject to the risks of doing business in foreign countries. We currently have railroad operations in Canada. The risks of doing business in foreign countries include:

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

     A downturn in the economy could negatively affect demand for our services. Several of the commodities we transport come from industries with cyclical business operations. As a result, prolonged negative changes in domestic and global economic conditions affecting the producers and consumers of the commodities carried by us may decrease our revenue.

     Severe weather and natural disasters could disrupt normal business operations, which could result in increased costs and liabilities and decreases in revenues. Severe weather conditions and other natural phenomena, including earthquakes, hurricanes, fires and floods, may cause significant business interruptions and result in increased costs, increased liabilities and decreased revenue.

     We may face liability for casualty losses which are not covered by insurance. We have obtained insurance coverage for losses sustained by our railroads arising from personal injury and for property damage in the event of derailments or other incidents. Personal injury claims made by our railroad employees are subject to the Federal Employers’ Liability Act (“FELA”), rather than state workers’ compensation laws. Currently, we are responsible for the first $750,000 of expenditures per each incident under our general liability insurance policy and $1 million of expenditures per each incident under our property insurance policy. In addition, in each policy period, under our general liability insurance policy we are responsible for the first $1 million of expenditures, in the aggregate, on any incidents in excess of $750,000. Severe accidents or personal injuries could cause our liability to exceed our insurance limits which might have a material adverse effect on our business and financial condition. Our annual insurance limits are $100 million and $15 million on liability and property, respectively. In addition, adverse events directly and indirectly applicable to us, including such things as derailments, accidents, discharge of toxic waste, or other like occurrences in the industry, can be expected to result in increases in our insurance premiums and/or

our self insured retentions and could result in limitations to the coverage under our existing policies. We are currently involved in discussions with our insurers on the renewal of, and adjustments to our insurance coverage, which would revise some terms of coverage for future occurrences.

     Future acts of terrorism or war, as well as the threat of war, may cause significant disruptions in our business operations. Terrorist attacks, such as those that occurred on September 11, 2001, as well as the more recent attacks on the transportation systems in Madrid and London, any government response to those types of attacks and war or risk of war may adversely affect our results of operations, financial condition or liquidity. Our rail lines and facilities could be direct targets or indirect casualties of an act or acts of terror, which could cause significant business interruption and result in increased costs and liabilities and decreased revenues, which could have an adverse effect on our operating results and financial condition. Such effects could be magnified where releases of hazardous materials are involved. Any act of terror, retaliatory strike, sustained military campaign or war or risk of war may have an adverse effect on our operating results and financial condition by causing or resulting in unpredictable operating or financial conditions, including disruptions of rail lines, volatility or sustained increase of fuel prices, fuel shortages, general economic decline and instability or weakness of financial markets which could restrict our ability to raise capital. In addition, insurance premiums charged for some or all of our coverage could increase dramatically or certain coverage may not be available to us in the future.

None.

RAILROAD PROPERTIES

     We operate over 8,000 miles of track in North America. The following map displays all of our North American railroad properties as of March 10, 2006:

     The following table sets forth information with respect to the North American railroad properties that we owned or leased as of March 10, 2006:

     The following tables summarize the composition, as of December 31, 2005, of our railroad equipment fleet.

     As noted above, over 75% of our locomotive fleet is leased on terms ranging from month-to-month to 10 years. The remaining lease terms for 53% of our locomotives end within the next three years. We will need to either renew these leases, exercise our purchase options where possible, or find other locomotives to replace them at the end of the lease term.

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

     We own a 59,500 square foot office building, located in Boca Raton, Florida, where our executive offices are located. Of this space, 7,900 square feet are leased to a third party. In addition, we lease approximately 10,000 square feet of office space in San Antonio, Texas for approximately $135,000 annually. The lease expires December 31, 2009.

     In the ordinary course of conducting our business, we become involved in various legal actions and other claims, some of which are currently pending. Litigation is subject to many uncertainties and we may be unable to accurately predict the outcome of individual litigated matters. Some of these matters may be decided unfavorably to us. It is the opinion of management that the ultimate liability, if any, with respect to these matters will not be material. We are not involved in any litigation other than routine litigation incidental to our business.

     On October 26, 2004 a train operated by our subsidiary, the Central Oregon Pacific Rail, or CORP, derailed at Cow Creek Canyon in Oregon, resulting in the discharge of diesel fluid into Cow Creek. The CORP immediately initiated a remediation process and followed proper clean-up procedures. Although there was no long-term environmental impact resulting from the diesel spill, the United States Attorney’s Office for the District of Oregon and the Environmental Protection Agency have undertaken an investigation into the derailment to determine whether there has been a violation of the Clean Water Act, and have issued subpoenas to us and the CORP. At this time, the U.S. Attorney’s office has not informed us whether it will proceed with a prosecution. We recently learned that the EPA intends to interview some employees for purposes of assisting the government in deciding whether to prosecute. We cannot predict presently whether the government will pursue criminal proceedings seeking penalties or other remedial action.

     On February 7, 2005, the Surface Transportation Board entered an Order setting the terms for sale of our Toledo, Peoria &Western Railway’s 76 mile La Harpe – Hollis Line in western central Illinois to Keokuk Junction Railway Company, or KJRY, as a result of KJRY’s application under the Feeder Line Statute, 49 USC sec. 10907. We believe that the STB-ordered sale of the line at the mandated price of $4.2 million was not in accordance with the rules and regulations governing such STB

action and did not reflect the line’s value or adequately compensate us as required by these rules and regulations. As a result, we have appealed the Order to the U.S. Circuit Court of Appeals. We are unable to predict the outcome of this appeal, however, we do not believe the final outcome of this matter will materially affect our financial position, results of operations or cash flows.

     On August 28, 2005, a railcar containing styrene located on our Indiana & Ohio Railway (I&O Railway) property in Cincinnati, Ohio, began venting, due to a chemical reaction. Styrene is a potentially hazardous chemical used to make plastics, rubber and resin. In response to the incident, local public officials temporarily evacuated residents and businesses from the immediate area until public authorities confirmed that the tank car no longer posed a threat. As a result of the incident, several civil lawsuits have been filed against us and others connected to the tank car. Motions for class action certification have been filed but remain pending. In cooperation with our insurer, we have paid settlements to a substantial number of affected residents and businesses. The incident has also triggered inquiries from the Federal Railroad Administration (FRA) and other federal, state and local authorities charged with investigating such incidents. We anticipate that regulatory sanctions and fines will be assessed against our I&O Railway as a result of this incident. Because of the chemical release, the Ohio EPA, the US EPA, the State of Ohio and the City of Cincinnati are cooperating in a joint investigation of the incident, which we believe to be nearly complete. Should this investigation lead to environmental crime charges against our I&O Railway, potential fines upon conviction could range widely and could be material. While we are unable to predict with certainty the outcome of the various matters pending, during the third quarter of 2005 we estimated that our cost for this incident will be $2.3 million, inclusive of the possible regulatory sanctions noted above.

     No matters were submitted to a vote of security holders during the fourth quarter of 2005.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

     Our common stock began trading on the New York Stock Exchange (NYSE) on January 2, 2002 under the symbol “RRA”. Prior to January 2, 2002, our common stock traded on the Nasdaq National Market (Nasdaq) under the symbol “RAIL”.

     A total of 60 million shares of common stock is authorized, of which 38,688,496 shares were outstanding as of December 31, 2005. Each share is entitled to one vote in all matters requiring a vote of shareholders. As of March 10, 2006, there were approximately 523 holders of record and we believe at least 6,100 beneficial owners of our common stock. Weighted average common shares outstanding used in the calculation of diluted earnings per share was approximately 38 million as of December 31, 2005, and is expected to increase in 2006 due to anticipated stock option exercises and other incentive programs.

     We have never declared or paid a dividend on our common stock. Our senior credit agreement prevents us from paying cash dividends.

     Set forth below is high and low price information for our common stock as reported on the NYSE for each period presented.

     We did not repurchase any shares of our common stock during 2004. During the year ended December 31, 2005, we accepted 4,656 shares in lieu of cash payments by employees and non-employee directors for payroll tax withholdings relating to stock based compensation.

     The results of our continuing operations for the years ended December 31, 2005, 2004, 2003, 2002 and 2001 include the results of certain railroads from the dates they were acquired by purchase or lease as follows: Alcoa Railroad Group effective September 30, 2005; Fremont Line effective September 10, 2005, Midland Subdivision effective October 15, 2004; Chicago, Fort Wayne & Eastern Railroad effective August 1, 2004; Central Michigan Railway effective January 25, 2004; San Luis and Rio Grande Railroad effective June 29, 2003; the Mobile Line, effective June 1, 2003; StatesRail, effective January 4, 2002; and ParkSierra, effective January 8, 2002. The income statement data for the years ended December 31, 2005, 2004 and 2003 and the balance sheet data at December 31, 2005 and 2004 are derived from, and are qualified by reference to, audited financial statements included elsewhere in this report and should be read in conjunction with those financial statements and the notes thereto. The income statement data set forth below for the periods ended December 31, 2002 and 2001 and the balance sheet data as of December 31, 2003, 2002 and 2001 are derived from our financial statements not included in this report on Form 10-K. Freight Australia, Ferronor, the Arizona Eastern Railway Company and West Texas and Lubbock Railroad, all sold in 2004, and the San Luis and Rio Grande Railroad, which was sold in 2005, and the Alberta Railroad Properties, which were sold in 2006, have been presented as discontinued operations and thus have been excluded from the income statement data and freight carloads within the operating data.

GENERAL

     We pursue growth by seeking to increase the number of our carloads and our average rate per carload and by continuing our program of selectively acquiring railroads that we believe will provide operating efficiencies, strategic advantages and/or profit and cash flow improvement opportunities. Our operating costs include labor, equipment rents (locomotives and railcars), purchased services (contract labor and professional services), diesel fuel, casualties and insurance, materials, joint facilities and other expenses. Each of these costs is included in one of the following functional departments: maintenance of way, maintenance of equipment, transportation, equipment rental, and selling, general & administrative. In addition, depreciation of our fixed assets and asset sale gains and losses are significant components of our operating income.

     Our total North American carloads increased by 6.4%, including 2.0% on a “same railroad” basis, during the year ended 2005 compared to the year ended 2004, with our average rate per carload increasing from $281 to $303. “Same railroad” amounts exclude amounts associated with railroads, or portions of railroads, sold or acquired by us after January 1, 2005. We expect “same railroad” carload growth to be approximately 1%-2% during 2006.

     During the second quarter of 2003, we acquired two branch lines, the 154 mile San Luis & Rio Grande Railroad in Colorado and the 288 mile Mobile Line, which is contiguous with our existing Alabama & Gulf Coast Railway.

     In January 2004, we acquired the assets of the Central Michigan Railway, which operates 100 miles of rail line in Michigan.

     In July 2004, our wholly-owned subsidiary, the Central Railroad Company of Indianapolis, executed an agreement with CSX Transportation, Inc. to lease 276 miles of railroad known as the Chicago, Ft. Wayne & Eastern Railroad for twenty years. We assumed control of the operations on August 1, 2004.

     On June 28, 2004, our wholly-owned subsidiary, the Dallas, Garland & Northeastern Railroad, commenced operations of Mockingbird Yard in Dallas and 11 miles of track through a 10 year agreement with the Union Pacific Railroad. Under terms of the agreement with Union Pacific, the Dallas, Garland & Northeastern Railroad will serve customers on the line, with the intention of growing the business and creating a more efficient interchange with the Union Pacific Railroad.

     On October 16, 2004, our wholly-owned subsidiary, the Indiana & Ohio Central Railroad Inc., executed an agreement with CSX Transportation, Inc. to purchase 107 miles of railroad from Cincinnati, Ohio to Columbus, Ohio, known as the Midland Subdivision. We also entered into a 25-year lease of related real estate.

     On September 10, 2005, our wholly-owned subsidiary, Mid-Michigan Railroad, entered into a 25-year lease with CSX Transportation, Inc. for the operation of the 48 mile Fremont Line. The line runs from Fremont, Michigan south to West Olive, Michigan and interchanges with our Michigan Shore Railroad and CSX Transportation.

     On September 30, 2005, our wholly-owned subsidiary, RailAmerica Transportation Corp., completed the stock acquisition of four short line railroads from Alcoa, Inc. referred to as the Alcoa Railroad Group. The railroads serve Alcoa aluminum manufacturing operations in Texas and New York and a specialty chemicals facility in Arkansas, formerly owned by Alcoa, but now owned by Almatis, Inc.. As part of the agreement, we have entered into three long term service agreements with Alcoa, under which we will continue to provide service to Alcoa’s facilities. We assumed control of the operations of the Alcoa Railroad Group on October 1, 2005. In conjunction with the purchase of the Alcoa Railroad Group, on September 30, 2005, we entered into an amendment to our senior credit facility, which added $75 million to the U.S. dollar tranche of the term loan facility.

     In February 2004, we completed the sale of our 55% equity interest in Ferronor, a Chilean railroad, for $18.1 million, consisting of $10.8 million in cash, a secured note for $5.7 million due no later than June 2010 and a secured note from Ferronor for $1.7 million due no later than February 2007, both bearing interest at 90 day LIBOR plus 3%. In January 2006, we received $7.1 million in full satisfaction of the amounts outstanding. During the year ended December 31, 2004, we recognized a $4.0 million tax charge resulting from the sale of our interest in Ferronor and the repatriation of the cash proceeds to the U.S. Ferronor’s results of operations have been reclassified to discontinued operations on our consolidated financial statements.

     In August 2004, we completed the sale of Freight Australia to Pacific National for AUD $285 million (US $204 million). The U.S. dollar proceeds include approximately $4.3 million as a result of foreign exchange hedges that were entered into during the third quarter of 2004. In addition, the share sale agreement provided for an additional payment to us of AUD $7 million (US $5 million) based on the changes in the net assets of Freight Australia from September 30, 2003 through August 31, 2004, which was received in December 2004, and also provides various representations and warranties by us to the buyer. Potential claims against us for violations of most of the representations and warranties are capped at AUD $50 million (US $39.5 million). No claims have yet been asserted by the buyer. We believe the ultimate impact of any claim, should one be asserted, alleging a breach of the representations and warranties will not have a material effect on our future results of operations. However, if we are required to make a payment to the buyer, it could have a material effect on future cash flows. During the year ended December 31, 2004, we recognized a gain of $20.2 million, pre-tax and $2.0 million, net of income taxes on the sale. The $18.2 million tax provision on the sale of Freight Australia includes a provision of $11.4 million for the previously unremitted earnings of Freight Australia. During the fourth quarter of 2005, we recorded an additional tax benefit of $1.6 million. This adjustment has been included in discontinued operations for the year ended December 31, 2005. Freight Australia’s results of operations have been reclassified to discontinued operations on our consolidated financial statements.

     In conjunction with the sale of Freight Australia, on September 29, 2004, we completed the purchase of $125.7 million of our $130 million principal amount of 12 7/8% senior subordinated notes due 2010. At the same time, we amended and restated our credit agreement to extend the maturity by two years, reduced the margin rate by 0.5%, borrowed $350 million in term loans and increased the availability of the U.S. dollar denominated revolving loans by $10 million.

     In December 2004, we sold the Arizona Eastern Railway Company for $2.8 million in cash, resulting in a pretax gain of $0.3 million, or $0.2 million after tax. The results of operations for the Arizona Eastern Railway Company have been reclassified to discontinued operations for the periods presented.

     In December 2004, we also completed the sale of our West Texas and Lubbock Railroad for $1.8 million in cash and a long term note of $3.6 million, resulting in a pretax and after tax gain of $0.1 million. The results of operations for the West Texas and Lubbock Railroad have been reclassified to discontinued operations for the periods presented.

     In December 2005, we completed the sale of our San Luis & Rio Grande Railroad for $5.5 million in cash and a long term note of $1.5 million, resulting in a pretax loss of $0.6 million, or $0.1 million after tax. The results of operations for the San Luis & Rio Grande Railroad have been reclassified to discontinued operations for the periods presented.

     During the fourth quarter of 2005, we committed to a plan to dispose of the Alberta Railroad Properties, comprised of the Lakeland & Waterways Railway, Mackenzie Northern Railway and Central Western Railway. Upon committing to the disposal plan, we determined that the sale would result in a loss on sale of the assets. Accordingly, we recorded an estimated pretax loss on the sale of the properties of $2.5 million, or $3.8 million after tax. We completed the sale of the Alberta Railroad Properties in January 2006 for $22.1 million in cash. In addition, the sale agreement includes two earn-out provisions based upon the opening of a British Petroleum, or BP, Plant on the Mackenzie Northern Railway. In order to receive the first payment of CAD $2.0 million, the BP Plant must be prepared for operations or have moved a railcar on or prior to December 31, 2011. In order to receive the second payment of CAD $2.0 million, an aggregate amount of carloads equal to or greater than 4,000 must be loaded and shipped to and from the BP Plant between the closing date of the sale and December 31, 2011. The estimated loss on sale does not include an effect for these earn-outs. Any proceeds received as a result of these earn-out agreements will be recorded through income from discontinued operations in the period received. The results of operations for the Alberta Railroad Properties have been reclassified to discontinued operations for the periods presented.

     Our railroads operate independently with their own management, employees and customer base. They are spread out geographically and carry a diverse mix of commodities. For the year ended December 31, 2005, bridge traffic accounted for 16%, coal accounted for 12%, and lumber and forest products accounted for 10% of our carloads in North America. As a percentage of revenue, which is impacted by several factors including the length of the haul, lumber and forest products generated 15%, chemicals generated 12% and metals generated 10% of our North American freight revenue for the year ended December 31, 2005. Bridge traffic, which neither originates nor terminates on our line and generally has a lower rate per carload, generated 7% of our freight revenue during the year ended December 31, 2005.

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

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

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

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

     Property, plant and equipment comprised 79% of our total assets as of December 31, 2005. These assets are stated at cost, less accumulated depreciation. We use the group method of depreciation under which a single depreciation rate is applied to the gross investment in our track assets. Upon normal sale or retirement of track assets, cost less net salvage value is charged to accumulated depreciation and no gain or loss is recognized. Expenditures that increase asset values or extend useful lives are capitalized. Repair and maintenance expenditures are charged to operating expense when the work is performed. We periodically review the carrying value of our long-lived assets for impairment. This review is based upon our projections of anticipated future cash flows. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect our evaluations.

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

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

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

     We disposed of certain railroads as follows:

     As a result, the results of operations for the years ended December 31, 2005, 2004 and 2003 are not comparable in various material respects and are not indicative of the results which would have occurred had the acquisitions or dispositions been completed at the beginning of the periods presented. In addition, the results of operations for three of our Canadian railroads, the Lakeland & Waterways Railway, Mackenzie Northern Railway and Central Western Railway, collectively referred to as the Alberta Railroad Properties, were reclassified to discontinued operations for the years presented.

     The following table sets forth the operating revenue and expenses by functional category for our consolidated operations for the periods indicated (in thousands).

     The following table sets forth the operating revenue and expenses by natural category for our consolidated operations for the periods indicated (in thousands).

     OPERATING REVENUE. Operating revenue increased by $54.3 million, or 15%, to $423.7 million for the year ended 2005, from $369.4 million for the year ended 2004. Total carloads increased 6% to 1,249,035 in 2005, from 1,174,052 in 2004. Excluding revenue of $19.2 million in 2005 for the acquired railroads, the Central Michigan Railway, the Chicago, Ft. Wayne & Eastern Railroad, the Midland Subdivision, the Fremont Line and the Alcoa Railroad Group, operating revenue increased $35.1 million, or 10%, while carloads increased by 23,757, or 2%. This increase in “same railroad” revenue was primarily due to an increase in rates, higher fuel surcharges, a change in commodity mix, the increase in carloads and a strengthening of the Canadian dollar compared to the U.S. dollar. We expect revenue to increase by approximately 7%-10% in 2006.

     The increase in the average rate per carload to $303 in the year ended December 31, 2005, from $281 in 2004 was primarily due to an increase in rates, including the fuel surcharge, a change in commodity mix and the improvement in the Canadian dollar.

     The following table compares North American freight revenue, carloads and average freight revenue per carload for the years ended December 31, 2005 and 2004:

     Lumber and forest product revenue was $55.6 million in the year ended December 31, 2005, compared to $47.8 million in

the year ended December 31, 2004, an increase of $7.8 million or 16%. This increase was primarily due to increased moves in Oregon and California as a result of a strong demand for lumber and the re-opening of a tunnel in April 2005 on one of our West Coast railroads which had been out of service for over one year.

     Chemical revenue was $46.0 million in the year ended December 31, 2005, compared to $40.4 million in the year ended December 31, 2004, an increase of $5.6 million or 14%. This increase was primarily due to the acquisitions of the Chicago, Ft. Wayne & Eastern Railroad and Central Michigan Railway.

     Metal revenue was $37.7 million in the year ended December 31, 2005, compared to $31.7 million in the year ended December 31, 2004, an increase of $6.0 million or 19%. This increase was due to the acquisition of the Chicago, Ft. Wayne & Eastern Railroad, increased business with an existing customer in southern Ontario and increased pig iron shipments in the Midwest, partially offset by the loss of a customer in California.

     Agricultural and farm products revenue was $35.5 million in the year ended December 31, 2005, compared to $30.2 million in the year ended December 31, 2004, an increase of $5.3 million or 17%. This increase was primarily due to favorable growing conditions and outlook for the fall harvest in the Midwest leading to movement of wheat and the acquisitions of the Chicago, Ft. Wayne & Eastern Railroad and the Midland Subdivision, partially offset by a severe drought in Illinois causing farmers to hold crops.

     Paper products revenue was $32.9 million in the year ended December 31, 2005, compared to $29.3 million in the year ended December 31, 2004, an increase of $3.6 million or 12%. This increase was the result of increased business with existing and new customers in Alabama, the strengthening of the Canadian dollar, as well as the acquisition of the Chicago, Ft. Wayne & Eastern Railroad.

     Coal revenue was $32.6 million in the year ended December 31, 2005, compared to $28.1 million in the year ended December 31, 2004, an increase of $4.5 million or 16%. This increase was a result of an increase in market share from trucks in Indiana, a strong demand for coal in Missouri and Arkansas and increased business with existing customers in the Midwest and Oklahoma, partially offset by a decrease in traffic out of the Powder River Basin.

     Food products revenue was $29.4 million in the year ended December 31, 2005, compared to $26.5 million in the year ended December 31, 2004, an increase of $2.9 million or 11%. This increase was due to the acquisition of the Chicago, Ft. Wayne & Eastern Railroad and increased exports of soybean meal to Asia.

     Bridge traffic revenue was $25.2 million in the year ended December 31, 2005, compared to $24.5 million in the year ended December 31, 2004, an increase of $0.7 million or 3%. This increase was primarily due to additional haulage by Class I carriers in Canada, partially offset by a decrease in Class I haulage in Ohio due to new routing protocols with Class I carriers.

     Minerals revenue was $23.0 million in the year ended December 31, 2005, compared to $19.2 million in the year ended December 31, 2004, an increase of $3.8 million or 19%. This increase was primarily due to increased business in Texas, Oklahoma and Alabama with new and existing customers as a result of increased demand for construction materials.

     Metallic and non-metallic ores revenue was $19.5 million in the year ended December 31, 2005, compared to $16.7 million in the year ended December 31, 2004, an increase of $2.8 million or 17%. This increase was primarily due to the acquisition of the Alcoa Railroad Group.

     Petroleum products revenue was $17.7 million in the year ended December 31, 2005, compared to $15.3 million in the year ended December 31, 2004, an increase of $2.4 million or 16%. This increase was due to increased demand for fuel oil in Canada, increased carloads at one of our West Coast railroads as a result of increased oil and refinery production and the strengthening of the Canadian dollar.

     Other revenue was $13.0 million in the year ended December 31, 2005, compared to $10.2 million in the year ended December 31, 2004, an increase of $2.8 million or 28%. This increase was primarily due to an increase in construction and debris haulage in New England with a new customer and in South Carolina with existing customers.

     Autos revenue was $6.3 million in the year ended December 31, 2005, compared to $6.8 million in the year ended December 31, 2004, a decrease of $0.5 million or 6%. This decrease was due to reduced motor vehicle shipments in Ohio and

Michigan, partially offset by an increase in auto part shipments for new 2005 orders.

     Intermodal revenue increased slightly to $3.8 million in the year ended December 31, 2005, compared to $3.7 million in the year ended December 31, 2004.

     OPERATING EXPENSES. Operating expenses increased to $372.4 million in the year ended December 31, 2005, from $330.8 million in the year ended December 31, 2004. The operating ratio, defined as total operating expenses divided by total operating revenue, was 87.9% in 2005 compared to 89.5% in 2004. The improvement in the operating ratio was primarily due to the $12.6 million charge in the third quarter of 2004 for the impairment of the E&N Railway, partially offset by higher casualty costs in 2005 as a result of the styrene tank car incident, as well as higher than anticipated costs associated with the recently acquired Midland Subdivision. We expect our operating ratio for 2006 to be in the range of 86%-88%.

     MAINTENANCE OF WAY. Maintenance of way expenses increased $7.5 million, or 17%, to $52.9 million in the year ended December 31, 2005, from $45.4 million in the year ended December 31, 2004, primarily due to higher track and signal maintenance costs in 2005, as well as the acquisitions in 2004 of the Midland Subdivision and the Chicago, Ft. Wayne & Eastern Railroad. As a percentage of revenue, maintenance of way increased to 12.5% in 2005 from 12.3% in 2004, primarily due to higher track and signal maintenance costs. Within maintenance of way expenses, casualty and insurance costs decreased in 2005 by $0.9 million, or 0.6 percentage points as a result of costs incurred in 2004 relating to the tunnel fire on our railroad in Oregon. We experienced 115 Federal Railroad Administration (“FRA”) reportable incidents, consisting of both reportable train incidents and reportable personal injuries, in both 2005 and 2004. Our FRA personal injury frequency ratio, measured as reportable injuries per 200,000 man hours worked, was 2.24 in 2005 compared to 2.80 in 2004.

     MAINTENANCE OF EQUIPMENT. Maintenance of equipment expense increased $2.7 million, or 20%, to $16.1 million in the year ended December 31, 2005, from $13.4 million in the year ended December 31, 2004, primarily due to the acquisitions of the Midland Subdivision and the Chicago, Ft. Wayne & Eastern Railroad in 2004 as well as increased system car repairs and locomotive repairs. Maintenance of equipment increased as a percentage of revenue to 3.8% in 2005, from 3.6% in 2004.

     TRANSPORTATION. Transportation expense increased $28.7 million, or 26%, to $140.8 million in the year ended December 31, 2005, from $112.1 million in the year ended December 31, 2004, due to the increase in carloads for both “same railroad” and acquisitions, higher fuel prices and higher casualty expense as a result of the styrene tank car incident on the Indiana and Ohio Railroad. As a percentage of revenue, transportation expense increased to 33.2% in 2005, from 30.3% in 2004. This increase is primarily due to higher fuel costs, which accounted for a 2.0 percentage point increase, higher casualty costs for the tank car incident, which accounted for a 0.6 percentage point increase, along with higher labor costs and higher costs associated with the recently acquired Midland Subdivision. Fuel costs were, on average, $1.75 per gallon in 2005 compared to $1.36 per gallon in 2004, resulting in a $10.1 million increase in fuel expense in 2005, partially offset by a benefit of $3.7 million from our fuel hedges in 2005.

     EQUIPMENT RENTAL. Equipment rental increased $11.2 million, or 30%, to $48.4 million in the year ended December 31, 2005, from $37.2 million in the year ended December 31, 2004. The increase is primarily due to the acquisitions of the Midland Subdivision and the Chicago, Ft. Wayne & Eastern Railroad in 2004, the acquisition of the Alcoa Railroad Group in 2005, increased car hire expense, as well as additional railcar leases to support lumber traffic in California. As a percentage of revenue, equipment rental increased to 11.4% in 2005 from 10.1% in 2004.

     SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expense decreased $1.4 million to $84.3 million in the year ended December 31, 2005, from $85.7 million in the year ended December 31, 2004, primarily due to the former CEO retirement costs incurred during the third quarter of 2004, partially offset by an increase in costs associated with the acquisitions of the Midland Subdivision and the Chicago, Ft. Wayne & Eastern Railroad and an increase in health insurance costs in 2005. As a percentage of revenue, selling, general and administrative expense decreased to 19.9% in 2005, from 23.2% in 2004, primarily due to the retirement costs referenced above and an increase in revenue while the dollar amount spent on selling, general, and administrative expenses such as labor and purchased services remained relatively consistent.

     ASSET SALES. Asset sales resulted in a net gain of $1.1 million in the year ended December 31, 2005 and a net gain of $4.0 million for the year ended December 31, 2004.

     IMPAIRMENT OF E&N RAILWAY. During the third quarter of 2004, we committed to a plan to dispose of the E&N

Railway. As a result of several factors, including the expectation of minimal future operating cash flows and potential limitations on the use of certain of the real estate, we do not expect significant proceeds from this disposal and accordingly, recorded an impairment charge of $12.6 million during the year ended December 31, 2004.

     DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense decreased as a percentage of revenue to 7.4% in the year ended December 31, 2005, from 7.7% in the year ended December 31, 2004. Depreciation expense increased $2.7 million from 2004 to 2005 as a result of additional capital expenditures incurred during 2005.

     INTEREST AND OTHER EXPENSE. Interest and other expense, including amortization of deferred financing costs, decreased $7.4 million to $20.3 million for the year ended December 31, 2005, from $27.7 million in the year ended December 31, 2004. This decrease is primarily due to the repurchase of our 12 7/8% senior subordinated notes and amendment and refinancing of our senior credit facility in the third quarter of 2004 and the conversion and redemption of our junior convertible debentures at July 31, 2004, partially offset by higher short-term interest rates in 2005. In addition, interest expense of $0.6 million and $4.3 million for the years ended December 31, 2005 and 2004, respectively, were allocated to discontinued operations.

     FINANCING COSTS. In September 2004, we incurred costs to amend and restate our senior credit facility and to repurchase our 12 7/8% senior subordinated notes. The $39.5 million in costs consist of $7.7 million for the write-off of deferred loan costs associated with the original senior credit facility, $19.2 million in redemption premiums for the purchase of the senior subordinated notes and $12.6 million for the write-off of deferred loan costs, original issue discount and bank fees related to the senior subordinated notes. In August 2005, we redeemed the remaining $4.3 million of the senior subordinated notes which resulted in a charge of $0.3 million for the redemption premium paid and $0.3 million for the write-off of deferred loan costs, original issue discount and bank fees related to the remaining senior subordinated notes.

     INCOME TAXES. Our effective income tax rates in the years ended December 31, 2005 and 2004 for continuing operations were -2% and 19%, respectively. The rate for 2005 includes a federal tax benefit of approximately $13.0 million related to the track maintenance credit provisions enacted by the American Jobs Creation Act of 2004. The rate for 2004 includes a tax charge of $2.2 million related to the refinancing in September 2004, a reduced tax benefit of $0.9 million associated with the E&N Railway impairment and a tax charge of $1.2 million relating to non-deductible charges from the former CEO’s retirement costs.

     DISCONTINUED OPERATIONS. During December 2005, we completed the sale of our San Luis & Rio Grande Railroad for $5.5 million in cash and a long term note of $1.5 million, resulting in a loss of $0.6 million and $0.5 million, before and after tax, respectively. The results of operations for the San Luis & Rio Grande Railroad have been reclassified to discontinued operations for the periods presented. For the years ended December 31, 2005 and 2004, the San Luis & Rio Grande Railroad contributed income of $0.3 million and a loss of $0.5 million to the income from discontinued operations, respectively.

     During the fourth quarter of 2005, we committed to a plan to dispose of the Alberta Properties, comprised of the Lakeland & Waterways Railway, Mackenzie Northern Railway and Central Western Railway. Upon committing to the disposal plan, we determined that the sale would result in a loss on sale of the assets. Accordingly, we recorded an estimated loss on the sale of the properties of $2.5 million before tax and $3.8 million after tax. We completed the sale of the Alberta Properties in January 2006 for $22.1 million in cash. The results of operations for the Alberta Properties have been reclassified to discontinued operations for the periods presented. For the years ended December 31, 2005 and 2004, the Alberta Properties contributed income of $1.5 million and $2.2 million to the income from discontinued operations, respectively.

     During December 2004, we sold the Arizona Eastern Railway Company for $2.8 million in cash, resulting in a gain on the sale of $0.3 million, or $0.2 million after tax. The results of operations for the Arizona Eastern Railway Company have been reclassified to discontinued operations for the periods presented. For the year ended December 31, 2004, the Arizona Eastern Railway Company contributed a pretax loss of $3.9 million, or $2.4 million after tax, to the loss from discontinued operations. These results from operations include a pretax impairment charge of $4.0 million.

     During the fourth quarter of 2004, we committed to a plan to dispose of the West Texas and Lubbock Railroad. We completed the sale of the West Texas and Lubbock Railroad during December 2004, for $1.8 million in cash and a long term note for $3.8 million, resulting in a gain on the sale of $0.1 million, before and after tax. The results of operations for the West Texas and Lubbock Railroad have been reclassified to discontinued operations for the periods presented. For the year ended December 31, 2004, the West Texas and Lubbock Railroad contributed income of $0.5 million to the loss from discontinued

operations.

     In August 2004, we completed the sale of Freight Australia to Pacific National for AUD $285 million (US $204 million). The U.S. dollar proceeds include approximately $4.3 million as a result of foreign exchange hedges that were entered into during the third quarter of 2004. In addition, the share sale agreement provided for an additional payment to us of AUD $7 million (US $5 million) based on the changes in the net assets of Freight Australia from September 30, 2003 through August 31, 2004, which was received in December 2004, and also provides various representations and warranties by us to the buyer. Potential claims against us for violations of most of the representations and warranties are capped at AUD $50 million (US $39.5 million). No claims have yet been asserted by the buyer. We believe the ultimate impact of any claim, should one be asserted, alleging a breach of the representations and warranties will not have a material effect on our future results of operations. However, if we are required to make a payment to the buyer, it could have a material effect on future cash flows. During the year ended December 31, 2004, we recognized a gain of $20.2 million, pre-tax and $2.0 million, net of income taxes on the sale. The $18.2 million tax provision on the sale of Freight Australia includes a provision of $11.4 million for the previously unremitted earnings of Freight Australia. During the fourth quarter of 2005, we recorded an additional tax benefit of $1.6 million. This adjustment has been included in discontinued operations for the year ended December 31, 2005. The proceeds from the sale of Freight Australia were used to repay senior debt and repurchase our 12 7/8% senior subordinated notes. Freight Australia’s results of operations have been presented in discontinued operations on our consolidated financial statements. The results of Freight Australia have been included in the financial statements through the date of sale of the entity, August 31, 2004. For the year ended December 31, 2004, Freight Australia contributed a loss of $0.9 million to the loss from discontinued operations.

     In February 2004, we completed the sale of our 55% equity interest in Ferronor, a Chilean railroad. Accordingly, we have presented the operating results and loss on sale of Ferronor in discontinued operations for the periods presented. During the year ended December 31, 2004, we recognized a $4.0 million tax charge resulting from the sale of our interest in Ferronor and the repatriation of the cash proceeds to the U.S. No income or expense was recognized from operations for 2004.

     The following table sets forth the operating revenue and expenses by functional category for our consolidated operations for the periods indicated (in thousands).

     The following table sets forth the operating revenue and expenses by natural category for our consolidated operations for the periods indicated (in thousands).

     OPERATING REVENUE. Operating revenue increased by $39.6 million, or 12%, to $369.4 million in the year ended 2004, from $329.8 million in the year ended 2003. Total carloads increased by 39,623, or 9%, to 1,174,052 in 2004 from 1,077,592 in 2003. Excluding revenue of $0.3 million in 2003 from the disposed San Pedro & Southwestern Railway, and $21.9 million in 2004 for the acquired Mobile Line, Central Michigan Railway, Chicago Fort Wayne & Eastern Railroad and Midland Subdivision, operating revenue increased $17.9 million or 5%, while carloads increased by 35,552 or 3%. The increase in “same railroad” revenue is primarily due to the increase in carloads, the strengthening of the Canadian dollar compared to the U.S. dollar, which positively impacted operating revenue by $4.0 million for the year ended December 31, 2004, as well as changes in commodity mix and fuel surcharges. Non-freight revenue for the year ended December 31, 2003 included $1.0 million from the sale of easements along several of our railroad properties.

     The increase in the average rate per carload to $281 in the year ended December 31, 2004, from $268 in 2003, was primarily due to the improvement in the Canadian dollar, the acquisition of the Mobile Line and the Central Michigan Railway, which resulted in higher rates per carload due to increased lengths of haul, changes in commodity mix and the fuel surcharges.

     The following table compares North American freight revenue, carloads and average freight revenue per carload for the years ended December 31, 2004 and 2003: