<PAGE>
                     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, 2001 Commission File Number 0-20618

                                   ----------

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

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

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

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

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

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

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

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

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

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



<PAGE>

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 22, 2002 computed by reference to the average bid and
asked prices of registrant's common stock reported on the New York Stock
Exchange on such date was $334.6 million.

The number of shares outstanding of registrant's Common Stock, $.001 par value
per share, as of March 22, 2002 was 32,327,644.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant's proxy statement for the 2002 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.



<PAGE>




                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                    PAGE
                                                                                    ----
<S>  <C>                                                                              <C>
PART I

Item 1.    Business                                                                   4
Item 2.    Properties                                                                15
Item 3.    Legal Proceedings                                                         19
Item 4.    Submission of Matters to a Vote of Security Holders                       20

PART II

Item 5.    Market for Common Equity and Related Stockholder Matters                  20
Item 6.    Selected Financial Data                                                   21
Item 7.    Management's Discussion and Analysis                                      32
Item 7a.   Market Risk                                                               44
Item 8.    Financial Statements                                                      44
Item 9.    Changes in and Disagreements with Accountants on Accounting and
                 Financial Disclosure                                                44

PART III

Item 10.   Directors and Executive Officers of the Registrant                        45
Item 11.   Executive Compensation                                                    45
Item 12.   Security Ownership of Certain Beneficial Owners and Management            45
Item 13.   Certain Relationships and Related Transactions                            45


PART IV

Item 14.   Exhibits and Reports on Form 8-K                                          45

Signatures                                                                           49

</TABLE>

                                       3
<PAGE>
         This Form 10-K contains certain "forward-looking" statements within the
meaning of The Private Securities Litigation Reform Act of 1995 and information
relating to RailAmerica, Inc. and its subsidiaries that are based on the beliefs
of our management and that involve known and unknown risks and uncertainties.
When used in this report, the terms "anticipate," "believe," "estimate,"
"expect" and "intend" and words or phrases of similar import, as they relate to
us or our subsidiaries or our management, are intended to identify
forward-looking statements. These statements reflect the current risks,
uncertainties and assumptions related to various factors including, without
limitation, currency risk, competitive factors, general economic conditions,
customer relations, relationships with vendors, fuel costs, the interest rate
environment, governmental regulation and supervision, seasonality, technological
change, changes in industry practices, the inability to successfully integrate
acquired operations, the ability to successfully market and sell non-core
properties and assets, the ability to service debt, one-time events and other
factors described under the heading "Factors affecting our operating results,
business prospects and market price of stock" and elsewhere in this report and
in other filings made by us with the Securities and Exchange Commission. Based
upon changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described in this report as anticipated,
believed, estimated or intended. We undertake no obligation to update, and we do
not have a policy of updating or revising, these forward-looking statements.
Except where the context otherwise requires, the terms "we," "us," or "our"
refer to the business of RailAmerica, Inc. and its consolidated subsidiaries.

PART I

ITEM 1.  BUSINESS

GENERAL

         We are the largest owner and operator of short line freight railroads
in North America and a leading owner and operator of regional freight railroads
in Australia and Chile. We own, lease or operate a diversified portfolio of 49
railroads with approximately 12,900 miles of track located in the United States,
Australia, Canada, Chile and Argentina. Through our diversified portfolio of
rail lines, we operate in numerous geographic regions with varying
concentrations of commodities hauled. We believe that individual economic and
seasonal cycles in each region may partially offset each other. All dollar
amounts in this report are in U.S. dollars unless otherwise indicated.

         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.



                                       4
<PAGE>


RECENT DEVELOPMENTS

Since January 1, 2001, we have completed the following significant transactions:

         o  In June 2001, we completed the private placement sale of 3.8 million
            shares of our common stock, for $10.75 per share, resulting in net
            proceeds of $38.2 million. The proceeds from this private placement
            were used to pay down existing debt and for general corporate
            purposes.

         o  In July 2001, we realized $8.4 million in net proceeds on the
            sale/leaseback of certain locomotives.

         o  In December 2001, we completed the private placement sale of 4.3
            million shares of our common stock, for $12.50 per share, resulting
            in net proceeds of $51.5 million. The proceeds from this private
            placement were used to acquire StatesRail and ParkSierra , as well
            as for the reduction of debt and other general corporate purposes.

         o  During 2001, we sold several various non-core assets including
            Dakota Rail for total proceeds of $9.8 million.

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

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

         o  In March 2002, we sold the Georgia Southwestern Railroad and certain
            operating assets for total consideration of $7.1 million.

BUSINESS STRATEGY

            CONTINUE TO GROW THROUGH SELECTIVE ACQUISITIONS. During 1999 and
2000, we acquired RailTex, RaiLink, TPW and Freight Australia for total
consideration of approximately $500 million. These four acquisitions, which have
been successfully integrated into our operations, added in excess of 9,000 miles
of track to our operations and in excess of $300 million in revenues. In January
2002, we acquired StatesRail and ParkSierra for total consideration of $138
million. These two acquisitions add another 2,400 miles to our operations and
are projected to contribute approximately $90 million in annual revenues.

            In North America, we seek acquisition candidates that enable us to
form geographic clusters of short lines, thereby affording economies of scale as
well as marketing and operating synergies. We also seek properties where
operating efficiencies can be realized from professional management techniques
and asset rationalization, thereby enabling the target railroad to reduce



                                       5
<PAGE>

operating costs and improve service. The resultant competitive pricing and
better service, coupled with a focused marketing and sales effort, typically
yields customer loyalty and increased carloads.

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

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

            INTEGRATE RECENT ACQUISITIONS INTO OUR OPERATIONS. A key element to
our strategy has been the implementation of a comprehensive integration plan
focusing on areas such as centralizing certain back office functions including
accounting, information technology and purchasing, re-engineering the acquired
companies' operating structure to conform to our cluster and regional structure
and rationalizing and upgrading the acquired companies' locomotive fleet to
reduce maintenance and fuel costs. After we acquired RailTex in February 2000,
we realized significant synergies and cost savings in personnel costs, fleet
rationalization and purchasing improvements. We believe that the recent
acquisitions and integration of StatesRail and ParkSierra will generate
significant cost savings and synergies.

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

            MAINTAIN CLOSE RELATIONSHIPS WITH CLASS I RAILROADS. Since our North
American short line rail properties interchange with at least one Class I
railroad, we maintain close relationships with substantially all of the North
American Class I rail operators. We believe that these relationships will enable
us to pursue new business opportunities on existing rail line properties and
acquire additional short line freight rail lines from the Class I railroads.

             FOCUS ON CORE OPERATIONS THROUGH STRATEGIC DIVESTITURES. We believe
that in order to capitalize on opportunities more profitable to our overall
portfolio, to minimize the amount of management time and effort on the smaller
properties in our portfolio, and to reduce debt, we may from time to time
continue to divest some of our railroad properties that provide inadequate



                                       6
<PAGE>

returns on invested capital. We believe a market for these divestitures exists
among smaller short line operating companies and selected strategic buyers.

NORTH AMERICAN RAILROAD OPERATIONS

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

         UNITED STATES. We own, lease or operate 38 short line rail properties
in the United States with approximately 6,500 miles of track. Our properties are
geographically diversified and operate in 27 states. We have clusters of rail
properties in the Southeastern, Southwestern, Midwestern, Great Lakes, New
England and Pacific Coast regions of the United States. We believe that this
cluster strategy provides economies of scale and helps achieve operational
synergies.

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

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

          Our decentralized management structure is an important element of our
marketing strategy. We give significant discretion with respect to sales and
marketing activities to our North American regional marketing managers. Each
regional marketing manager works closely with personnel of our railroads and
with other members of senior management to develop marketing plans to increase



                                       7
<PAGE>

shipments from existing customers and to develop business from new customers. We
also work with the marketing staffs of the connecting Class I carriers to
develop an appropriate array of rail-oriented proposals to meet customers' needs
and with industrial development organizations to locate new rail users. We
consider all of our employees to be customer service representatives and
encourage them to initiate and maintain regular contact with shippers.

         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 passes over the line from one connecting
rail carrier to another.

         Interline and local traffic generated 84%, 86% and 89% of our total
freight revenue in 2001, 2000, and 1999, respectively. We believe that high
levels of interline and local traffic provide us with greater stability of
revenues because this traffic represents shipments to or from customers located
along our lines and cannot be easily diverted to other rail carriers, unlike
bridge traffic.

         The following table summarizes freight revenue by type of traffic
carried by our North American railroads in 2001, 2000 and 1999 in dollars and as
a percent of total freight revenue.

                                  NORTH AMERICA
                                 FREIGHT REVENUE
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                         2001                         2000                           1999
                            ---------------------------     --------------------------    ---------------------------
                                 $              %                $              %              $               %
                            ------------    -----------     ------------    ----------    ------------     ----------
<S>                            <C>               <C>           <C>              <C>           <C>              <C>
       Interline               $165,821          76.5%         $146,184         72.0%         $31,905          86.5%
       Local                     16,044           7.4%           27,404         13.5%             945           2.6%
       Bridge                    34,901          16.1%           29,396         14.5%           4,019          10.9%
                            ------------    -----------     ------------    ----------    ------------     ----------
                               $216,766         100.0%         $202,984        100.0%         $36,869         100.0%
                            ============    ===========     ============    ==========    ============     ==========

</TABLE>


         CONNECTING CARRIERS. All of our short line properties interchange
traffic with Class I railroads. The following table summarizes our significant
connecting carriers in 2001, 2000 and 1999 by freight revenues and carloads as a
percentage of total interchanged (interline and bridge) traffic.

                                  NORTH AMERICA
                              INTERCHANGED TRAFFIC

<TABLE>
<CAPTION>


                                          2001                     2000                        1999
                             -------------------------    ------------------------    -------------------------
                              Revenues      Carloads      Revenues      Carloads       Revenues      Carloads
                             -----------    ----------    ----------    ----------    -----------    ----------
<S>                               <C>           <C>           <C>           <C>            <C>           <C>
Canadian National Railway         30.4%         26.1%         24.7%         24.7%          20.4%         21.6%
Union Pacific Railroad            22.2%         23.2%         24.0%         21.8%           3.5%          3.3%
CSXT Transportation               16.0%         12.9%         18.9%         15.0%          14.6%         10.0%
Canadian Pacific Railway          12.8%         16.6%         10.3%         16.6%          28.5%         24.4%
Burlington Northern                6.2%          5.9%          8.5%          7.3%          26.6%         34.2%
  Santa Fe Railway
Norfolk Southern                   5.6%          6.9%          7.2%          7.3%             --             -
All other railroads                6.8%          8.4%          6.4%          7.3%           6.4%          6.5%
                             -----------    ----------    ----------    ----------    -----------    ----------
                                 100.0%        100.0%        100.0%        100.0%         100.0%        100.0%
                             ===========    ==========    ==========    ==========    ===========    ==========
</TABLE>

                                       8
<PAGE>


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

         CUSTOMERS. In 2001, we served approximately 1,600 customers in North
America. These customers shipped and/or received a wide variety of products.
Although most of our North American railroads have a well-diversified customer
base, several of the smaller rail lines have one or two dominant customers. In
2001, our 10 largest North American customers accounted for approximately 25% of
North American transportation revenue, as compared to 28% of North American
transportation revenue in 2000.

         COMMODITIES. The following table sets forth by number and percentage
the carloads hauled by our North American railroads during the years ended
December 31, 2001, 2000 and 1999.

                       CARLOADS CARRIED BY COMMODITY GROUP
<TABLE>
<CAPTION>

                                              2001                        2000                         1999
                                      -----------------------    ------------------------    -------------------------
COMMODITY GROUP                       Carloads         %          Carloads         %          Carloads          %
---------------                       ----------   ----------    -----------    ---------    ------------    ---------
<S>                                      <C>            <C>          <C>            <C>           <C>           <C>
Agricultural & Farm Products             80,834         9.1%         76,593         9.0%          28,140        18.1%
Autos                                    45,923         5.2%         47,900         5.7%           3,415         2.1%
Chemicals                                66,863         7.6%         66,827         8.0%           8,522         5.5%
Coal                                     95,433        10.8%         71,945         8.6%           5,504         3.6%
Food Products                            40,578         4.6%         39,313         4.7%           9,736         6.3%
Intermodal                               38,310         4.3%         30,134         3.6%           5,033         3.2%
Lumber & Forest Products                 88,162        10.0%         90,102        10.7%          14,681         9.5%
Metals                                   52,130         5.9%         61,049         7.3%          10,956         7.1%
Minerals                                 19,423         2.2%         16,393         2.0%             901         0.6%
Metallic/Non-metallic Ores               45,658         5.2%         36,780         4.4%           3,165         2.0%
Paper Products                           64,113         7.2%         59,124         7.0%          15,310         9.9%
Petroleum Products                       28,552         3.2%         26,840         3.2%           5,678         3.7%
Railroad Equipment/Bridge Traffic       200,565        22.6%        192,323        22.9%          37,023        23.9%
Other                                    19,035         2.1%         24,128         2.9%           6,927         4.5%
                                      ----------   ----------    -----------    ---------    ------------    ---------
Total                                   885,579       100.0%        839,451       100.0%         154,991       100.0%
                                      ==========   ==========    ===========    =========    ============    =========
</TABLE>

         EMPLOYEES. Currently, we have approximately 1,800 full-time railroad
employees in North America. Approximately 770 of the employees are subject to
collective bargaining agreements.




                                       9
<PAGE>

         SAFETY. We endeavor to conduct safe railroad operations for the benefit
and protection of employees, customers and the communities served by our
railroads. Our safety program, led by the Vice President of Safety and Operating
Practices, involves all of our employees and is administered on a daily basis 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 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.

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

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

INTERNATIONAL RAILROAD OPERATIONS

AUSTRALIAN RAILROAD OPERATIONS

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

         CUSTOMERS. Freight Australia's customers span a variety of industries,
with particular emphasis on companies in the Australian agricultural industry
for whom we carry bulk grain and other agricultural products. One customer, AWB,
Limited, represented 28% of Freight Australia's transportation revenue for the
year ended Decemer 31, 2001, 25% for the year ended in 2000 and 19% for the
period of May 1, 1999 to December 31, 1999. Additionally, track access fees from
V/Line Passenger represented 13% of Freight Australia's transportation revenue
in 2001, 15% in 2000, and 18% in 1999.

         COMMODITIES/SERVICES. The following table sets forth by dollar amount
(in thousands) and percentage Freight Australia's transportation revenue for the
years ended December 31, 2001 and 2000 and the eight months ended December 31,
1999.



                                       10
<PAGE>


<TABLE>
<CAPTION>

                                            2001                        2000                        1999
                                   ------------------------   -------------------------    -------------------------
                                      US$                        US$                          US$
                                    Amount           %          Amount           %           Amount           %
                                   ----------    ----------   ------------    ---------    -----------    ----------
<S>                                  <C>               <C>        <C>              <C>        <C>               <C>
Agricultural products               $46,296             47%      $45,440             46%      $24,613             40%
Track access fees                    15,367             16%       16,309             16%       12,430             21%
Intermodal containers                12,227             12%       13,540             14%        7,470             12%
Fast Track parcel service             8,235              8%        8,210              8%        6,744             11%
Bulk (i.e., cement, gypsum,
  stone, logs)                        8,079              8%        9,540             10%        6,213             10%
Interstate                            8,428              9%        5,954              6%        3,484              6%
                                    -------      ---------       -------      ---------       -------      ---------
  Total transportation revenue      $98,632          100.0%      $98,993          100.0%      $60,954          100.0%
                                    =======      =========       =======      =========       =======      =========
</TABLE>


         EMPLOYEES. Freight Australia currently has approximately 700 employees.
Most of these employees are subject to collective bargaining agreements.

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

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

CHILEAN RAILROAD OPERATIONS

         Ferronor owns and operates the only north-south railroad in northern
Chile, extending from La Calera near Santiago, where it connects with Chile's
southern railway, Ferrocarril del Pacifico, S.A., to its northern terminus at
Iquique, approximately 120 miles south of the Peruvian border. It also operates
several east-west branch lines that link a number of iron, copper and mineral
salt mines and production facilities with several Chilean Pacific port cities.
Ferronor also serves Argentina and Bolivia through traffic interchanged with the
Belgrano Cargas Railroad and the Antofagasta (Chile)-Bolivia Railway. In
December 2001, Ferronor announced it will commence operating the Potrerillos
Railway, a customer-owned 57 mile freight railroad.

         CUSTOMERS. Ferronor's customers are principally in the mining industry.
Two of the customers represented 45% and 38% of the Chilean transportation
revenue for 2001, 44% and 38% of the Chilean transportation revenue for 2000,
and 43% and 40% of the Chilean transportation revenue for 1999.

         EMPLOYEES. Ferronor currently has approximately 180 full-time
employees. A majority of Ferronor's employees are subject to collective
bargaining agreements.

REGULATION

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

         The STB, established by the ICC Termination Act of 1995, has
jurisdiction over, among other matters, the construction, acquisition, or
abandonment of rail lines, the consolidation or merger of railroads, the
assumption of control of one railroad by another railroad, the use by one




                                       11
<PAGE>

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 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.

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

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

         The Secretary to the Department of Infrastructure may take disciplinary
action against an accredited (licensed to provide certain services) railroad if
the railroad has failed to comply with the requirements of accreditation or has
permitted an unsafe practice or acted negligently. Disciplinary action which the
Secretary may take includes disqualifying the railroad from holding an
accreditation for a period specified by the Secretary, suspension of the
accreditation, early expiry of the accreditation and immediate or future
cancellation of the accreditation.

         The TRANSPORT ACT contains detailed provisions authorizing the
Secretary of the Department of the Infrastructure to carry out inspections and
giving inspectors powers to enter and inspect premises (including, testing



                                       12
<PAGE>

equipment and seizing property if appropriate). All actions must be reasonably
necessary to determine compliance with the Transport Act. A search warrant or
prior written consent of the occupier is necessary for entry into premises.

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

         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, 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 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 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, or ICA, a federal statute which applies to every acquisition of a
Canadian business or establishment of a new Canadian business by a non-Canadian.
Whether or not an acquisition is subject to review under the ICA is dependent on
the book value of the assets of the Canadian business being acquired.
Acquisitions that are subject to review must, before their completion, satisfy
the Minister responsible for administering the ICA that the acquisition is of
net benefit to Canada.

         Any contemplated acquisitions may also be subject to the provisions of
the Competition Act federal antitrust legislation of general application. The
Competition Act contains merger control provisions which apply to certain


                                       13
<PAGE>

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 121,000 miles of track in 2000. In addition to
large railroad operators, there were more than 550 short line and regional
railroads, which operated approximately 50,000 miles of track in 2000.

         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 2000, the Class I railroads had operating revenues of at
least $261.9 million, Class II railroads had revenues of $21.0 million to $261.8
million, and Class III railroads had revenues of less than $21.0 million (these
thresholds are adjusted annually for inflation).

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

                             2000 INDUSTRY OVERVIEW

<TABLE>
<CAPTION>

                      Number of                                (in billions)
Type of Railroad      Carriers          Miles Operated         2000 Revenues          % of Revenues
-----------------   --------------    -------------------    -------------------    ------------------
<S>                         <C>             <C>                   <C>                       <C>
Class I                     8               120,597               $ 33.1                    91.2%
Regional                   35                20,978                  1.7                     4.7
Local                     517                28,937                  1.5                     4.1
                       ------               -------               ------                  ------
  Total                   560               170,512               $ 36.3                   100.0%
                       ======               =======               ======                  ======
</TABLE>

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



                                       14
<PAGE>

ITEM 2. PROPERTIES

NORTH AMERICAN RAILROAD PROPERTIES

The following table sets forth information with respect to the North American
railroad properties that we owned as of March 22, 2002:

<TABLE>
<CAPTION>

---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
                             DATE OF        TRACK                                         PRINCIPAL
          RAILROAD           ACQUISITION    MILES      STRUCTURE         LOCATION         COMMODITIES
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
<S>                          <C>               <C>     <C>               <C>              <C>
Cape Breton & Central Nova   Feb 2000          245     Owned             Nova Scotia      Limestone, lumber, Grain
Scotia Railway                                                                            and scrap metals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Carolina Piedmont Railroad   Feb 2000          49      Owned             South Carolina   Chemicals, metal
                                                                                          products, clay and food
                                                                                          products
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Cascade and Columbia River   Sept 1996         130     Owned;            Washington       Lumber & wood products,
Railroad                                               Trackage rights                    minerals and agricultural
                                                                                          products
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Central Oregon & Pacific     Feb 2000          449     Owned; Leased;    Oregon,          Lumber & wood products,
Railroad                                               Trackage rights   California       paper and chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Central Railroad of Indiana  Feb 2000          81      Owned             Indiana, Ohio    Chemicals, minerals, clay
                                                                                          and food products
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Central Railroad of          Feb 2000          73      Leased;           Indiana          Farm and food products,
Indianapolis                                           Trackage                           chemicals, railroad
                                                       rights                             equipment and metals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Central Western              July 1999         21      Owned             Alberta          Agricultural products
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Connecticut Southern         Feb 2000          78      Owned;            Connecticut      Lumber & wood products,
                                                       Trackage                           paper products, chemicals
                                                       rights                             and transportation
                                                                                          equipment
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Dallas Consolidated         Feb 2000          294     Leased            Texas            Farm & food products,
(Dallas, Garland &                                                                        paper products, railroad
Northeastern Railroad and                                                                 equipment, chemicals and
Texas Northeastern Railroad)                                                              autos
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
E&N Railway                  Jan. 1999         61      Owned             British          Lumber, paper products,
                                               120     Leased            Columbia         minerals and chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Goderich-Exeter Railway      Feb 2000          159     Owned;            Ontario          Auto parts, farm
                                                       Leased                             products, chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Huron and Eastern Railway    March 1986        171     Owned;            Michigan         Agricultural products
                             May 1988                  leased;
                                                       trackage rights
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Indiana & Ohio Railway       Feb 2000          577     Owned;            Michigan,        Autos, railroad
                                                       Leased            Ohio, Indiana    equipment, agricultural
                                                                                          products, chemicals and
                                                                                          pulpboard
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Indiana Southern Railroad    Feb 2000          176     Owned;            Indiana          Coal, farm products,
                                                       Trackage rights                    chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
</TABLE>

                                       15

<PAGE>
<TABLE>
<CAPTION>

---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
                             DATE OF        TRACK                                         PRINCIPAL
          RAILROAD           ACQUISITION    MILES      STRUCTURE         LOCATION         COMMODITIES
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
<S>                          <C>               <C>     <C>               <C>              <C>
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Lakeland & Waterways         July 1999         120     Owned             Alberta          Forest products,
                                                                                          agricultural products,
                                                                                          petroleum coke and bridge
                                                                                          traffic
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Mackenzie Northern           July 1999         650     Owned             Alberta,         Fuel, forest products,
                                                                         Northwest        agricultural products and
                                                                         Territory        chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Michigan Consolidated        Feb 2000          118     Owned             Michigan         Agricultural products,
(Mid-Michigan Railroad,                                                                   auto parts and fertilizer
Grand Rapids Eastern
Railroad, and Michigan
Shore Railroad)
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Missouri & Northern          Feb 2000          527     Owned; leased;    Missouri,        Railroad equipment, coal,
Arkansas Railroad                                      trackage rights   Arkansas,        farm & food products,
                                                                         Kansas           minerals and roofing
                                                                                          material
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
New England Central          Feb 2000          343     Owned;            Vermont, New     Lumber & wood products,
Railroad                                               Leased            Hampshire,       paper products, plastic,
                                                                         Massachusetts,   coal, copper, bridge
                                                                         Connecticut      traffic
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Ottawa Valley Railway          July 1999       389     Leased            Ontario          Bridge traffic, railroad
                                                                                          equipment, acid, copper
                                                                                          concentrates and chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Otter Tail Valley Railroad   Oct. 1996         72      Owned             Minnesota        Coal, agricultural
                                                                                          products,
                                                                                          Fertilizer
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Saginaw Valley Railway       Jan. 1991         57      Owned             Michigan         Agricultural products,
                             Apr. 1998                                                    fertilizer and stone
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
San Diego & Imperial         Feb 2000          124     Trackage rights   California,      Petroleum, paper
Valley Railroad                                                          Mexico           products, non-metallic
                                                                                          ores, lumber
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
South Carolina Central       Feb 2000          97      Owned             South Carolina   Chemicals, metals, coal,
Railroad                                                                                  paper products, waste
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Southern Ontario Railway     July 1999         54      Leased            Ontario          Fuel, metals,
                                                                                          agricultural products
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Texas-New Mexico Railroad    Feb 2000          107     Owned             Texas, New       Non-metallic ores, waste,
                                                                         Mexico           petroleum
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Toledo, Peoria and Western   Sept 1999         298     Owned;            Indiana,         Intermodal, agricultural
Railroad                                               Trackage          Illinois, Iowa   products, fertilizers,
                                                       rights                             chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Ventura County Railroad      Aug. 1998         13      Leased            California       Automobiles, chemicals,
                                                                                          paper products
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Virginia Consolidated        Feb 2000          211     Leased;           Virginia,        Coal, lumber, limestone,
(Chesapeake & Albermarle                               Owned             North Carolina   aggregates
Railroad, North Carolina
& Virginia Railroad, and
Virginia Southern
Railroad)
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------

West Texas & Lubbock         Nov. 1995         104     Owned             Texas            Fertilizer, chemicals,
Railroad                                                                                  cotton products, scrap
                                                                                          iron, steel
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Total track miles                           5,968
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------

</TABLE>

                                       16
<PAGE>

The following properties were acquired in January 2002 in connection with our
acquisitions of StatesRail and ParkSierra:
<TABLE>
<CAPTION>

---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
                             DATE OF        TRACK                                         PRINCIPAL
          RAILROAD           ACQUISITION    MILES      STRUCTURE         LOCATION         COMMODITIES
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
<S>                           <C>             <C>      <C>               <C>              <C>
                             Jan. 2002         141     Owned,            Alabama,         Forest and paper products,
Alabama and Gulf             StatesRail                trackage          Florida          chemicals, food products
Coast Railway                                          rights
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Arizona & California         Jan. 2002         297     Owned, trackage   Arizona,         Cement, asphalt, forest
Railroad                     ParkSierra                rights            California       products and steel
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Arizona Eastern Railway      Jan. 2002         135     Owned             Arizona          Copper cathode and related
                             StatesRail                                                   materials
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
California Northern          Jan. 2002         255     Leased,           California       Oil/gas transmission pipe,
Railroad                     ParkSierra                trackage rights                    minerals, beer, food
                                                                                          products, grains
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Eastern Alabama Railway      Jan. 2002         25      Owned             Alabama          Interchange
                             StatesRail
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Kiamichi Railroad            Jan. 2002         230     Owned, trackage   Arkansas,        Steel, coal, aggregates,
                             StatesRail                rights            Oklahoma,        cement, food items, forest
                                                                         Texas            products, paper products
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Kyle Railroad                Jan. 2002         692     Owned             Colorado,        Agricultural products,
                             StatesRail                                  Kansas,          coal, asphalt, aggregates
                                                                         Nebraska
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Lahaina, Kaanapali &         Jan. 2002          6      Owned             Hawaii           Passengers
Pacific Railroad             StatesRail
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Puget Sound and Pacific      Jan. 2002         150     Owned, trackage   Washington       Forest products,
Railroad                     ParkSierra                rights                             chemicals, grains,
                                                                                          fertilizers, metal products
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
San Joaquin Valley Railroad  Jan. 2002         341     Owned, trackage   California       Consumer products, citrus
                             StatesRail                rights                             and food products, paper
                                                                                          products, metals and
                                                                                          petro-chemical products
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
San Pedro & Southwestern     Jan. 2002         78      Owned             Arizona          Copper, lime, nitrogen,
Railroad                     StatesRail                                                   fertilizer
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Total track miles                             2,350
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
</TABLE>


AUSTRALIAN RAILROAD PROPERTIES

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



                                       17
<PAGE>


CHILEAN RAILROAD PROPERTIES

         In Chile, Ferronor owns and/or operates approximately 1,500 miles of
track, extending from La Calera in the south, to its northern terminus at
Iquique. It also operates several east-west branch lines that link a number of
iron, copper and mineral salt mines and production facilities with several
Chilean Pacific port cities. Ferronor also serves Argentina and Bolivia through
traffic interchanged with the Belgrano Cargas Railroad and the Antofagasta
(Chile)-Bolivia Railway. In December 2001, Ferronor announced it will commence
operating the Potrerillos Railway, a customer-owned 57 mile railroad.

NORTH AMERICAN ROLLING STOCK

         The following tables summarize the current composition of our North
American railroad equipment fleet, which includes the equipment fleet of
ParkSierra and StatesRail, both acquired in January 2002.
<TABLE>
<CAPTION>

                                                                      FREIGHT CARS
         TYPE                                             OWNED           LEASED             TOTAL
         ----                                             -----       -------------          -----
<S>                                                        <C>             <C>              <C>
         Covered hopper cars                               147             2,298            2,445
         Open top hopper cars                               91               233              324
         Box cars                                          103             2,425            2,528
         Flat cars                                         216               805            1,021
         Tank cars                                           6                 0                6
         Gondolas                                            3               459              462
         Passenger car                                      17                 0               17
         Intermodal                                          0                 7                7
                                                          ----              ----            -----
                                                           583             6,227            6,810
                                                           ===             =====            =====

                                                                       LOCOMOTIVES
            HORSEPOWER/UNIT                               OWNED           LEASED             TOTAL
            ---------------                               -----        ------------          -----
            Over 2000                                      112               232              344
            1500 to 2000                                    74               56               130
            Under 1500                                       9               15                24
                                                          -----           ------             -----
                                                           195               303              498
                                                          ====             =====             ====
</TABLE>

INTERNATIONAL ROLLING STOCK

         The following tables summarize the current composition of our
Australian and Chilean railroad equipment fleet.
<TABLE>
<CAPTION>

                                                                       FREIGHT CARS
         TYPE                                             CHILE          AUSTRALIA           TOTAL
         ----                                             -----       --------------         -----
<S>                                                       <C>              <C>              <C>
         Covered hopper cars                                --             1,110            1,110
         Open top hopper cars                              223               185              408
         Box cars                                          140               205              345
         Intermodal containers                             500               694            1,194
         Tank cars                                          30               311              341
         Flat cars                                         136               139              275
         Gondolas                                           79                --               79
                                                        ------            ------           ------
                                                         1,108             2,644            3,752
                                                        ======            ======           ======
</TABLE>

                                       18
<PAGE>
<TABLE>
<CAPTION>

                                                                       LOCOMOTIVES
            HORSEPOWER/UNIT                               CHILE          AUSTRALIA           TOTAL
            ---------------                               -----        ------------          -----
<S>              <C>                                       <C>              <C>                <C>
            Over 2000                                      ---              58                 58
            1500 to 2000                                   ---               9                  9
            Under 1500                                      49              39                 88
                                                           ---            ------             ----
                                                            49             106                155
                                                           ===            ======              ===
</TABLE>

           We own all of our international equipment fleet.

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

ADMINISTRATIVE OFFICES AND OTHER

         We own a 59,500 square foot office building, located in Boca Raton,
Florida, where our executive offices are located. Of this space, approximately
12,600 square feet are leased to third parties. Our North American railroad
headquarters, located in San Antonio, Texas, leases approximately 24,000 square
feet of office space for approximately $547,000 annually. The lease expires
December 31, 2005.

         Freight Australia's administrative office is in Melbourne, Australia.
Freight Australia leases approximately 20,000 square feet of space from the
Victorian Government for $181,600 annually. The lease expires May 31, 2004.

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

         We also own a building totaling approximately 45,000 square feet in
Quebec, Canada and own a terminal in Ontario, Canada, which includes an office
building and 5 acres of land.

ITEM 3. LEGAL PROCEEDINGS

In 2000, certain parties filed property damage claims totaling approximately
$32.5 million against RaiLink Ltd. And RaiLink Canada Ltd., wholly-owned
subsidiaries of RailAmerica, and others in connection with fires that allegedly
occurred in 1998. The Company intends to vigorously defend these claims, and has
insurance coverage of up to approximately $13.0 million to cover these claims.
The Company's insurer has reserved $9.8 million for these matters. A loss, if
any, in excess of our insurance policy coverage may adversely affect the
Company's cash flow and financial condition.



                                       19
<PAGE>


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

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 2001.

PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

<TABLE>
<CAPTION>


         2000                                          High Sales Price Price         Low Sales Price
         -----------------------------------------     -------------------------- --- ---------------------
<S>                                                       <C>                          <C>
         First Quarter                                    $      9.063                 $     5.750
         Second Quarter                                          6.938                       4.625
         Third Quarter                                           7.875                       5.750
         Fourth Quarter                                          8.000                       5.688
         -----------------------------------------     -------------------------- --- ---------------------
         2001                                          High Sales Price Price         Low Sales Price
         -----------------------------------------     -------------------------- --- ---------------------
         First Quarter                                    $     10.250                 $     7.500
         Second Quarter                                         13.750                       9.563
         Third Quarter                                          14.250                      10.050
         Fourth Quarter                                         15.250                       9.750
         -----------------------------------------     -------------------------- --- ---------------------
         2002                                          High Sales Price Price         Low Sales Price
         -----------------------------------------     -------------------------- --- ---------------------
         First Quarter (through March 22)                 $     14.64                  $     9.23
         -----------------------------------------     -------------------------- --- ---------------------

</TABLE>



                                       20
<PAGE>


         As of March 22, 2002, there were 603 holders of record of the common
stock. We have never declared or paid a dividend on our common stock. Certain of
our financial agreements limit our ability to pay dividends.

RECENT SALES OF UNREGISTERED SECURITIES

         In December 2001, we closed a private placement sale of approximately
4.3 million shares of our common stock for $12.50 per share, resulting in gross
proceeds of approximately $54 million. Stonegate Securities, Inc. acted as
placement agent to assist in offering the shares of common stock. The placement
agent received approximately $3 million in commissions and an 18-month warrant
to purchase 100,000 shares of our common stock for $13.75 per share. We believe
these transactions are exempt from registration pursuant to Section 4(2) of the
Securities Act and Regulation D promulgated thereunder.

         ITEM 6.  SELECTED FINANCIAL DATA

         The results of our continuing operations for the years ended December
31, 2001, 2000 and 1999 include the results of certain railroads from the dates
they were acquired as follows: RailTex, effective February 1, 2000, Freight
Australia, effective April 30, 1999, RaiLink, effective August 1, 1999, TPW,
effective September 1, 1999, and Ferronor, effective February 1, 1997. The
income statement data for the years ended December 31, 2001, 2000 and 1999 and
the balance sheet data at December 31, 2001 and 2000 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, 1998 and 1997 and the balance sheet data as of December 31,
1999, 1998 and 1997 are derived from our audited financial statements not
included (in thousands, except operating and per share data).



                                       21
<PAGE>

<TABLE>
<CAPTION>

                                                                        AS OF AND FOR THE
                                                                      YEAR ENDED DECEMBER 31,
                                              -------------------------------------------------------------------
                                                 2001            2000          1999          1998         1997
                                              ----------      ----------      --------      --------      -------
<S>                                           <C>             <C>             <C>           <C>           <C>
INCOME STATEMENT DATA
   Operating revenue                          $  369,631      $  357,936      $129,818      $ 39,136      $24,496
   Operating income                               74,740          70,034        25,279         5,781        3,365
Income from continuing operations                 17,274           9,608         6,025           113          288
Basic earnings per common share from
   continuing operations                      $     0.79      $     0.50      $   0.45      $   0.01      $  0.02
Diluted earnings per common share from
   continuing operations                      $     0.72      $     0.49      $   0.43      $   0.01      $  0.02
Weighted average common shares - Basic

                                                  21,510          18,040        11,090         9,553        8,304
Weighted average common shares - Diluted

                                                  25,350          18,267        11,665         9,778        8,587

BALANCE SHEET DATA
Total assets                                  $  891,168      $  839,703      $443,929      $130,964      $95,141
Long-term obligations, including
  current maturities                             301,687         358,856       162,827        66,327       47,603

Subordinated debt                                144,988         141,411       122,449            --        2,212
Redeemable convertible preferred stock
                                                      --           6,613         8,830            --           --
Stockholders' equity                             220,959         123,434        69,467        34,760       26,814
OPERATING DATA

Freight carloads                               1,214,554       1,125,897       394,177       117,535       69,140
Track mileage                                     11,000          11,000         8,400         2,400        2,330
Number of full time employees                      2,180           2,230         1,707           652          542



</TABLE>

                                       22
<PAGE>





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

WE HAVE SUBSTANTIAL DEBT AND DEBT SERVICE REQUIREMENTS WHICH COULD HAVE ADVERSE
CONSEQUENCES ON OUR BUSINESS.

         As of December 31, 2001, we had approximately $446.7 million of total
indebtedness outstanding and we borrowed an additional $50 million in January
2002 in connection with the ParkSierra and StatesRail acquisitions. Our interest
expense was $53.5 million and $56.0 million in 2001 and 2000, respectively. The
degree to which we are leveraged could have important consequences, including
the following:

         o  our ability to obtain additional financing in the future for working
            capital, capital expenditures, potential acquisition opportunities,
            general corporate purposes and other purposes may be limited or
            financing may not be available on terms favorable to us or at all;

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

         o  we may be more vulnerable to economic downturns, may be limited in
            our ability to withstand competitive pressures and may have reduced
            flexibility in responding to changing business, regulatory and
            economic conditions; and

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

DESPITE CURRENT INDEBTEDNESS LEVELS, WE MAY STILL BE ABLE TO INCUR SUBSTANTIALLY
MORE DEBT, WHICH WILL INTENSIFY THE RISKS DISCUSSED ABOVE.

         While as of December 31, 2001, we had no borrowings under our revolving
credit facility, this facility allows us to borrow a total of $50.0 million. Our
indebtedness may increase if we make additional acquisitions, subject to the
limitations in the indenture governing our senior subordinated notes and our
senior credit facilities. If new debt is added to our current debt levels, the
related risks that we face could intensify.

WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE
REQUIREMENTS.

         We cannot assure you that our future cash flows will be sufficient to
meet our debt obligations and commitments. Any insufficiency would have a
negative impact on our business. Our ability to generate cash flow from
operations sufficient to make scheduled payments on our debt as they become due
will depend on our future performance and our ability to implement our business
strategy successfully. Our performance will be affected by prevailing economic
conditions and financial, business, regulatory and other factors. Most of these
factors are beyond our control. Failure to pay our interest expense or make our
principal payments would result in a default. A default, if not waived, could



                                       23
<PAGE>

result in acceleration of our indebtedness, in which case the debt would become
immediately due and payable. If this occurs, we may be forced to reduce or delay
capital expenditures and implementation of our business strategy, sell assets,
obtain additional equity capital or refinance or restructure all or a portion of
our outstanding debt. In the event that we are unable to do so, we may be left
without sufficient liquidity and we may not be able to repay our debt and the
lenders will be able to foreclose on our assets. Even if new financing is
available, it may not be on terms that are acceptable to us.

OUR CREDIT FACILITIES AND INDENTURE CONTAIN COVENANTS THAT SIGNIFICANTLY
RESTRICT OUR OPERATIONS.

         Our credit facilities and the indenture governing our senior
subordinated notes contain numerous covenants imposing significant financial and
operating restrictions on our business. These covenants place restrictions on
our ability to, among other things:

         o  incur more debt;

         o  pay dividends, redeem or repurchase our 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 our assets; and

         o  extend credit.

         In addition, our credit facilities also contain a number of financial
covenants that require us to meet a number of financial ratios and tests. Our
ability to meet these and other provisions of our credit facilities and the
indenture can be affected by changes in economic or business conditions or other
events beyond our control. Our failure to comply with the obligations in our
credit facilities and indenture could result in an event of default under the
credit facilities or the indenture, which, if not cured or waived, could permit
acceleration of the indebtedness or our other indebtedness which could have a
material adverse effect on us.

OUR INABILITY TO SUCCESSFULLY INTEGRATE THE RAILROADS WE ACQUIRE COULD HAVE
ADVERSE CONSEQUENCES ON OUR BUSINESS.

         We have experienced significant growth through acquisitions and intend
to continue to maintain an acquisition program. We have acquired 65 railroads
since we commenced operations in 1992. Acquisitions result in greater



                                       24
<PAGE>

administrative burdens and operating costs and, to the extent financed with
debt, additional interest costs. We cannot assure you that we will be able to
manage or integrate the acquired companies or businesses successfully. 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 as a
result of the following factors, among others:

         o  loss of key employees or customers;

         o  possible inconsistencies in standards, controls, procedures and
            policies among the combined companies and the need to implement
            company-wide financial, accounting, information and other systems;

         o  failure to maintain the quality of services that the companies have
            historically provided;

         o  the need to coordinate geographically diverse organizations; and

         o  the diversion of management's attention from our day-to-day business
            as a result of the need to deal with any disruptions and
            difficulties and the need to add management resources to do so.

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

WE EXPECT TO CONTINUE TO ACQUIRE OTHER BUSINESSES, WHICH MAY ADVERSELY AFFECT
OUR OPERATING RESULTS, FINANCIAL CONDITION AND EXISTING BUSINESS.

         We plan to continue to acquire additional railroad properties. The
success of our acquisition program will depend on, among other things:

         o  the availability of suitable candidates;

         o  competition from other companies for the purchase of suitable
            candidates;

         o  our ability to value those candidates accurately and negotiate
            favorable terms for those acquisitions;

         o  the availability of funds to finance acquisitions;

         o  our ability to fund acquisitions in accordance with the restrictions
            contained in our senior credit facilities and the indenture
            governing our senior subordinated notes; and



                                       25
<PAGE>

         o  the availability of management resources to oversee the integration
            and operation of the acquired businesses.

         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, among other things:

         o  result in substantial dilution of the percentage ownership of our
            stockholders at the time of issuance;

         o  result in the substantial dilution of our earnings per share;

         o  adversely affect the prevailing market price for our common stock;
            and

         o  result in increased indebtedness, which could negatively affect our
            liquidity and operating flexibility.

AN INCREASED NUMBER OF SHARES OF OUR COMMON STOCK IN THE MARKET MAY ADVERSELY
IMPACT THE MARKET PRICE OF OUR COMMON STOCK.

         Sales of large amounts of our common stock in the public market could
adversely affect the prevailing market price of the common stock, even if our
business is doing well. These potential sales could also impair our ability to
raise additional capital through the sale of equity securities. Pursuant to the
ParkSierra acquisition, approximately 1.8 million shares of our common stock
were issued to ParkSierra shareholders. All of the shares of our common stock
issued in connection with the ParkSierra merger are either freely tradeable
without restriction or eligible for resale subject to the requirements of Rule
145 under the Securities Act of 1933. In addition, approximately 1.7 million
shares of our common stock were issued upon completion of the acquisition of
StatesRail. All of the shares of our common stock issued in connection with the
StatesRail merger are eligible for resale pursuant to a resale registration
statement. We now have approximately 32.3 million shares of our common stock
outstanding.

WE MAY NOT REALIZE THE ANTICIPATED COST SAVINGS AND OTHER BENEFITS FROM OUR
ACQUISITIONS.

         Even if we are able to integrate the operations of acquired businesses
into our operations, we may not realize the full benefits of the cost savings,
revenue enhancements or other benefits that were projected. The potential cost
savings associated with an acquisition are based on analyses completed by our
employees and consultants. These analyses necessarily involve assumptions as to
future events, including general business and industry conditions, costs to
operate our business and competitive factors, many of which are beyond our
control and may not materialize. While we believe these analyses and their
underlying assumptions to be reasonable, they are estimates which are difficult



                                       26
<PAGE>

to predict and necessarily speculative in nature. If we achieve the expected
benefits, they may not be achieved within the anticipated time frame. Also, the
cost savings and other synergies from these acquisitions may be offset by costs
incurred in integrating the companies, increases in other expenses, operating
losses or problems in the business unrelated to these acquisitions.

WE FACE COMPETITION FROM OTHER TYPES OF TRANSPORTATION AND FROM OTHER RAIL
OPERATORS.

         We compete directly with other modes of transportation, including motor
carriers and, to a lesser extent, ships and barges. Competition is based
primarily upon the rate charged and the transit time required, as well as the
quality and reliability of the service provided. While we must build or acquire
and maintain our rail system, trucks are able to use public roadways. Any future
improvements or expenditures materially increasing the quality of these
alternative modes of transportation in the locations in which we operate, or
legislation granting materially greater latitude for motor carriers with respect
to size, weight limitations, or other operating restrictions could have a
material adverse effect on our results of operations and financial condition.

         In addition, we compete for domestic acquisition opportunities with
other short line operators and for foreign acquisitions with other U.S. and
foreign entities. Some of these competitors have significantly greater resources
than we do and also may possess greater local market knowledge.

WE ARE SUBJECT TO THE RISKS OF DOING BUSINESS IN FOREIGN COUNTRIES.

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

         o  adverse changes in the economy of those countries;

         o  adverse effects of currency exchange controls;

         o  restrictions on the withdrawal of foreign investment and earnings;

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

         o  the potential instability of foreign governments.

         Our operations in foreign countries are also subject to economic
uncertainties, including among others, risk of renegotiation or modification of
existing agreements or arrangements with governmental authorities, exportation
and transportation tariffs, foreign exchange restrictions and changes in
taxation structure.

BECAUSE SOME OF OUR SIGNIFICANT SUBSIDIARIES TRANSACT BUSINESS IN FOREIGN
CURRENCIES, FUTURE EXCHANGE RATE FLUCTUATIONS MAY ADVERSELY AFFECT OUR RESULTS
OF OPERATIONS.

         Some of our significant subsidiaries transact business in foreign
currencies, including the Australian dollar, the Canadian dollar and the Chilean
peso. Changes in the relation of these and other currencies to the U.S. dollar



                                       27
<PAGE>

could affect our revenues, result in exchange losses and result in the writedown
of our investments in those foreign countries. While Freight Australia's
revenues increased in terms of Australian dollars, in U.S. dollars Freight
Australia's revenues decreased to $101.4 million for the year ended December 31,
2001 from $102.2 million for the year ended December 31, 2000. During this
period the Australian dollar declined approximately 11%. Furthermore, Freight
Australia's operating income was reduced for the year ended December 31, 2001 by
$2.7 million due to the decline in the Australian dollar exchange rate during
the year. The impact of future exchange rate fluctuations on our results of
operations and net worth cannot be accurately predicted. Historically, we have
not engaged in hedging transactions with respect to foreign currency exchange
rates. However, if circumstances change, we may seek to limit our exposure to
the risk of currency fluctuations by engaging in hedging or other transactions.
We cannot assure you that we will successfully manage our exposure to currency
fluctuations.

WE ARE SUBJECT TO SIGNIFICANT GOVERNMENTAL REGULATION OF OUR RAILROAD
OPERATIONS. THE FAILURE TO COMPLY WITH GOVERNMENTAL REGULATION COULD HAVE A
MATERIAL ADVERSE EFFECT ON US.

         We are 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. Governments may change
the legislative framework within which we operate without providing us with any
recourse for any adverse effects that the change may have on our business. Also,
some of the regulations require us to obtain and maintain various licenses,
permits and other authorizations and we cannot assure you that we will continue
to be able to do so.

WE COULD INCUR SIGNIFICANT COSTS FOR VIOLATIONS OF APPLICABLE ENVIRONMENTAL LAWS
AND REGULATIONS.

         Our railroad and real estate ownership are subject to extensive
foreign, federal, state and local environmental laws and regulations concerning,
among other things, storm water and waste water discharges, emissions to the
air, discharges to waters, and the handling, storage, transportation and
disposal of waste and other materials and cleanup of hazardous materials or
petroleum releases. Environmental liability can extend to previously owned or
operated properties, leased properties and properties owned by third parties, as
well as to properties currently owned and used by us. Environmental liabilities
may also arise from claims asserted by adjacent landowners or other third
parties in toxic tort litigation. We may be subject to allegations or findings
to the effect that we have violated, or are strictly liable under these laws or
regulations. We could incur significant costs as a result. We may be required to
incur significant expenses to investigate and remediate environmental
contamination. In addition, some transactions, including acquisitions, may
subject us to various requirements to investigate and remediate contamination at
other properties.



                                       28
<PAGE>

BECAUSE WE DEPEND ON CLASS I RAILROADS FOR OUR NORTH AMERICAN OPERATIONS, OUR
BUSINESS AND FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED IF OUR RELATIONSHIPS
WITH CLASS I CARRIERS DETERIORATE.

         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. A decision by any of these Class I
carriers to discontinue transporting commodities or to use alternate modes of
transportation, such as motor carriers, could have a material adverse effect on
our business and results of operations. Our ability to provide rail service to
our customers in North America depends in large part upon our ability to
maintain cooperative relationships with Class I carriers with respect to, among
other matters, freight rates, car supply, reciprocal switching, interchange and
trackage rights. A deterioration in the operations of or service provided by
those interchange partners, or in our relationship with our interchange
partners, would adversely affect our business. In addition, much of the freight
transported by our North American railroads moves on railcars supplied by Class
I carriers. If the number of railcars supplied by Class I carriers is
insufficient, we might not be able to obtain replacement railcars on favorable
terms and shippers may seek alternate forms of transportation. A decision by one
of the six Class I carriers to merge with another Class I carrier could have a
material adverse effect on the relationships between us and the newly merged
Class I carrier or the other Class I carriers.

         Portions of our North American rail properties are operated under
leases, operating agreements or trackage rights agreements with Class I
carriers. Failure of our railroads to comply with these leases and agreements in
all material respects could result in the loss of operating rights with respect
to those rail properties, which would adversely affect our results of operations
and financial condition. Class I carriers also have traditionally been
significant sources of business for us, as well as sources of potential
acquisition candidates as they continue to divest themselves of branch lines to
smaller rail operators. Because we depend on Class I carriers for our North
American operations, our business and financial results may be adversely
affected if our relationships with those carriers deteriorate.

SOME OF OUR EMPLOYEES BELONG TO LABOR UNIONS AND STRIKES OR WORK STOPPAGES COULD
ADVERSELY AFFECT OUR OPERATIONS.

         We are a party to collective bargaining agreements with various labor
unions in the United States, Australia, Chile and Canada. Some of these
agreements expire within the next two years. Under those agreements we currently
employ approximately 475 full-time employees. 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 the
unionized workers were to engage in a strike, work stoppage or other slowdown,
or other employees were to become unionized or the terms and conditions in
future labor agreements were renegotiated, we could experience a significant
disruption of our operations and higher ongoing labor costs.



                                       29
<PAGE>

LOSS OF KEY PERSONNEL COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.

         Our operations and prospects depend in large part on the performance of
our senior management team. We cannot be sure that we would be able to find
qualified replacements for any of these individuals if their services were no
longer available. The loss of the services of one or more members of our senior
management team, particularly Gary O. Marino, our chairman, president and chief
executive officer, could have a material adverse effect on our business,
financial condition and results of operations.

WE MAY FACE LIABILITY FOR CASUALTY LOSSES WHICH ARE NOT COVERED BY INSURANCE.

         We have obtained insurance coverage for losses arising from personal
injury and for property damage in the event of derailments or other accidents or
occurrences. However, losses or other liabilities may arise that are not covered
by insurance. In addition, under catastrophic circumstances our liability could
exceed our insurance limits. Insurance is available from a limited number of
insurers and may not continue to be available or, if available, may not be
obtainable on terms acceptable to us.

RISING FUEL COSTS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.

         Fuel costs constitute a significant portion of our railroad
transportation expenses. Fuel costs were approximately 8.1% of our historical
revenues for the year ended December 31, 2001, 8.7% for the year ended December
31, 2000 and 8.1% for the year ended December 31, 1999. Fuel prices and supplies
are influenced significantly by international political and economic
circumstances. If a fuel supply shortage were to arise from OPEC production
curtailments, a disruption of oil imports or otherwise, higher fuel prices and
any price increases would materially affect our operating results.

WE MAY BE ADVERSELY AFFECTED BY CHANGES IN GENERAL ECONOMIC CONDITIONS.

         Our operations may be adversely affected by changes in the economic
conditions of the industries and geographic areas that produce and consume
freight that we transport. Many of the goods and commodities we carry experience
cyclical demand. Our results of operations can be expected to reflect this
cyclicality because of the significant fixed costs inherent in railroad
operations. Our revenues may be affected by prevailing economic conditions and,
if an economic slowdown or recession occurs in key markets, the volume of rail
shipments we carry is likely to be reduced. For example, the recent economic
slowdown has had an adverse effect on our revenues, particularly in the
automobile, lumber, and chemical markets. Significant reductions in the volume
of our rail shipments could have a material adverse effect on our business,
financial condition, and results of operations.



                                       30
<PAGE>

ADDITIONAL RISKS RELATING TO OUR AUSTRALIAN OPERATIONS

WE MAY INCUR SIGNIFICANT EXPENSES IN CONNECTION WITH AUSTRALIA'S OPEN ACCESS
REGIME.

         In Australia, where a significant portion of our operations are
located, the applicable legislative framework enables third party rail operators
to gain access to the railway infrastructure on which we operate for access
fees. As part of this regime, we have executed and may be required to execute
access agreements governing access to the railway infrastructure. We may be
required to make significant expenditures and to incur significant expenses in
order to comply with the applicable regulatory framework and these access
agreements. Additionally, we may lose customers or be forced to reduce rates to
compete with third party rail operators.

WE MAY BE REQUIRED TO PAY PENALTY FEES UNDER SOME CIRCUMSTANCES TO A THIRD PARTY
RAIL OPERATOR THAT HAS ACCESS TO THE AUSTRALIAN RAILWAYS.

         Our access agreement with V/Line Passenger in Australia contains
penalty provisions if trains using the railway infrastructure are delayed, early
or cancelled under a variety of circumstances resulting from our actions. The
formulas for calculation of the penalty are complex. The penalties apply unless
the penalty event is primarily due to acts of God, which include, but are not
limited to, events such as natural disasters, war, changes in applicable laws
and power shortages. We cannot assure you that we will not incur significant
penalties under the Australian access agreement.

OUR LONG-TERM LEASE OF THE RAILWAY INFRASTRUCTURE IN AUSTRALIA MAY BE TERMINATED
FOLLOWING SPECIFIED DEFAULTS.

         The director of public transport for the State of Victoria, Australia
may terminate our long-term railway infrastructure lease in specified
circumstances, including: (1) if we fail to maintain all necessary
accreditations; (2) if we fail to maintain railway infrastructure; and (3) if we
fail to maintain insurance. The termination of the lease would have a material
adverse effect on our financial condition, results of operations and business.

TERMINATION OF OUR AGREEMENT WITH AWB, LIMITED WOULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

         Our Australian subsidiary generates approximately 19% of its total
revenues under a five-year arrangement with AWB, Limited, the sole exporter of
Australian wheat. If we fail to perform our obligations under our agreement with
AWB, Limited, they may terminate the agreement by giving us one month's notice
in writing. Before giving us this one month's notice, AWB, Limited must give us
the opportunity to remedy the failure by giving us six weeks notice of our
failure to perform. In addition to terminating the agreement for our failure to
perform, AWB, Limited may terminate the agreement if we cease to exist in our
present form as a result of a reconstruction or merger and a conflict of
interest arises as a result. If our agreement is terminated, for any reason, our
financial condition and results of operations would be adversely affected.



                                       31
<PAGE>

FREIGHT AUSTRALIA'S BUSINESS MAY BE ADVERSELY AFFECTED BY NEGATIVE CONDITIONS IN
THE AGRICULTURAL INDUSTRY BECAUSE A SUBSTANTIAL PORTION OF OUR RAILROAD TRAFFIC
CONSISTS OF AGRICULTURAL COMMODITIES.

         Factors that negatively affect the agricultural industry in the regions
in which Freight Australia operates could have a material adverse effect on our
results of operations and financial condition. These factors include weather
conditions, export and domestic demand and total world supply, and fluctuations
in agricultural prices. For the year ended December 31, 2000 approximately 45%
of Freight Australia's revenues and for the year ended December 31, 2001
approximately 43% of Freight Australia's revenues were derived from the
agricultural industry. As a result, Freight Australia will continue to be
affected by unfavorable conditions affecting the agricultural industry in
general and particularly in the areas served by Freight Australia.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

         We are the world's largest short line and regional freight railroad
operator. We own 49 railroads operating approximately 12,900 route miles in the
United States, Canada, Australia, Chile and Argentina. In North America, we
operate in 27 states, five Canadian provinces and the Northwest Territories.

         Our principal business consists of the operations of North American
short line freight railroads and international regional railroads. During 2001,
67% of our revenues were derived from railroad operations in North America while
33% of revenues were derived from our international railroad operations based in
Australia and Chile. During 2001, Australia and Chile generated 27% and 6%,
respectively, of our total revenues.

         Our North American rail group operates 46 short line railroads,
including 11 railroads purchased in January 2002 (see discussion of the
ParkSierra and StatesRail acquisitions below). Each of these railroads operates
independently with their own customer base. While these railroads are spread out
geographically and carry diverse commodities, bridge traffic, coal and lumber
and forest products accounted for 23%, 11% and 10% of our carloads in North
America during 2001. As a percentage of revenues, however, which is impacted by
several factors including the length of the haul, these carloads generated 10%,
17% and 11% of our North American freight revenues. Bridge traffic, which
neither originates or terminates on our line, generally has a lower rate per
carload. For 2002, we expect bridge traffic to comprise a smaller percentage of
both our carloads and revenues as neither ParkSierra's nor StatesRail's
railroads generate significant bridge traffic. Conversely, petroleum products,
which generated less than 5% of carloads and revenues in 2001, are expected to
increase as nearly 20% of ParkSierra's and StatesRail's carloads are petroleum
products.

         Freight Australia, our Australian regional railroad, has two primary
sources of revenues. The first is freight revenues, which comprises 82% of
Freight Australia's total revenues. Freight Australia hauls various commodities
over its line including agricultural products, cement, gypsum, stone and logs.
Agricultural products comprised 46% of Freight Australia's total revenues in
2001. The level of revenues from agricultural products is dependent on the grain
harvest in the State of Victoria. The grain harvest in 2001 was very strong and
the 2002 harvest is expected to be good as well. The second source of revenue is



                                       32
<PAGE>
access fees paid to us by other passenger or freight operators for the right to
operate over our railroad. These amounts accounted for 18% of Freight
Australia's revenues in 2001.

         Ferronor, our 55% owned Chilean railroad, has two customers that
comprised approximately 83% of its revenues in 2001. Each of these customers
operate under take-or-pay arrangements.

         In addition to our railroad operations, we have historically generated
gains through asset sales. Through our various North American railroads, we own
8,604 miles of track and 63,400 acres of land. We continually review our
portfolio of railroads and look to sell entire railroads, portions of railroads
or underutilized real estate where holding such assets does not meet our
internal criteria. During 2001, we generated gains of $6.4 million. These gains
are included in operating income in our consolidated statements of income.

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

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

         In February 2000, we acquired RailTex, which owned and operated twenty-
five railroads with over 4,100 miles of track. Total consideration for the
acquisition was $294 million, consisting of $128 million in cash, assumption of
$105.3 million in debt and 6.6 million shares of our common stock valued at
$60.9 million.

         In December 2000, we sold our specialty truck trailer manufacturing
operations for $38.5 million. This segment is presented as a discontinued
operation for each period presented.

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

         The critical financial statement accounts that are subject to
significant estimation are reserves for litigation, casualty and environmental
matters and deferred income taxes. In accordance with SFAS No. 5, an accrual for
a loss contingency is established if information available prior to the issuance
of the financial statements indicates that it is probable that a liability has
been incurred or an asset has been impaired. These estimates have been developed
in consultation with outside counsel handling our defense in these matters and
are based upon an analysis of potential results, assuming a combination of
litigation and settlement strategies. Subsequent changes to those estimates are
reflected in our statement of operations in the period of the change.

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

         In addition, Property, plant and equipment comprised 83% of our total
assets as of December 31, 2001. These assets are stated at cost, less
accumulated depreciation. 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 continued appropriateness. 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 effect our evaluations.


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

RESULTS OF OPERATIONS

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

         On a consolidated basis, we recorded net income for 2001 of $17.0
million, or $0.71 per diluted share, compared with net income for 2000 of $11.7
million, or $0.60 per diluted share. Operating income for 2001 was $74.7 million
compared with operating income for 2000 of $70.0 million. The increase in
operating income is primarily due to the inclusion of the RailTex properties for
twelve months in 2001 compared to eleven months in 2000, operating synergies
realized subsequent to the integration of the RailTex properties and "same
railroad" revenue growth of 4% partially offset by the sale of five railroads in

                                       33
<PAGE>

the third and fourth quarters of 2000, the devaluation of the Canadian and
Australian currencies in 2001 compared to 2000 and $4.8 million less in net
gains on asset sales in 2001 as compared to 2000.

NORTH AMERICAN RAILROAD OPERATIONS

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

NAME OF RAILROAD                                        DATE OF ACQUISITION
E&N Railway                                             January 1999
RaiLink properties (6 railroads)                        August 1999
Toledo, Peoria and Western Railroad                     September 1999
RailTex properties (25 railroads)                       February 2000

         We disposed of certain railroads as follows:

NAME OF RAILROAD                                        DATE OF DISPOSITION
Minnesota Northern Railroad                             August 2000
St. Croix Valley Railroad                               August 2000
South Central Tennessee Railroad                        December 2000
Pittsburgh Industrial Railroad                          December 2000
Ontario L'Orignal Railway                               December 2000
Dakota Rail, Inc.                                       December 2001

         As a result, the results of operations for the years ended December 31,
2001, 2000 and 1999 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.

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

                                             YEARS ENDED DECEMBER 31,
                                       -----------------------------------
                                         2001          2000         1999
                                       --------      --------      -------

Total operating revenue                $245,426      $231,445     $ 44,924
                                       --------      --------     --------

Operating expenses:

    Maintenance of way                   23,477        25,448        5,920

    Maintenance of equipment             20,984        13,101        2,068

    Transportation                       69,932        70,958       12,232

    Equipment rental                     15,136        15,842        4,512

    General and administrative           39,962        41,062        6,496

    Depreciation and amortization        15,915        16,430        3,594
                                       --------      --------     --------

Total operating expenses                185,406       182,841       34,822
                                       --------      --------     --------

Operating income                       $ 60,020      $ 48,604     $ 10,102
                                       ========      ========     ========



                                       34
<PAGE>


REVENUE TABLE

The following table presents our North American carloads and operating revenue
by commodity for the years ended December 31, 2001, 2000 and 1999.

<TABLE>
<CAPTION>

                                                                               CARLOADS
                                                        -------------------------------------------------
       COMMODITY GROUP                                             2001            2000             1999
       ---------------                                  ---------------- --------------- ----------------
<S>                                                              <C>             <C>              <C>
       Agricultural & Farm Products                              80,834          76,593           28,140
       Autos                                                     45,923          47,900            3,415
       Chemicals                                                 66,863          66,827            8,522
       Coal                                                      95,433          71,945            5,504
       Food Products                                             40,578          39,313            9,736
       Intermodal                                                38,310          30,134            5,033
       Lumber & Forest Products                                  88,162          90,102           14,681
       Metals                                                    52,130          61,049           10,956
       Minerals                                                  19,423          16,393              901
       Metallic/Non-metallic Ores                                45,658          36,780            3,165
       Paper Products                                            64,113          59,124           15,310
       Petroleum Products                                        28,552          26,840            5,678
       Railroad Equipment/Bridge Traffic                        200,565         192,323           37,023
       Other                                                     19,035          24,128            6,927
                                                        ---------------- --------------- ----------------
       Total                                                    885,579         839,451          154,991
                                                        ================ =============== ================
</TABLE>


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

       OPERATING REVENUES. Operating revenue increased by $14.0 million, or 6%,
to $245.4 million for the year ended December 31, 2001 from $231.4 million for
the year ended December 31, 2000 while carloads increased 5% to 885,579 in 2001
from 839,451 in 2000. The increases in revenues and carloads was primarily due
to the inclusion of the RailTex properties for twelve months in 2001 compared to
eleven months in 2000, partially offset by the sale of certain railroads in 2000
and the 4% decline in the Canadian dollar in 2001 compared to 2000. On a "same
railroad" basis, including the RailTex properties on a pro forma basis from
January 2000 and excluding the sold railroads, carloads and revenues both
increased 4% in 2001. Increased coal shipments were primarily responsible for
the increase. Transportation revenue per carload increased to $241 in 2001 from
$239 in 2000.

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

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




                                       35
<PAGE>

changes in environmental regulations. Excluding this change, maintenance of way
expenses were flat compared to 2000. Maintenance of equipment expense increased
$7.9 million, or 60%, to $21.0 million in 2001 from $13.1 million in 2000. This
increase is primarily due to our sale-leaseback transactions which we
consummated in December 2000 and June 2001. Additional rent from these two
transactions was approximately $4.0 million in 2001. In addition, in connection
with our locomotive fleet rationalization and upgrade program, we leased
additional locomotives in 2001 to replace existing older less powerful
locomotives. Transportation expenses decreased $1.1 million, or 1%, to $69.9
million in 2001 from $71.0 million in 2000. The decrease in transportation
expenses is primarily due to lower fuel costs in 2001 as our average price per
gallon was $1.00 in 2001 compared to $1.07 in 2000, resulting in a $1.5 million
savings. In addition, our fleet rationalization and upgrade program resulted in
more efficient locomotives and lower operating costs. Other changes in operating
costs were not significant.

COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999

        OPERATING REVENUES. Operating revenue increased by $186.5 million, or
415%, to $231.4 million for the year ended December 31, 2000 from $44.9 million
for the year ended December 31, 1999. North American carloads totaled 839,451
for the year ended December 31, 2000, an increase of 684,460 compared to 154,991
carloads in the prior year. These increases were primarily due to the
acquisitions of TPW, RaiLink and RailTex  which on a combined basis contributed
$206.9 million in revenue and 782,614 carloads for the year ended December 31,
2000 compared to $18.1 million in revenue and 94,309 carloads for the year ended
December 31, 1999. Transportation revenue per carload was $239 in 2000 versus
$238 for 1999.

           OPERATING EXPENSES. Total operating expenses increased by $148.0
million, or 425%, to $182.8 million for the year ended December 31, 2000 from
$34.8 million for the year ended December 31, 1999. The increase was due to the
acquisitions of TPW, RaiLink and RailTex, which on a combined basis contributed
$164.6 million in operating expenses for the year ended December 31, 2000
compared to $14.4 million for the year ended December 31, 1999. Additionally,
increased fuel costs impacted our operating expenses by approximately $4.4
million over 2000. Our operating ratios were 79.0% and 77.5% for the years ended
December 31, 2000 and 1999, respectively.

INTERNATIONAL RAILROAD OPERATIONS

FREIGHT AUSTRALIA

           The results of operations for the years ended December 31, 2001, 2000
and 1999 include the operations of Freight Australia from its date of
acquisition, May 1, 1999. Therefore, the results of operations for the year
ended December 31, 2000 are not comparable to the prior year in certain material
respects and are not indicative of the results which would have occurred had the
acquisition been consummated January 1, 1999.




                                       36
<PAGE>

         The following table sets forth the operating revenues and expenses (in
thousands) for Freight Australia's railroad operations for the years ended
December 31, 2001 and 2000 and the period from May 1, 1999 to December 31, 1999.
<TABLE>
<CAPTION>

                                                 2001          2000         1999
                                               --------      --------      -------
<S>                                            <C>           <C>           <C>
         Revenues:                             $101,430      $102,204      $63,358
                                               --------      --------      -------
         Operating expenses:
            Transportation                       66,575        70,118       42,742
            General and administrative            5,914         6,253        5,169
            Depreciation and amortization         6,932         5,438        3,429
                                               --------      --------      -------
            Total operating expenses             79,421        81,809       51,340
                                               --------      --------      -------
         Operating income                      $ 22,009      $ 20,395      $12,018
                                               ========      ========      =======

</TABLE>


COMPARISON OF FREIGHT AUSTRALIA'S OPERATING RESULTS FOR THE YEARS ENDED DECEMBER
31, 2001 AND 2000

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

       OPERATING EXPENSES. Operating expenses decreased $2.4 million, or 3%, to
$79.4 million for the year ended December 31, 2001 from $81.8 million for the
year ended December 31, 2000. The decrease in operating expenses was primarily
due to the 11% decline in the Australian dollar, which reduced operating
expenses by $9.8 million. Depreciation and amortization increased in 2001 due to
the extensive capital work done on the locomotive fleet and track since we
purchased the railroad from the government in 1999. The operating ratio improved
to 78.3% in 2001 from 80.0% in 2000 due to the increased carloads and the
relatively fixed nature of many of the expenses.

COMPARISON OF FREIGHT AUSTRALIA'S OPERATING RESULTS FOR THE YEARS ENDED DECEMBER
31, 2000 AND 1999

       OPERATING REVENUES. Operating revenues increased $38.8 million, or 61%,
to $102.2 million for the year ended December 31, 2000 from $63.4 million for
the year ended December 31, 1999. The increase in operating revenue was
primarily due to the 1999 period including only eight months of operations.
Freight Australia's carloads were 203,536 for the year ended December 31, 2000,
an increase of 71,051, or 35%, compared to 132,485 for the year ended December
31, 1999. Revenue per carload was $406 for 2000 versus $366 for 1999. The



                                       37
<PAGE>

increase in revenue per carload was primarily due to a change in commodity mix
from 1999 to 2000.

       OPERATING EXPENSES. Operating expenses increased $30.5 million, or 59%,
to $81.8 million for the year ended December 31, 2000 from $51.3 million for the
period May 1, 1999 through December 31, 1999. The increase in operating expenses
was primarily due to the 1999 period including only eight months of operations.
Operating expenses, as a percentage of operating revenue, were 80.0% and 81.0%
for the years ended December 31, 2000 and 1999. Operating expenses were
negatively impacted in 2000 by rising fuel prices in the amount of $2.5 million.

        Operating income was lower in 2000 as compared to 1999 by approximately
$2.0 million due to the decline in the Australian dollar exchange rate.

FERRONOR

         The following table sets forth the operating revenues and expenses (in
thousands) for Ferronor's railroad operations for the years ended December 31,
2001, 2000 and 1999.

                                                2001         2000         1999
                                               -------      -------      -------
         Revenues:                             $22,085      $22,873      $19,115
                                               -------      -------      -------
         Operating expenses:
            Transportation                      12,967       15,505       11,964
            General and administrative           2,670        2,494        2,222
            Depreciation and amortization        3,208        2,278        1,231
                                               -------      -------      -------
            Total operating expenses            18,845       20,277       15,417
                                               -------      -------      -------
         Operating income                      $ 3,240      $ 2,596      $ 3,698
                                               =======      =======      =======

COMPARISON OF FERRONOR'S OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2001
AND 2000

       OPERATING REVENUES. Operating revenue decreased $0.8 million, or 3%, to
$22.1 million in 2001 from $22.9 million in 2000. Ferronor's carloads handled
totaled 107,265 for the year ended December 31, 2001, a decrease of 1,491, or
1%, compared to 108,756 for the year ended December 31, 2000. Revenue per
carload was $204 for 2001 versus $210 for 2000. The decrease in revenue per
carload was primarily due to a change in commodity mix from 2000 to 2001.

       OPERATING EXPENSES. Operating expenses declined $2.5 million, or 16%, to
$13.0 million from $15.5 million in 2000. The expenses in 2000 were impacted by
start up costs for new contracts. Depreciation expense increased in 2001 by $1
million over 2000 due to capital expenditures made to support the new contracts.



                                       38
<PAGE>

The operating ratio, was 85.3% and 88.7% for the years ended December 31, 2001
and 2000, respectively, reflecting the higher start up costs in 2000.

COMPARISON OF FERRONOR'S OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000
AND 1999

       OPERATING REVENUES. Operating revenue increased $3.8 million, or 20%, to
$22.9 million for the year ended December 31, 2000 from $19.1 million for the
year ended December 31, 1999. Ferronor's carloads handled totaled 108,756 for
the year ended December 31, 2000, an increase of 14,921, or 16%, compared to
93,835 for the year ended December 31, 1999. The increase in both carloads and
revenue is related to the commencement of operations in the fourth quarter of
1999 on a new long-term contract.

       OPERATING EXPENSES. Operating expenses increased $4.9 million, or 32%, to
$20.3 million for the year ended December 31, 2000 from $15.4 million for the
year ended December 31, 1999. The increase was due to start up costs related to
a new long-term contract which commenced in late 1999. Depreciation expense
increased in 2000 by $1 million over the prior year due to capital expenditures
relating to new contracts. The operating ratios were 89% and 81% for the years
ended December 31, 2000 and 1999, respectively.

CORPORATE OVERHEAD AND OTHER

       CORPORATE OVERHEAD. Corporate overhead services performed for our
subsidiaries include executive management, overall strategic planning,
accounting, finance, legal, cash management, payroll and tax. Corporate
overhead, which is included in selling, general and administrative expenses in
the consolidated statements of income, increased $3.4 million, or 27%, to $15.8
million for the year ended December 31, 2001 from $12.4 million for the year
ended December 31, 2000. Corporate overhead increased $7.2 million, or 138%, to
$12.4 million for the year ended December 31, 2000 from $5.2 million for the
year ended December 31, 1999. The increases in each of the specified periods
were related to the additional costs incurred to manage the acquired railroads
and to establish a strong management team to handle our continued growth. For
the year ended December 31, 2000, we incurred $4.8 million of costs related to
our acquisition and integration of RailTex and our unsuccessful acquisition bid
for Westrail, an Australian railroad.

       ASSET RATIONALIZATION PLAN. In 2000 and 2001, we embarked on an asset
rationalization plan, which included the sale of several non-core, non-strategic
assets and reduced our long-term debt. In December 2001, we sold Dakota Rail,
Inc. and certain other assets for $9.8 million. The proceeds from these
transactions were used to reduce the Company's long-term debt and for general
working capital purposes. The net gains in 2001 were $6.4 million compared to
$12.8 million in 2000. This decline is primarily due to the delay of certain
transactions which had been expected to close during the fourth quarter of 2001.
We expect these transactions will close during 2002.

         SALE/LEASEBACK PROGRAM. In June 2001, we completed $8.4 million in
locomotive sale/leaseback transactions in North America. In December 2000, we
completed $22.2 million in locomotive sale/leaseback transactions in North



                                       39
<PAGE>

America. The proceeds from these transactions were used to reduce the Company's
long-term debt and for general working capital purposes.

         INTEREST EXPENSE. Interest expense, including amortization of financing
costs, increased from $20.5 million in 1999 to $56.0 million in 2000 and
decreased to $53.5 million in 2001. The increase from 1999 to 2000 is primarily
attributable to the financing of our acquisitions of Freight Australia, TPW and
RaiLink in 1999 and RailTex in 2000. The decrease in interest expense from 2000
to 2001 is primarily due to reduction of our long-term debt and a decrease in
base interest rates. We have two interest rate swap agreements in place which
fix the LIBOR component of $212.5 million of our senior debt at 6.723%. As such,
as interest rates declined during 2001, we only benefited on our senior debt for
the portion of the principal balance in excess of $212.5 million. The total
expense associated with our interest rate swap was $5.6 million in 2001.

         INCOME TAXES. Our effective tax rates in 2001 and 2000 were 22.5% and
23.5%, respectively. In 2001, we recorded a benefit of $3.1 million from a
reduction in the Canadian federal and provincial tax rates. The effective tax
rate in 2000 was impacted by the allocation of income taxes between continuing
operations, discontinued operations and extraordinary items. We believe our
effective tax rate for 2002 will be approximately 33%. This reflects the higher
statutory rates from the acquisitions of ParkSierra and StatesRail, offset by
the reduction in the Canadian tax rates.

         EXTRAORDINARY LOSS. In connection with the reduction of our senior debt
in July and August 2001, we recorded an extraordinary charge of $0.2 million for
the year ended December 31, 2001. Pursuant to the refinancing of our debt in
February 2000, we recorded an extraordinary charge for the year ended December
31, 2000 for the loss on early extinguishment of debt of $2.9 million. In
connection with the issuance of subordinated debt in August 2000 we recorded an
extraordinary charge of $1.1 million for early extinguishment of debt.

         DISCONTINUED OPERATIONS. In December 2000, we sold our specialty truck
trailer manufacturing operations for $38.5 million resulting in a gain of
approximately $11.5 million, net of income taxes. We recorded net earnings from
our discontinued operations of $8.3 million in 2000 compared to $3.9 million in
1999. In connection with the acquisition of RailTex, we refinanced our
investment in our trailer manufacturing operations resulting in additional
interest expense of $7.3 million in 2000.

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



                                       40
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES - COMBINED OPERATIONS

       The discussion of liquidity and capital resources that follows reflects
our consolidated results and includes all subsidiaries. The Company's principal
source of liquidity is cash generated from operations. In addition, the Company
funds any additional liquidity requirements through borrowings under its $50
million revolving credit facility.

       OPERATING ACTIVITIES

       Our cash provided by operating activities was approximately $55 million
for the year ended December 31, 2001. This amount consists primarily of $17
million in net income, $32 million in depreciation and amortization and $3
million of deferred income taxes.

       INVESTING ACTIVITIES

       Cash used in investing activities was $47 million for the year ended
December 31, 2001. This consists primarily of capital expenditures of $62
million, partially offset by proceeds from the sale of assets and proceeds from
the sale/leaseback transactions totaling $19 million. We expect capital
expenditures in 2002 to be approximately $68 million which includes amounts for
the recently acquired ParkSierra and StatesRail properties.

       FINANCING ACTIVITIES

       Cash provided by financing activities was $39 million for 2001. During
2001, we completed two private placements of common stock raising net proceeds
of approximately $90 million. In addition, we raised approximately $8 million of
new equity through the exercise of stock options and warrants. These amounts
were used for $54 million in debt repayments during the year. Under our existing
senior debt facilities, our principal repayments will be $17.0 million in 2002.

       In January 2002, in connection with the acquisitions of ParkSierra and
StatesRail, we borrowed an additional $50 million under our senior credit
facility. The terms of the additional $50 million are consistent with our
existing Term B loans.

       Our senior credit agreement provides (i) a $125 million Term A loan,
bearing interest at LIBOR plus 2.50 (4.44% at December 31, 2001), (ii) a $205
million Term B loan, bearing interest at December 31, 2001 at LIBOR plus 3.25%
(5.19% at December 31, 2001), and (iii) a $50 million revolving credit facility
which includes $30 million of U.S. dollar denominated loans bearing interest at
the same interest rate as the Term A loans, $10 million of Canadian dollar
denominated loans and $10 million of Australian dollar denominated loans with
an initial interest rate of LIBOR plus 3.00%. In January 2002, we borrowed an
additional $50 million, under a Term C loan, on terms consistent with the Term B
loan. The applicable interest rate of the Term A loans and the revolving loans



                                       41
<PAGE>
varies depending on our leverage ratio. All of the capital stock of all our U.S.
subsidiaries, 65% of the capital stock of our Canadian and Australian
subsidiaries and substantially all of the assets of our subsidiaries serve as
collateral for the senior credit facilities.

       The Term A loan requires principal payments of 15% in 2002, 20% in 2003,
and 25% in both 2004 and 2005. The Term B and Term C loans requires principal
payments of 1% per year through 2005 and a balloon maturity at December 31,
2006. The revolving loan matures on December 31, 2005. As of December 31, 2001,
the outstanding balances of the Term A and Term B loans are $83.6 million,
$184.1 million, respectively. There was no outstanding balance on the revolving
loan at December 31, 2001.

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

       Our senior credit agreement and the indenture governing our senior
subordinated notes include numerous covenants imposing significant financial and
operating restrictions on our business. The covenants place restrictions on our
ability to, among other things: incur more debt; pay dividends, redeem or
repurchase our stock or make other distributions; make acquisitions or
investments; use assets as security in other transactions; enter into
transactions with affiliates; merge or consolidate with others; dispose of
assets or use asset sale proceeds; create liens on our assets; and extend
credit.

       In addition, our senior credit agreement also contains financial
covenants that require us to meet a number of financial ratios and tests. Our
ability to meet these ratios and tests and to comply with other provisions of
our senior credit facilities can be affected by events beyond our control. Our
failure to comply with the obligations in our senior credit facilities could
result in an event of default, which, if not cured or waived, could permit
acceleration of our indebtedness under the credit agreement or other
indebtedness which would have a material adverse effect on us. As of December
31, 2001, we were in compliance with these financial covenants.

       To partially mitigate the interest rate risk on the credit facilities we
entered into two interest rate swaps in May 2000. The interest rate swaps fixed
a LIBOR rate of 7.23% on $212.5 million of our senior term debt for a three-year
period. In May 2001, we modified the interest rate swap agreements, extending
the term for two years and reducing the fixed pay rate to 6.723%. Fluctuations
in the market interest rate will continue to affect the cost of our remaining
borrowings. Assuming current debt levels, the effect of a 1% increase in
interest rates on the remaining senior debt would have resulted in an increase
in interest expense of $1.2 million for the year ended December 31, 2001.

       As of December 31, 2001, we had working capital of $30 million compared
to a working capital deficit of $7.6 million as of December 31, 2000. This
increase is primarily due to the private placement of common stock in December
2001, in which we raised $51 million.



                                       42
<PAGE>

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

                                                             2003 -     2005 -       After
                                TOTAL         2002           2004       2006         2006
                                -----         ----           ----       ----         ------
<S>                           <C>           <C>          <C>          <C>          <C>
         Long term debt       $358,856      $20,558      $55,904      $85,198      $197,856

         Capital lease
         obligations          $  1,184      $   832      $   319      $    33      $      0

         Operating lease
         obligations          $100,138      $18,039      $30,008      $26,916      $ 25,176

</TABLE>

       Our long-term business strategy includes the selective acquisition of
additional transportation-related businesses. Accordingly, we 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 those acquisitions or development, and
sufficient financing for those activities may not be available on terms
acceptable to us, if at all. As of March 15, 2002, we had $39 million of
availability under our revolving credit facilities, and $25 million of cash.

RECENT ACCOUNTING PRONOUNCEMENTS

       In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141, "Business Combinations", and Statement No. 142, "Goodwill and
Other Intangible Assets". Statement No. 141 became effective for business
combinations initiated after June 30, 2001 and requires purchase method
accounting. Under Statement No. 142, goodwill and identifiable intangible assets
with an indefinite life will no longer be amortized; however, both goodwill and
other intangible assets will need to be tested at least annually for impairment.
Statement No. 142 will be effective for fiscal years beginning after December
15, 2001. The Company believes the adoption of these pronouncements will not
have a material impact on its financial statements.

       In addition, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations," and Statement No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." Statement No. 143, which is effective for fiscal
years beginning after June 15, 2002, addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. Statement No. 144, which is
effective for fiscal years beginning after December 15, 2001, addresses
financial accounting and reporting for the impairment of long-lived assets,
excluding goodwill and intangible assets, to be held and used or disposed of.



                                       43
<PAGE>
The Company believes the adoption of these standards will not have a material
impact on its financial statements.

ITEM 7a.  MARKET RISK

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

       FOREIGN CURRENCY. Our foreign currency risk arises from owning and
operating railroads in Canada, Chile and Australia. As of December 31, 2001, we
had not entered into any currency hedging transactions to manage this risk. A
decrease in either the Canadian dollar or the Australian dollar would negatively
impact our reported revenues and earnings for the affected period. During 2001,
the Canadian dollar and Australian dollar declined 3% and 11%, respectively,
which led to a $15.3 million and $3.4 million reduction in reported revenues and
operating income, respectively, in 2001 compared to 2000. A majority of our
revenue and debt in Chile is indexed to the U.S. dollar and therefore, we are
not negatively impacted by a decline in the value of the Chilean peso.

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

       The interest rate on our senior credit facility is payable at variable
rates indexed to LIBOR. To partially mitigate the interest rate risk on our
senior credit facilities, we entered into interest rate swaps in May 2000. The
interest rate swaps locked in a LIBOR rate of 7.23% on $212.5 million of debt
for a three-year period. In 2001, we extended the interest rate swaps for two
years and reduced the LIBOR rate to 6.723%. Fluctuations in the market interest
rate will affect the cost of our remaining borrowings. The effect of each 1%
increase in interest on the remaining borrowings would result in an increase in
interest expense of $1.0 million.

       DIESEL FUEL. We are exposed to fluctuations in diesel fuel prices, as an
increase in the price of diesel fuel would result in lower earnings and
increased cash outflows. Diesel fuel represented 8.1% of our total revenues in
2001. We currently have fuel swaps in place which fix the price of 27% of our
expected 2002 North American fuel consumption at $0.87 per gallon, including
transportation and taxes. The effect of each $0.01 increase in fuel prices would
result in an increase in fuel expense of $0.03 million per month.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.



                                       44
<PAGE>


PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information concerning directors, executive officers and nominees is
incorporated by reference from our definitive proxy statement relating to our
2002 Annual Meeting of Stockholders to be filed with the Commission pursuant to
Regulation 14A on or before April 30, 2002.

ITEM 11.  EXECUTIVE COMPENSATION

         Information concerning executive compensation is incorporated by
reference from our definitive proxy statement relating to our 2002 Annual
Meeting of Stockholders to be filed with the Commission pursuant to Regulation
14A on or before April 30, 2002.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information concerning security ownership is incorporated by reference
from our definitive proxy statement relating to our 2002 Annual Meeting of
Stockholders to be filed with the Commission pursuant to Regulation 14A on or
before April 30, 2002.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information concerning certain relationships and related transactions
is incorporated by reference from our definitive proxy statement relating to our
2002 Annual Meeting of Stockholders to be filed with the Commission pursuant to
Regulation 14A on or before April 30, 2002.

PART IV

ITEM 14.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

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

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

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

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

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

            3.2   By-laws of Registrant(1)



                                       45
<PAGE>

          3.3     Certificate Of Amendment to Amended and Restated Certificate
                  of Incorporation of the Registrant(31)

          4.1     Form of Common Stock Purchase 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)

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

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

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

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

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

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

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

          4.13    First Supplemental Indenture

          4.14    Second Supplemental Indenture

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

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

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

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

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

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

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

          10.65   Lease dated April 30, 1999 by and among the Director of Public
                  Transport and Freight Victoria Limited(12)

          10.71   Credit Agreement, dated as of February 4, 2000, by and among
                  the Company and Palm Beach Rail Holding, 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(20)

          10.76   Waiver and Amendment No. 1 to Credit Agreement.(31)




                                       46
<PAGE>

          10.77   Waiver and Amendment No. 2 to Credit Agreement. (31)

          10.79   Waiver and Amendment No. 3 to Credit Agreement.

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

          10.81   Service Agreement, dated April 4, 2001, between the Company
                  and Marinus van Onselen and first amendment thereto.

          10.82   Amended and Restated Executive Employment Agreement, dated as
                  of January 1, 2002, between the Company and Gary O. Marino.

          10.83   Amended and Restated Executive Employment Agreement, dated as
                  of January 1, 2002, between the Company and Donald D.
                  Redfearn.

          10.84   Employment Agreement, dated as of January 1, 2002, between the
                  Company and Gary M. Spiegel.

          21.1    Subsidiaries of Registrant

          23.1    Consent of PricewaterhouseCoopers LLP

          23.2    Consent of Langton Clarke Limitada


(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.

(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 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 8, 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.

(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.

(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 18, 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.

(20)      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, 1999,
          filed with the Securities and Exchange Commission on March 30, 2000.

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

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



                                       47
<PAGE>


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

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

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

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

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

+         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, 2001:

          The Company filed a Current Report on Form 8-K, dated October 3, 2001,
          with the Securities and Exchange Commission on October 11, 2001 in
          connection with a presentation of The Company at an investor
          conference.



                                       48
<PAGE>


                                   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, Chairman, President and
                                Chief Executive Officer

                            By: /s/  BENNETT MARKS
                                -----------------------------------------------
                                Bennett Marks, Senior Vice President -- Chief
                                Financial Officer, Principal Financial and
                                Accounting Officer

                                Dated April 1, 2002

         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.
<TABLE>
<CAPTION>
         SIGNATURES                     TITLE                                                    DATE
         ----------                     -----                                                    ----
<S>                                     <C>                                                     <C>
/s/ GARY O. MARINO                      Chairman, President, Chief Executive                   April 1, 2002
-----------------------------           Officer and Director
Gary O. Marino

/s/ DONALD D. REDFEARN                  Chief Administrative Officer, Executive                April 1, 2002
-----------------------------           Vice President, Secretary and Director
Donald D. Redfearn

/s/ JOHN H. MARINO                      Assistant Secretary and Director                       April 1, 2002
-----------------------------
John H. Marino

/s/ DOUGLAS R. NICHOLS                  Director                                               April 1, 2002
-----------------------------
Douglas R. Nichols

/s/ RICHARD RAMPELL                     Director                                               April 1, 2002
-----------------------------
Richard Rampell

/s/ CHARLES SWINBURN                    Director                                               April 1, 2002
-----------------------------
Charles Swinburn

/s/ JOHN M. SULLIVAN                    Director                                               April 1, 2002
-----------------------------
John M. Sullivan

/s/ FERD. C. MEYER, JR.                 Director                                               April 1, 2002
-----------------------------
Ferd C. Meyer, Jr.

/s/ WILLIAM G. PAGONIS                  Director                                               April 1, 2002
-----------------------------
William G.  Pagonis

</TABLE>

                                       49
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES
                          INDEX OF FINANCIAL STATEMENTS



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

                                                                      PAGES
                                                                      -----

Reports of Independent Certified Public Accountants ...........      F-2 - F-3

Consolidated Balance Sheets - December 31, 2001 and 2000 ......      F-4

Consolidated Statements of Income - For the Years Ended
       December 31, 2001, 2000 and 1999 .......................      F-5

Consolidated Statements of Stockholders' Equity - For the Years
       Ended December 31, 2001, 2000 and 1999 .................      F-6

Consolidated Statements of Cash Flows - For the Years Ended
       December 31, 2001, 2000 and 1999 .......................      F-7

Notes to Consolidated Financial Statements ....................      F-8 - F-36


                                      F-1
<PAGE>







               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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

In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of RailAmerica, Inc.
and its subsidiaries at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements of Empresa De Transporte Ferroviario S.A., a 55% owned subsidiary of
the Company, which statements reflect total revenues of $19,115,000 for the year
ended December 31, 1999. 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. for the year ended December 31, 1999 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 of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for our
opinion.

As described in Note 15, the Company changed its method of accounting for
derivative instruments and hedging activities in 2001.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

West Palm Beach, Florida
March 18, 2002, except as to the last paragraph of Note 18,
which is as of March 28, 2002



                                      F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of
Ferronor S.A.:

We have audited the statements of income and cash flows of Empresa de
Transporte Ferroviaro S.A. ("Ferronor") for the year ended December 31, 1999.
These financial statements (not included separately herein) are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We have conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respect, the results of operations and cash flows of Ferronor for
the year ended December 31, 1999 in conformity with generally accepted
accounting principles in the United States of America.



/s/ Arthur Andersen - Langton Clarke
---------------------------------------
    ARTHUR ANDERSEN - LANGTON CLARKE


February 4, 2000
Santiago, Chile






                                      F-3
<PAGE>


                       RAILAMERICA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

DECEMBER 31,                                                                      2001                  2000
--------------------------------------------------------------------------------------------------------------
                                                                                       (IN THOUSANDS,
                                                                                      EXCEPT SHARE DATA)
<S>                                                                           <C>                   <C>
ASSETS
Current assets:
       Cash and cash equivalents.......................................       $  59,761             $  13,090
       Restricted cash in escrow.......................................           2,418                 4,539
       Accounts and notes receivable, net of allowance of
           $571 and $886, respectively.................................          54,278                62,864
       Other current assets............................................          14,204                19,551
                                                                             ----------            ----------
           Total current assets........................................         130,661               100,044

Property, plant and equipment, net.....................................         738,775               715,020
Other assets...........................................................          21,732                24,639
                                                                             ----------            ----------
           Total assets................................................        $891,168              $839,703
                                                                               ========              ========

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:

       Current maturities of long-term debt............................       $  24,484             $  20,558
       Accounts payable................................................          36,035                39,752
       Accrued expenses................................................          39,889                47,305
                                                                             ----------            ----------
           Total current liabilities...................................         100,408               107,615
Long-term debt, less current maturities................................         277,203               338,298
Subordinated debt......................................................         144,988               141,411
Deferred income taxes..................................................          96,822                87,288
Minority interest and other liabilities................................          50,788                35,044
                                                                             ----------            ----------
                                                                                670,209               709,656
                                                                              ---------             ---------

Commitments and contingencies

Redeemable convertible preferred stock, $0.01 par value, $25
liquidation value; 278,400 shares issued and outstanding
at December 31, 2000...................................................              --                 6,613
                                                                         --------------           -----------

Stockholders' equity:
       Common stock, $0.001 par value, 60,000,000 shares authorized;
       28,842,090 shares issued and outstanding at December 31, 2001
       and 18,623,320 shares issued and outstanding at
       December 31, 2000...............................................              29                    19
Additional paid in capital.............................................         224,248               118,502
Retained earnings......................................................          45,902                29,162
Accumulated other comprehensive (loss).................................         (49,220)              (24,249)
                                                                             ----------            ----------
           Total stockholders' equity..................................         220,959               123,434
                                                                              ---------             ---------
           Total liabilities, redeemable preferred stock
           and stockholders' equity....................................        $891,168              $839,703
                                                                               ========              ========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.



                                      F-4
<PAGE>


                       RAILAMERICA, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

FOR THE YEARS ENDED DECEMBER 31,                                               2001              2000             1999
-----------------------------------------------------------------------------------------------------------------------
                                                                         (IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
<S>                                                                           <C>             <C>             <C>
         Operating revenue .............................................      $ 369,631       $ 357,936       $ 129,818
                                                                              ---------       ---------       ---------
         Operating expenses:
           Transportation ..............................................        209,072         210,972          79,439
           Selling, general and administrative .........................         64,652          62,093          19,550
           Net gain on sale and impairment of assets ...................         (6,434)        (11,184)         (3,629)
           Depreciation and amortization ...............................         27,601          26,021           9,179
                                                                              ---------       ---------       ---------
             Total operating expenses ..................................        294,891         287,902         104,539
                                                                              ---------       ---------       ---------
             Operating income ..........................................         74,740          70,034          25,279
         Interest expense, including amortization costs of
           $4,410, $4,854 and $4,203, respectively .....................        (53,480)        (55,950)        (20,490)
         Minority interest and other income (expense) ..................          1,019          (1,526)            449
                                                                              ---------       ---------       ---------
           Income from continuing operations
           before income taxes .........................................         22,279          12,558           5,238

         Provision (benefit) for income taxes ..........................          5,005           2,950            (787)
                                                                              ---------       ---------       ---------
           Income from continuing operations ...........................         17,274           9,608           6,025

         Discontinued operations:
           Gain on disposal of discontinued segment (net of income
               taxes of $6,850) ........................................             --          11,527              --
           Income (loss) from operations of discontinued segment
               (net of income taxes of ($1,650) and
               $2,300, respectively) ...................................             --          (3,226)          3,896
                                                                              ---------       ---------       ---------
           Income before extraordinary item and cumulative effect
               of accounting change ....................................         17,274          17,909           9,921
           Extraordinary loss from early extinguishment of debt
                (net of income taxes of $142 and $2,200, respectively) .           (236)         (3,996)             --
           Cumulative effect of accounting change ......................             --          (2,252)             --
                                                                              ---------       ---------       ---------
                Net income .............................................      $  17,038       $  11,661       $   9,921
                                                                              =========       =========       =========
         Net income available to common stockholders ...................      $  16,740       $  10,991       $   8,886
         Basic earnings per common share:
           Continuing operations .......................................      $    0.79       $    0.50       $    0.45
           Discontinued operations .....................................             --            0.45            0.35
           Extraordinary item ..........................................          (0.01)          (0.22)             --
           Cumulative effect of accounting change ......................             --           (0.12)             --
                                                                              ---------       ---------       ---------
             Net income ................................................      $    0.78       $    0.61       $    0.80
                                                                              =========       =========       =========
         Diluted earnings per common share:
           Continuing operations .......................................      $    0.72       $    0.49       $    0.43
           Discontinued operations .....................................             --            0.45            0.34
           Extraordinary item ..........................................          (0.01)          (0.22)             --
           Cumulative effect of accounting change ......................             --           (0.12)             --
                                                                              ---------       ---------       ---------
             Net income ................................................      $    0.71       $    0.60       $    0.77
                                                                              =========       =========       =========
         Weighted average common shares outstanding:
           Basic .......................................................         21,510          18,040          11,090
           Diluted .....................................................         25,350          18,267          11,665

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.



                                      F-5
<PAGE>


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

<TABLE>
<CAPTION>

                                                                   STOCKHOLDERS' EQUITY
                                       --------------------------------------------------------------------------------
                                             Number of             Additional                     Other
FOR THE YEARS ENDED DECEMBER 31,               Shares     Par        Paid-In     Retained     Comprehensive
2001, 2000 AND 1999                            Issued    Value       Capital     Earnings     Income (Loss)      Total
-----------------------------------------------------------------------------------------------------------------------
                                                                       (IN THOUSANDS)
<S>                                             <C>        <C>      <C>           <C>          <C>          <C>
Balance, January 1, 1999 ..................     10,207     $ 10     $  24,995     $  9,285     $    471     $  34,761
Net income ................................         --       --            --        9,921           --         9,921
Cumulative translation adjustments ........         --       --            --           --        3,015         3,015
                                                                                                            ---------
          Total comprehensive income ......                                                                    12,936
                                                                                                            ---------
Issuance of common stock ..................      1,438        1        12,028           --           --        12,029
Purchase of treasury stock ................         --       --        (1,224)          --           --        (1,224)
Exercise of stock options .................        141       --           732           --           --           732
Conversion of debt ........................        564        1         3,332           --           --         3,333
Conversion of preferred stock .............        261        1         2,006           --           --         2,007
Issuance of warrants ......................         --       --         5,928           --           --         5,928
Preferred stock dividends and accretion ...         --       --            --       (1,035)          --        (1,035)
-----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 ................     12,611       13        47,797       18,171        3,486        69,467
Net income ................................         --       --            --       11,661           --        11,661
Cumulative translation adjustments ........         --       --            --           --      (27,735)      (27,735)
                                                                                                            ---------
            Total comprehensive loss ......                                                                   (16,074)
                                                                                                            ---------
Issuance of common stock ..................      6,652        7        60,917           --           --        60,924
Exercise of stock options .................         49       --           269           --           --           269
Conversion of redeemable securities .......        339       --         2,669           --           --         2,669
Warrants issued ...........................         --       --         8,841           --           --         8,841
Purchase of treasury stock ................         --       --        (1,992)          --           --        (1,992)
Retirement of treasury stock ..............     (1,028)      (1)            1           --           --            --
Preferred stock dividends
  and accretion ...........................         --       --            --         (670)          --          (670)
-----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 ................     18,623       19       118,502       29,162      (24,249)      123,434
Net income ................................         --       --            --       17,038           --        17,038
Cumulative effect of adopting SFAS 133, net         --       --            --           --       (4,388)       (4,388)
Change in market value of derivative
  instruments, net ........................         --       --            --           --       (5,008)       (5,008)
Cumulative translation adjustments ........         --       --            --           --      (15,575)      (15,575)
                                                                                                            ---------
            Total comprehensive loss ......                                                                    (7,933)
                                                                                                            ---------
Issuance of common stock ..................      8,176        8        89,728           --           --        89,736
Exercise of stock options .................      1,334        1         8,342           --           --         8,343
Tax benefit on exercise of options and
  warrants.................................         --       --         2,633           --           --         2,633
Conversion of redeemable securities .......        882        1         7,030           --           --         7,031
Purchase of treasury stock ................       (173)      --        (1,987)          --           --        (1,987)
Preferred stock dividends and accretion ...         --       --            --         (298)          --          (298)
-----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 ................     28,842     $ 29     $ 224,248     $ 45,902    $ (49,220)    $ 220,959
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.



                                      F-6
<PAGE>

                       RAILAMERICA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

FOR THE YEARS ENDED DECEMBER 31,                                   2001              2000             1999
-----------------------------------------------------------------------------------------------------------------------
                                                                                 (IN THOUSANDS)

<S>                                                             <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................         $  17,038          $  11,661          $   9,921
Adjustments to reconcile net income to net cash
  provided by operating activities:
    Depreciation and amortization .....................            32,011             34,566             14,134
    Write-off of deferred loan costs ..................               378              4,857                 --
    Interest paid in kind .............................                --              5,806                 --
    Minority interest in income of subsidiary .........             1,350                995              1,551
    Equity interest in earnings of affiliate ..........                --               (554)              (230)
    Gain on insurance settlement ......................                --                 --             (4,069)
    (Gain) loss on sale or disposal of properties .....            (6,434)           (29,554)               118
    Cumulative effect of accounting change ............                --              2,252                 --
    Deferred income taxes .............................             2,926             (2,797)             3,402
    Changes in operating assets and liabilities, net of
      acquisitions and dispositions:
       Accounts receivable ............................             5,298              3,654             (2,246)
       Other current assets ...........................             8,587              2,455             (4,102)
       Accounts payable ...............................             1,172              2,239              3,244
       Accrued expenses ...............................           (12,485)             5,759              3,326
       Other liabilities ..............................             1,620              4,071             (2,295)
       Deposits and other .............................             3,509               (977)            (1,254)
-----------------------------------------------------------------------------------------------------------------------
          Net cash provided by operating activities ...            54,970             44,433             21,500
-----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment .............           (61,675)           (62,499)           (51,391)
Proceeds from sale of properties and investments ......            18,502             96,654              1,163
Acquisitions, net of cash acquired ....................                --           (148,922)            (8,453)
Cash held in discontinued operations ..................                --                 --               (656)
Change in restricted cash in escrow ...................             1,046             (4,539)                --
Deferred acquisition costs and other ..................            (4,577)            (2,711)               639
-----------------------------------------------------------------------------------------------------------------------
          Net cash used in investing activities .......           (46,704)          (122,017)           (58,698)
-----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt ..............            85,590            549,235            182,085
Principal payments on long-term debt ..................          (142,088)          (448,107)          (150,183)
Sale of convertible preferred stock ...................                --                 --              4,095
Sale of common stock ..................................            89,736                 --             11,868
Proceeds from exercise of stock options ...............             8,343                234                581
Preferred stock dividends paid ........................              (241)              (289)              (843)
Purchase of treasury stock ............................            (1,987)            (1,992)            (1,224)
Deferred financing costs paid .........................                --            (18,980)            (2,755)
-----------------------------------------------------------------------------------------------------------------------
          Net cash provided by financing activities ...            39,353             80,101             43,624
-----------------------------------------------------------------------------------------------------------------------

Net increase in cash ..................................            47,619              2,517              6,426
Effect of exchange rates on cash ......................              (948)            (1,025)                87
Cash, beginning of period .............................            13,090             11,598              5,085
-----------------------------------------------------------------------------------------------------------------------
Cash, end of period ...................................         $  59,761          $  13,090          $  11,598
-----------------------------------------------------------------------------------------------------------------------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      F-7
<PAGE>


                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
         of RailAmerica, Inc. and all of its subsidiaries (the "Company"). All
         of RailAmerica's consolidated subsidiaries are wholly-owned except
         Empresa De Transporte Ferroviario S.A. ("Ferronor"), a Chilean
         railroad, in which the Company has a 55% equity interest. All
         intercompany balances and transactions have been eliminated. Certain
         prior period amounts have been reclassified to conform to the 2001
         presentation.

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

         USE OF ESTIMATES

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

         CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid instruments purchased with a
         maturity of three months or less at the date of purchase to be cash
         equivalents.

         CONCENTRATION OF CREDIT RISK

         The Company maintains its cash in demand deposit accounts, which at
         times may exceed insurance limits. As of December 31, 2001, the Company
         had approximately $58.5 million of cash in excess of 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. The Company periodically reviews its assets for
         impairment by comparing the projected undiscounted cash flows of those
         assets to their recorded amounts. Impairment charges are based on the
         excess of the recorded amounts over their estimated fair value, as
         measured by the discounted cash flows.



                                      F-8
<PAGE>

                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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

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

         INCOME TAXES

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

         REVENUE RECOGNITION

         The Company recognizes transportation revenue after services are
         provided.

         FOREIGN CURRENCY TRANSLATION

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

         RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
         Combinations", and Statement No. 142, "Goodwill and Other Intangible
         Assets." SFAS No. 141 became effective for business combinations
         initiated after June 30, 2001 and requires purchase method accounting.
         Under SFAS No. 142, goodwill and identifiable intangible assets with
         an indefinite life will no longer be

                                      F-9
<PAGE>

                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

         amortized; however, both goodwill and other intangible assets will need
         to be tested at least annually for impairment. SFAS No. 142 will be
         effective for fiscal years beginning after December 15, 2001. The
         Company has no goodwill as of December 31, 2001 and believes the
         adoption of these pronouncements will not have a material impact on its
         financial statements.

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
         Retirement Obligations," and SFAS No. 144, "Accounting for the
         Impairment or Disposal of Long-Lived Assets." SFAS No. 143, which is
         effective for fiscal years beginning after June 15, 2002, addresses
         financial accounting and reporting for obligations associated with the
         retirement of tangible long-lived assets and the associated asset
         retirement costs. SFAS No. 144, which is effective for fiscal years
         beginning after December 15, 2001, addresses financial accounting and
         reporting for the impairment of long-lived assets, excluding goodwill
         and intangible assets, to be held and used or disposed of. The Company
         believes the adoption of these pronouncements will not have a material
         impact on its financial statements.

2.       EARNINGS PER SHARE

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

         Diluted earnings per share is calculated using the sum of the weighted
         average number of common shares outstanding plus potentially dilutive
         common shares arising out of stock options, warrants and convertible
         securities. Options and warrants totaling 1.2 million, 4.3 million and
         1.8 million were excluded from the diluted earnings per share
         calculation for the years ended December 31, 2001, 2000 and 1999,
         respectively, as well as assumed conversion of $29.2 million (3.1
         million shares) in 2000 and $26.5 million (2.7 million shares) in 1999
         of convertible preferred stock and convertible debentures, as such
         securities were anti-dilutive.

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

<TABLE>
<CAPTION>

                                                                          Year Ended December 31,
                                                                --------------------------------------------
                                                                   2001              2000              1999
                                                                --------          --------          --------
<S>                                                             <C>               <C>               <C>
         Income from continuing operations ............         $ 17,274          $  9,608          $  6,025
         Preferred stock dividends and accretion ......             (298)             (670)           (1,035)
                                                                --------          --------          --------
         Income from continuing operations available
             to common stockholders (basic) ...........           16,976             8,938             4,990
         Interest on convertible debt .................            1,044                --                42
         Preferred stock dividends and accretion ......              298                --                --
                                                                --------          --------          --------
         Income from continuing operations available
             to common stockholders (diluted) .........         $ 18,318          $  8,938          $  5,032
                                                                ========          ========          ========
         Weighted average shares outstanding (basic) ..           21,510            18,040            11,090
         Assumed conversion:
             Options and warrants .....................            1,196               227               379
             Convertible debentures and preferred stock            2,644                --               196
                                                                --------          --------          --------
         Weighted average shares outstanding (diluted)            25,350            18,267            11,665
                                                                ========          ========          ========
</TABLE>


                                      F-10
<PAGE>


                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.       DISCONTINUED OPERATIONS

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

         In December 2000, the Company sold KSLP for $32.5 million in cash,
         including $3.5 million which was in escrow at December 31, 2000. A
         gain of $21.0 million was recognized. In December 2000, the Company
         sold substantially all of the assets and business of KSC for $6 million
         in cash, including $2 million which was in escrow at December 31, 2000.
         A loss of $2.6 million was recognized. As of December 31, 2001, $2.2
         million remains in escrow under terms of the sale agreements.

         Total revenue for the trailer manufacturing business was $34.7 million
         and $44.3 million for the years ended December 31, 2000 and 1999,
         respectively. Interest expense of $7.3 million was charged to the
         manufacturing business in 2000, representing the interest expense for
         the portion of the asset sale bridge note, which was repaid with the
         proceeds from the sale of the trailer manufacturing business. (Loss)
         income before income taxes for the trailer manufacturing business was
         ($4.9) million and $6.2 million for the years ended December 31, 2000
         and 1999, respectively.

4.       ACQUISITIONS

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

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

         On September 3, 1999, the Company acquired The Toledo, Peoria and
         Western Railroad Corporation ("TPW") for $17.4 million, including the
         repayment of indebtedness.

         On July 26, 1999, the Company acquired RaiLink Ltd. ("RaiLink") for
         $49.8 million. RaiLink and its 26.3% owned affiliate, Quebec Railway


                                      F-11
<PAGE>

                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.       ACQUISITIONS, continued

         Corporation, operated 11 regional railways with 2,500 miles of track in
         Alberta, the Northwest Territories, Ontario, Quebec and New Brunswick.
         During the fourth quarter of 2000, the Company sold its interest in the
         Quebec Railway Corporation.

         On April 30, 1999, the Company purchased the assets and liabilities
         comprising the railroad freight business of V/Line Freight Corporation
         ("VLF"), now known as Freight Australia. Under the acquisition
         agreement the Company acquired all of the locomotives, wagons, motor
         vehicles, equipment, stock, spare parts inventory and accounts
         receivable, certain business, brand and trade names and trademarks, and
         the outstanding business contracts of VLF for a purchase price of $49.0
         million. In connection with the acquisition, Freight Australia also
         entered into other agreements, including a primary 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 Australia received a 45-year lease of the
         non-electrified intrastate Victorian railway tracks and infrastructure.
         Freight Australia prepaid in cash the net present value of the rental
         payments for the infrastructure lease totaling approximately $54.0
         million. Freight Australia commenced operations of the rail-based
         freight business on May 1, 1999.

5.       DISPOSITIONS

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

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

6.       OTHER BALANCE SHEET DATA

         Other current assets consist of the following as of December 31, 2001
         and 2000 (in thousands):

                                                        2001      2000
                                                      --------   -------
         Track supplies..........................      $7,702    $10,068
         Prepaid expenses and other..............       6,502      9,483
                                                      --------   -------
                                                      $14,204    $19,551
                                                      ========   =======
         At December 31, 2000, $1.15 million of notes receivable from related
         parties are included in other current assets on the consolidated
         balance sheet. All obligations were paid in full in 2001.



                                      F-12
<PAGE>

                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.       OTHER BALANCE SHEET DATA, continued

         Other assets consist of the following as of December 31, 2001 and 2000
(in thousands):

                                           2001            2000
                                          -------         -------

         Deferred loan costs, net         $13,797         $16,808
         Deposits and other .....           7,935           7,831
                                          -------         -------
                                          $21,732         $24,639
                                          =======         =======

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

         Accrued expenses consist of the following as of December 31, 2001 and
2000 (in thousands):

                                                          2001            2000
                                                        -------         -------

         Accrued interest expense .............         $ 8,382         $10,727
         Accrued compensation and benefits.....           5,893           5,633
         Other accrued liabilities ............          25,614          30,945
                                                        -------         -------
                                                        $39,889         $47,305
                                                        =======         =======

         Minority interest and other liabilities consist of the following as of
         December 31, 2001 and 2000 (in thousands):

                                                       2001            2000
                                                    -------         -------
         Interest rate swaps ..............         $15,155         $    --
         Minority interest ................          11,834          10,484
         Accrued liabilities ..............          12,043          10,970
         Long service leave ...............           6,009           6,565
         Annual leave .....................           3,742           3,677
         Other ............................           2,005           3,348
                                                    -------         -------
                                                    $50,788         $35,044
                                                    =======         =======

7.       PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consist of the following as of December
         31, 2001 and 2000 (in thousands):

                                                   2001             2000
                                                 --------         --------

         Land ..........................         $133,643         $127,737
         Buildings and improvements ....           15,963           14,665
         Railroad track and improvements          504,491          460,108
         Locomotives, transportation and
          other equipment ..............          147,489          151,786
                                                 --------         --------
                                                  801,586          754,296
         Less: accumulated depreciation            62,811           39,276
                                                 --------         --------
                                                 $738,775         $715,020
                                                 ========         ========

                                      F-13
<PAGE>


                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.       PROPERTY, PLANT AND EQUIPMENT, continued

         The Company completed $8.4 million and $22.2 million in locomotive
         sale/leaseback transactions in 2001 and 2000, respectively.

         In the fourth quarter of 1999, a $4.1 million gain was recognized on an
         insurance settlement from an accident which destroyed certain
         locomotives and railcars in Australia.

8.       LONG-TERM DEBT AND LEASES

         Long-term debt consists of the following as of December 31, 2001 and
         2000 (in thousands):

<TABLE>
<CAPTION>

                                                                                  2001             2000
                                                                                --------         --------
<S>                                                                             <C>              <C>
         Senior credit facilities, see below ..........................         $267,752         $319,714

         Credit facility with Banco de Desarrollo, see below ..........           11,678           10,462

         Credit facility with Banco Security, interest rate
         rate of 7.12% - 8.74% ........................................            7,325            7,499

         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, collateralized
         by corporate office building .................................            5,833            5,927

         Other long-term debt .........................................            9,099           15,254
                                                                                --------         --------
                                                                                 301,687          358,856
         Less current maturities ......................................           24,484           20,558
                                                                                --------         --------
             Long-term debt, less current maturities ..................         $277,203         $338,298
                                                                                ========         ========
</TABLE>

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

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


                                      F-14
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.       LONG-TERM DEBT AND LEASES, continued

         2005. The outstanding balances as of December 31, 2001 of the Term A
         and Term B loans are $83.6 million and $184.1 million, respectively.
         There was no outstanding balance on the revolving loan as of December
         31, 2001 as compared to $17.7 million outstanding as of December
         31, 2000.

         The Company's borrowings include covenants which impose financial and
         operating restrictions on the Company's ability to, among other things:
         incur more debt; pay dividends, redeem or repurchase its stock in
         excess of $2 million per year or make other distributions; make
         acquisitions or investments; use assets as security in other
         transactions; enter into transactions with affiliates; merge or
         consolidate with others; dispose of assets or use asset sale proceeds;
         create liens on its assets; and extend credit. The facilities also
         contain financial covenants that require the Company to meet a number
         of financial ratios and tests. As of December 31, 2001, we were in
         compliance with these financial covenants.

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

         In February 1999, Ferronor refinanced certain short-term debt with
         Banco de Desarrollo. The refinancing consists of two credit lines. The
         first credit line is a $5.0 million facility which bears interest at
         the interbank cost plus 1.75% (9.05% at December 31, 2001) 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% (5.71% at December 31, 2001) and is
         payable in 120 equal monthly installments (including interest).

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

              2002.......................................    $  24,484
              2003.......................................       28,836
              2004.......................................       29,658
              2005.......................................       29,668
              2006.......................................      179,757
              Thereafter.................................        9,284
                                                              --------
                                                              $301,687
                                                              ========

         During the years ended December 31, 2001, 2000 and 1999 interest of
         approximately $668, $1,257 and $1,386, respectively, was capitalized
         for on-going capital improvement projects.

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


                                      F-15
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.       LONG-TERM DEBT AND LEASES, continued

         Leases

         The Company has several equipment finance leases for equipment. Certain
         of these leases are accounted for as capital leases and are presented
         separately below.

         Minimum annual lease commitments at December 31, 2001 are as follows
         (in thousands):

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

         2002 .........................         $    832         $ 18,039
         2003 .........................              253           15,469
         2004 .........................               66           14,539
         2005 .........................               18           13,890
         2006 .........................               15           13,026
         Thereafter ...................               --           25,176
                                                --------         --------
                                                $  1,184         $100,139
                                                ========         ========

         Rental expense under operating leases was approximately $16.0 million,
         $9.0 million and $3.4 million for the years ended December 31, 2001,
         2000 and 1999, respectively.

9.       SUBORDINATED DEBT

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

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

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

         In August 1999, the Company issued $22.5 million aggregate principal
         amount of junior convertible subordinated debentures. Interest on the
         debentures accrues at the rate of 6% per annum and is payable
         semi-annually. The debentures are convertible, at the option of the
         holder, into shares of RailAmerica at a conversion price of $10. The
         debentures mature on July 31, 2004, are general unsecured obligations
         and rank subordinate in right of payment to

                                      F-16
<PAGE>


                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.       SUBORDINATED DEBT, continued

         all senior indebtedness. At RailAmerica's option, the debentures may
         be redeemed at par plus accrued interest, in whole or in part, if the
         closing price of RailAmerica's common stock is above $20 for 10
         consecutive trading days. During 2001 and 2000, $0.39 million and
         $0.35  million, respectively, of the junior convertible subordinated
         debentures were converted into common stock.

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

10.      REDEEMABLE PREFERRED STOCK

         In January 1999, the Company completed a private offering of $11.6
         million of Series A Convertible Redeemable Preferred Stock ("Preferred
         Stock"). The Company sold 464,400 shares of Preferred Stock at a price
         of $25 per share. The Preferred Stock paid annual dividends of 7.5%,
         was convertible into shares of the Company's common stock at a price of
         $8.25 per share and was non-voting. During 1999, 86,000 shares of the
         Preferred Stock were converted and 100,000 shares were converted in
         2000. Accretion of costs was $56,309, $119,681 and $192,510 for the
         years ended December 31, 2001, 2000 and 1999 respectively.

         A company owned by a director of the Company served as the exclusive
         placement agent for this private placement. The Company paid a total of
         $0.8 million in placement fees and cost reimbursements on this
         transaction and issued two-year warrants to purchase 140,727 shares of
         common stock at an exercise price of $8.25 per share. The warrants
         expired unexercised on January 31, 2001.

         In July 2001, all of the Company's outstanding convertible preferred
         stock was converted into common stock and other convertible securities
         were exercised, resulting in the issuance of 842,400 shares of
         common stock and increasing stockholders' equity by $6.7 million.

11.      COMMON STOCK TRANSACTIONS

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

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

         In August 1999, the Company issued warrants to purchase 676,363 shares

                                      F-17
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



11.      COMMON STOCK TRANSACTIONS, continued

         of common stock to the investors in the private offering of its junior
         convertible subordinated debentures. The warrants are exercisable
         through 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 through July 31, 2001 were issued to the placement agent in
         connection with the private offering. These warrants were exercised
         during 2001.

         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 $8.81 per share and issued approximately
         212,000 warrants to purchase an equivalent number of shares of common
         stock at an exercise price of $10.13 per share within one year of the
         transaction's closing date. A company owned by one of the Company's
         directors 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 $10.13. All of the warrants issued for this transaction
         expired unexercised on March 3, 2000.

12.      INCOME TAX PROVISION

         Income before income taxes for the years ended December 31, 2001, 2000
         and 1999 consists of (in thousands):
<TABLE>
<CAPTION>

                                                      2001             2000             1999
                                                     -------         --------          -------
<S>                                                  <C>             <C>               <C>
         Domestic ..........................         $ 2,288         $ (8,723)         $ 2,868
         Foreign subsidiaries ..............          19,991           26,334            8,566
                                                     -------         --------          -------
                                                     $22,279         $ 17,611          $11,434
                                                     =======         ========          =======
</TABLE>

         The provision for income taxes for the years ended December 31, 2001,
         2000 and 1999 consists of (in thousands):
<TABLE>
<CAPTION>

                                                      2001             2000             1999
                                                     -------          -------          -------
<S>                                                  <C>              <C>              <C>
         Federal income taxes:
           Current .........................         $    --          $   334          $    15
           Deferred ........................             801            2,494            1,234
                                                     -------          -------          -------
                                                         801            2,828            1,249
                                                     -------          -------          -------
         State income taxes:
           Current .........................             437              700              149
           Deferred ........................             565           (1,548)            (106)
                                                     -------          -------          -------
                                                       1,002             (848)              43
                                                     -------          -------          -------
         Foreign income taxes
           Current .........................           1,500            2,435              857
           Deferred ........................           4,737            1,535            2,197
           Change in tax law ...............          (3,177)              --           (2,835)
                                                     -------          -------          -------
                                                       3,060            3,970              219
                                                     -------          -------          -------
         Total income tax provision ........         $ 4,863          $ 5,950          $ 1,511
                                                     =======          =======          =======
</TABLE>

                                      F-18
<PAGE>




                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.      INCOME TAX PROVISION, continued

         The following summarizes the total income tax provisions for each of
         the years ended December 31, 2001, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>

                                                    2001             2000             1999
                                                   -------          -------          -------
<S>                                                <C>              <C>              <C>
         Continuing operations ...........         $ 5,005          $ 2,950          $  (787)
         Discontinued operations .........              --            5,200            2,298
         Extraordinary item ..............            (142)          (2,200)              --
                                                   -------          -------          -------
         Total income tax provision ......         $ 4,863          $ 5,950          $ 1,511
                                                   =======          =======          =======
</TABLE>

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

                                                                             2001             2000             1999
                                                                            -------          -------          -------
<S>                                                                         <C>              <C>              <C>
         Income tax provision, at 35% .............................         $ 7,798          $ 4,406          $ 1,833
         Net benefit due to difference between U.S. &
             Foreign tax rates ....................................            (629)            (206)            (561)
         Net benefit due to tax law changes in Australia ..........              --               --           (2,835)
         Net benefit due to tax law changes in Canada .............          (3,177)              --               --
         Amortization of non-deductible warrants ..................              --             (602)             602
         Other, net ...............................................             383             (559)             344
         Valuation allowance ......................................             630              (89)            (170)
                                                                            -------          -------          -------
         Tax provision............................................          $ 5,005          $ 2,950          $  (787)
                                                                            =======          =======          =======
</TABLE>

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

         The components of deferred income tax assets and liabilities as of
         December 31, 2001 and 2000 are as follows (in thousands):

                                                     2001               2000
                                                  ---------          ---------
         Deferred tax assets:
         --------------------
         Net operating loss carryforward          $  26,178          $  11,829
         Alternative minimum tax credit .               783              1,125
         Accrued expenses ...............            12,973              5,201
         Other ..........................                24              1,128
                                                  ---------          ---------
             Total deferred tax assets ..            39,958             19,283
         Less: valuation allowance ......            (3,357)              (999)
                                                  ---------          ---------
             Total deferred tax assets, net.         36,601             18,284

         Deferred tax liabilities:
         -------------------------
         Property, plant and equipment ..           132,806            107,188
         Deferred revenue ...............               617             (2,478)
         Other ..........................                --                862
                                                  ---------          ---------
             Net deferred tax liability .         $ (96,822)         $ (87,288)
                                                  =========          =========


                                      F-19
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.      INCOME TAX PROVISION, continued

         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 $3.4 million at December 31, 2001 and $1.0 million at
         December 31, 2000, respectively.

         The following is a summary of net operating loss carryforwards by
         jurisdiction as of December 31, 2001 (in thousands):

                                          AMOUNT          EXPIRATION PERIOD
                                          ------          -----------------
         U.S. - Federal               $   38,495          2003 - 2021
         U.S. - State                    120,098          2002 - 2021
         Chile                             1,825          None
         Australia                        18,099          None
         Canada                            6,023          2004 - 2008
                                       ---------
                                        $184,540
                                       =========

         As part of certain acquisitions, the Company acquired net operating
         loss carryforwards for federal and state income tax purposes. The
         utilization of the acquired tax loss carryforwards may be limited
         by the Internal Revenue Code Section 382. These tax loss carryforwards
         expire in the years 2002 through 2010.

         No provision was made in 2001 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.

13.      STOCK OPTIONS

         The Company has stock option plans under which employees and
         non-employee directors may be granted options to purchase shares of the
         Company's common stock at the fair market value at the date of grant.
         Options generally vest in two or three years and expire in ten years
         from the date of the grant.

         The Company has adopted the disclosure-only provisions of SFAS No. 123,
         "Accounting for Stock-Based Compensation". Accordingly, no compensation
         costs have been recognized for the stock options issued during 2001,
         2000 and 1999 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
         these years 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):


                                      F-20
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.      STOCK OPTIONS, continued
<TABLE>
<CAPTION>

                                                               2001               2000               1999
                                                            ----------         ----------         ----------
<S>                                                         <C>                <C>                <C>
         Net income - as reported .................         $   17,038         $   11,661         $    9,921
         Net income - pro forma ...................         $   12,689         $    8,076         $    8,972

         Basic net income per share - as reported .         $     0.78         $     0.61         $     0.80
         Basic net income per share - pro forma ...         $     0.58         $     0.41         $     0.72
         Diluted net income per share - as reported         $     0.71         $     0.60         $     0.77
         Diluted net income per share - pro forma .         $     0.54         $     0.41         $     0.68
</TABLE>


         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 2001, 2000 and 1999:
         dividend yield 0.0%, 0.0% and 0.0%; expected volatility of 41%, 41% and
         40%; risk-free interest rate of 4.6%, 6.5% and 5.8%; and expected lives
         of 5, 5 and 10 years. The weighted average fair value of options
         granted for 2001, 2000 and 1999 were $5.03, $4.75, and $5.86,
         respectively.

         Information regarding the above options for 2001, 2000 and 1999 is as
         follows:
<TABLE>
<CAPTION>

                                                                         WEIGHTED                         WEIGHTED
                                                         NUMBER OF        AVERAGE        NUMBER OF         AVERAGE
                                                        OUTSTANDING      EXERCISE         SHARES          EXERCISE
                                                          SHARES           PRICE        EXERCISABLE         PRICE
                                                      -------------     -----------   -------------      -----------
<S>                                                      <C>                <C>          <C>                  <C>
         Outstanding at January 1, 1999............      1,537,001          $5.40
         Granted...................................        455,000          $8.97
         Exercised.................................       (141,168)         $4.35
         Forfeited.................................        (10,833)         $5.09
                                                       -----------                       ---------
         Outstanding at December 31, 1999..........      1,840,000          $6.34        1,255,999            $5.40
         Granted...................................      1,882,558          $8.08
         Exercised.................................        (48,969)         $4.78
         Forfeited.................................       (222,498)         $7.64
                                                        ----------                       ---------
         Outstanding at December 31, 2000..........      3,451,091          $7.23        1,937,858            $6.50
         Granted...................................      1,494,289         $11.72
         Exercised.................................       (936,223)         $5.31
         Forfeited.................................        (62,855)         $7.74
                                                       -----------                       ---------
         Outstanding at December 31, 2001..........      3,946,302          $9.37        2,557,233            $8.70
                                                       -----------                       =========
         Authorized at December 31, 2001...........      4,841,169
                                                       ===========

</TABLE>



                                      F-21
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.      STOCK OPTIONS, continued

         The following table summarizes information about stock options
         outstanding at December 31, 2001:

<TABLE>
<CAPTION>

                                        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
         -------------------------------------------------------------------------------------------------
<S>                           <C>              <C>              <C>               <C>              <C>
         $3.50-$5.00          179,200          4.19             $4.53             179,200          $4.53
         $5.01-$7.00          473,272          8.02             $6.36             328,792          $6.33
         $7.01-$9.75        1,913,162          7.57             $8.69           1,599,015          $8.74
         $9.76-$13.00       1,380,668          9.50            $11.97             450,226         $11.97
                            ---------                                          ----------
                            3,946,302                                           2,557,233
                            =========                                           =========
</TABLE>


         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 certain dates during the year.
         For the years ended December 31, 2001, 2000 and 1999, 21,943, 11,749
         and 16,500 shares of common stock, respectively, were sold to employees
         under this plan.

14.      NONCASH INVESTING AND FINANCING ACTIVITIES

         Cash paid for interest from continuing operations during 2001, 2000 and
         1999 was $54.6 million, $41.2 million and $16.3 million, respectively.
         Cash paid(received) for income taxes during 2001, 2000 and 1999 was
         $(1.1) million, $4.0 million and $1.3 million, respectively.

<TABLE>
<CAPTION>

                                                                    2001              2000               1999
                                                                 ---------         ---------          ---------
<S>                                                              <C>               <C>                <C>
         Common stock issued for businesses acquired ...         $      --         $  60,773          $      --
         Warrants issued for business acquired .........                --                --              3,031
         Debt issued for business acquired .............                --           105,376            173,493
         Acquisition costs accrued .....................                --                --              4,897
         Details of acquisitions:
             Working capital components, other than cash                --             6,109             (5,827)
             Property and equipment ....................                --          (390,468)          (217,965)
             Other assets ..............................                --            (6,980)            (4,834)
             Deferred loan costs .......................                --                --             (6,959)
             Goodwill ..................................                --                --               (972)
             Notes payable and loans payable ...........                --             3,148             35,466
             Deferred income taxes payable .............                --            73,120             11,217
                                                                 ---------         ---------          ---------
         Net cash used in acquisitions .................         $      --         $(148,922)         $  (8,453)
                                                                 =========         =========          =========

</TABLE>

                                      F-22
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.      FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

         Fuel costs represented 8.1% of total revenues during 2001. Due to the
         significance of fuel expenses to the operations of the Company and the
         historical volatility of fuel prices, the Company periodically hedges
         against fluctuations in the price of its fuel purchases. Each one-cent
         increase in the price of fuel would result in $0.03 million of
         additional fuel expense on a monthly basis.

         The fuel hedging program includes the use of derivatives that are
         accounted for as cash flow hedges. As of December 31, 2001, the
         Company had entered into fuel swap agreements to hedge the equivalent
         of approximately 27% of its projected 2002 North American fuel
         consumption at an average price of approximately $0.87 cents per
         gallon, including transportation and taxes. The fair value of the fuel
         swaps were not material at December 31, 2001.

         Interest on the Company's senior credit facility is payable at variable
         rates indexed to LIBOR. To partially mitigate the volatility of LIBOR,
         the Company entered into two interest rate swaps in May 2000. These
         swaps are accounted for as cash flow hedges under SFAS No. 133 and
         qualify for the short cut method of recognition. The interest rate
         swaps locked in a LIBOR rate of 7.23% on $212.5 million of debt for a
         three-year period. In 2001, we extended the interest rate swaps for two
         years and reduced the LIBOR rate to 6.723%. Fluctuations in the market
         interest rate will affect the cost of our remaining borrowings. The
         effect of each 1% increase in interest on the remaining borrowings
         would result in an increase in interest expense of $1.0 million. At
         December 31,2001, AOCL included a $9.4 million charge, net of taxes,
         relating to the interest rate swaps.

         Management believes that the fair value of its senior long-term debt
         approximates its carrying value based on the variable rate nature of
         the financing, and for all other long-term debt based on current
         borrowing rates available with similar terms and maturities. The fair
         value of the senior subordinated notes is $133.9 million as of December
         31, 2001, based on the quoted market price.

16.      PENSION AND OTHER BENEFIT PROGRAMS

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

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




                                      F-23
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.      PENSION AND OTHER BENEFIT PROGRAMS, continued

         The following chart summarizes the benefit obligations, assets, funded
         status and rate assumptions associated with the defined benefit plan
         for the years ended December 31, 2001 and December 31, 2000
         (in thousands):
<TABLE>
<CAPTION>

                                                                  JANUARY 1, 2001 TO     JANUARY 1, 2000 TO
                                                                  DECEMBER 31, 2001      DECEMBER 31, 2000
                                                                  -----------------      -----------------

<S>                                                                     <C>                    <C>
         EXCHANGE RATE BEGINNING OF YEAR .................              $  0.67                $  0.69
         EXCHANGE RATE END OF YEAR .......................              $  0.63                $  0.67

         CHANGE IN BENEFIT OBLIGATION
         Benefit obligation at beginning of period .......              $ 3,114                $ 2,853
         Service cost ....................................                   60                     62
         Interest cost ...................................                  205                    194
         Plan participants' contributions ................                   89                     91
         Benefits paid ...................................                    0                     (3)
         Foreign currency exchange rate changes ..........                 (186)                   (83)
                                                                        -------                -------
         Benefit obligation at end of period .............              $ 3,282                $ 3,114
                                                                        =======                =======

         CHANGE IN PLAN ASSETS
         Fair value of plan assets at beginning of period               $ 3,201                $ 2,655
         Actual return on plan assets ....................                  (54)                   388
         Employer contribution ...........................                  101                    106
         Plan participants' contributions ................                  106                    132
         Benefits paid ...................................                    0                     (3)
         Foreign currency exchange rate changes ..........                 (190)                   (77)
                                                                        -------                -------
         Fair value of plan assets at end of period ......              $ 3,164                $ 3,201
                                                                        =======                =======

         Funded status - prepaid (accrued) benefit cost ..              $  (118)               $    87
                                                                        =======                =======

         ASSUMPTIONS
         Discount rate ...................................                 7.00%                  7.00%
         Expected return on plan assets ..................                 8.00%                  8.00%
         Rate of compensation increase ...................                 4.50%                  4.50%

         COMPONENTS OF NET PERIODIC BENEFIT COST IN PERIOD
         Service cost ....................................              $    60                $    62
         Interest cost ...................................                  205                    194
         Expected return on plan assets ..................                 (241)                  (206)
         Amortization of prior service cost ..............                   15                     16
                                                                        -------                -------
         Net periodic pension cost .......................              $    39                $    66
                                                                        =======                =======

</TABLE>

                                      F-24
<PAGE>



                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



16.      PENSION AND OTHER BENEFIT PROGRAMS, continued

         Freight Australia's employees participate in the Victorian government's
         super annuation funds. The contributions made by Freight Australia are
         as follows for the year ended December 31, 2001, 2000 and the period
         from May 1, 1999 to December 31, 1999 (in thousands):

                                                    2001        2000      1999
                                                   ------      ------      ----
         Victorian Superannuation Fund ......      $  229      $  140      $ 62
         State Superannuation Fund ..........         783         972       647
         Transport Fund .....................         244         263       194
         Freight Victoria Fund ..............         177         161        53
         Superannuation Trust of Australia...         133          --        --
                                                   ------      ------      ----
             Total contributions ............      $1,566      $1,536      $956
                                                   ======      ======      ====

         DEFINED CONTRIBUTION - The defined contribution component applies to a
         majority of the Company's Canadian railroad employees that are not
         covered by the defined benefit component. The Company contributes 3% of
         a participating employee's salary to the plan. Pension expense for the
         year ended December 31, 2001, 2000 and for the period August 1, 1999 to
         December 31, 1999 for the defined contribution members was $0.3
         million, $0.2 million and $0.1 million, respectively.

         PROFIT SHARING PLAN - The Company maintains a contributory profit
         sharing plan as defined under Section 401(k) of the U.S. Internal
         Revenue Code. The Company made contributions to this plan at a rate of
         50% of the employees' contribution up to a maximum annual contribution
         of $1,500 per eligible employee. An employee becomes 100% vested with
         respect to the employer contributions after completing five years of
         service. Employer contributions during the years ended December 31,
         2001, 2000 and 1999 were approximately $484,000, $286,000 and $81,000,
         respectively.

17.      COMMITMENTS AND CONTINGENCIES

         In 2000, certain parties filed property damage claims totaling
         approximately $32.5 million against RaiLink Ltd. and RaiLink Canada
         Ltd., wholly-owned subsidiaries of RailAmerica, and others in
         connection with fires that allegedly occurred in 1998. The Company
         intends to vigorously defend these claims, and has insurance coverage
         to approximately $13.0 million to cover these claims. The Company's
         insurer has reserved $9.8 million for these matters. A loss, if any, in
         excess of our insurance policy coverage may adversely affect the
         Company's cash flow and financial condition.

         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.

                                      F-25
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.      COMMITMENTS AND CONTINGENCIES, continued

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

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

18.      SUBSEQUENT EVENTS

         In January 2002, the Company acquired StatesRail, a privately owned
         group of railroads headquartered in Dallas, Texas, which owns and
         operates eight railroads (including seven freight railroads and a
         tourist railroad in Hawaii) with 1,647 miles of track in 11 states.
         Total consideration for the acquisition was $90 million, consisting of
         $67 million in cash and $23 million (1.7 million shares) in the
         Company's common stock.

         In January 2002, the Company acquired ParkSierra Corp. for
         consideration of $48 million, consisting of $23 million in cash and $25
         million (1.8 million shares) in the Company's common stock. ParkSierra,
         headquartered in Napa, California, consists of the Arizona & California
         Railroad, the California Northern Railroad and the Puget Sound &
         Pacific Railroad. These railroads operate 703 miles of track in four
         western U.S. states.

         In January 2002, the Company borrowed an additional $50 million under a
         Term C loan, which has terms consistent with the Term B loan (see Note
         8).

         On January 14, 2002, the Company submitted a bid for the acquisition of
         National Rail and FreightCorp, two government-owned railroads in
         Australia. Subsequently, the Company was notified that another entity
         was awarded the bid. Accordingly, the Company will record a charge in
         the first quarter of 2002 related to the write-off of direct costs
         incurred in preparing, submitting and financing the bid. Such direct
         costs, of which $2.4 million was billed and deferred as of December 31,
         2001, are currently being negotiated for final settlement.

         In March 2002, the Company sold the Georgia Southwestern Railroad and
         certain operating assets for total consideration of $7.1 million.

19.      SEGMENT INFORMATION

         The Company's continuing operations have been classified into three
         business segments: North American rail transportation, Australian rail
         transportation, and Chilean rail transportation. The North American
         rail transportation segment includes the operations of the Company's
         railroad subsidiaries in the United States and Canada, as well as
         corporate expenses.

         Business and geographical segment information for the years ended
         December 31, 2001, 2000 and 1999 is as follows (dollar amounts in
         thousands):

                                      F-26
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         YEAR ENDED DECEMBER 31, 2001:

<TABLE>
<CAPTION>

                                                               NORTH AMERICA
                                                          -------------------------
                                            CONSOLIDATED   UNITED STATES     CANADA        CHILE       AUSTRALIA
                                            ------------   -------------     ------        -----       ---------
<S>                                            <C>           <C>             <C>          <C>          <C>
         Revenue ........................      $369,631      $ 184,216       $61,900      $22,085      $101,430
         Depreciation and
           amortization .................      $ 27,601      $  13,938       $ 3,523      $ 3,208      $  6,932
         Income (loss) before
         income taxes ...................      $ 22,279      $   6,172       $ 2,271      $ 1,161      $ 12,675
         Interest expense ...............      $ 53,480      $  43,464       $ 6,565      $ 3,195      $    256
         Total assets ...................      $891,168      $ 630,607       $87,952      $59,342      $113,267
         Capital expenditures ...........      $ 61,675      $  29,148       $ 9,869      $ 2,444      $ 20,214
</TABLE>


         YEAR ENDED DECEMBER 31, 2000:
<TABLE>
<CAPTION>

                                                               NORTH AMERICA
                                                          -------------------------
                                            CONSOLIDATED   UNITED STATES     CANADA        CHILE       AUSTRALIA
                                            ------------   -------------     ------        -----       ---------
<S>                                            <C>           <C>             <C>          <C>          <C>
         Revenue ........................      $357,936      $ 169,354       $63,505      $22,873      $102,204
         Depreciation and
           amortization .................      $ 26,021      $  14,052       $ 4,253      $ 2,278      $  5,438
         Income (loss) before
         income taxes ...................      $ 12,558      $ (19,194)      $13,752      $   954      $ 17,046
         Interest expense ...............      $ 55,950      $  52,665       $   431      $ 2,383      $    471
         Total assets ...................      $839,703      $ 635,746       $83,724      $57,629      $ 62,604
         Capital expenditures ...........      $ 62,499      $  24,566       $ 9,570      $10,018      $ 18,345

</TABLE>



         YEAR ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>

                                                               NORTH AMERICA
                                                          -------------------------
                                            CONSOLIDATED   UNITED STATES     CANADA        CHILE       AUSTRALIA
                                            ------------   -------------     ------        -----       ---------
<S>                                            <C>           <C>             <C>          <C>          <C>
         Revenue ........................      $129,818      $  27,166       $20,179      $19,115      $ 63,358
         Depreciation and
           amortization .................      $  9,179      $   2,428       $ 2,091      $ 1,231      $  3,429
         Income (loss) before
         income taxes ...................      $  5,238      $  (2,979)      $   919      $ 1,473      $  5,825
         Interest expense ...............      $ 20,490      $   8,129       $ 3,203      $ 1,595      $  7,563
         Total assets ...................      $428,932      $ 115,295       $99,038      $52,022      $162,577
         Capital expenditures ...........      $ 51,391      $  14,604       $11,841      $13,389      $ 11,557
</TABLE>



20.      UNAUDITED QUARTERLY FINANCIAL DATA

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

                                                FIRST       SECOND        THIRD        FOURTH
                                               QUARTER      QUARTER      QUARTER       QUARTER
                                               -------      -------      -------       -------
<S>                                             <C>          <C>          <C>          <C>
         Operating revenue ...............      $91,955      $93,460      $93,173      $91,043
         Operating income ................      $ 7,943      $19,578      $19,061      $18,158
         Income(loss) from continuing
           operations ....................      $ 2,787      $ 4,153      $ 5,155      $ 5,179
         Net income (loss) ...............      $ 2,787      $ 4,153      $ 4,919      $ 5,179
         Basic income (loss) from
           continuing operations per share      $  0.15      $  0.21      $  0.22      $  0.20
         Diluted income (loss) from
           continuing operations per share      $  0.14      $  0.19      $  0.20      $  0.19
</TABLE>


                                      F-27
<PAGE>


                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



         Quarterly financial data for 2000 is as follows (in thousands, except
         per share amounts):

<TABLE>
<CAPTION>

                                                  FIRST       SECOND      THIRD         FOURTH
                                                 QUARTER      QUARTER    QUARTER        QUARTER
                                                 -------      -------    -------        -------
<S>                                             <C>          <C>          <C>          <C>
         Operating revenue ...............      $ 80,807       $95,908      $90,896      $90,325
         Operating income ................      $ 13,942       $24,961      $16,863      $14,268
         Income (loss) from continuing
           operations ....................      $   (889)      $ 7,588      $ 1,844      $ 1,065
         Net income (loss) ...............      $ (3,182)      $ 7,553      $   237      $ 7,053
         Basic income (loss) from
           continuing operations per share      $  (0.06)      $  0.40      $  0.09      $  0.05
         Diluted income (loss) from
           continuing operations per share      $  (0.06)      $  0.36      $  0.09      $  0.05



</TABLE>

                                      F-28
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21.      GUARANTOR FINANCIAL STATEMENT INFORMATION

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

RAILAMERICA, INC.

CONSOLIDATING BALANCE SHEET
At December 31, 2001
(in thousands)


<TABLE>
<CAPTION>

                                                                                           NON
                                                             COMPANY      GUARANTOR      GUARANTOR
                                                ISSUER      (PARENT)     SUBSIDIARIES   SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED
                                              ----------   -----------  ------------   ------------  ------------  -------------
<S>                                           <C>           <C>           <C>           <C>           <C>          <C>
ASSETS
Current Assets:
  Cash .....................................  $      --     $  38,049     $     457     $  21,254     $     --       $  59,761
  Cash held in escrow ......................         --           245         2,000           173           --           2,418
  Accounts and notes receivable ............         --           911        29,353        24,014           --          54,278
  Other current assets .....................         11         1,344         5,801         7,048           --          14,204
                                              ---------     ---------     ---------     ---------     --------       ---------
        Total current assets ...............         11        40,550        37,611        52,489           --         130,661
                                              ---------     ---------     ---------     ---------     --------       ---------
Property, plant and equipment, net .........         48           929       434,137       303,662           --         738,775
Other assets ...............................     12,884         3,518        (5,180)       10,510           --          21,732
Investment in and advances to affiliates ...    344,002       200,103         6,231     (113,810)     (436,526)             --
                                              ---------     ---------     ---------     ---------     --------       ---------
        Total assets .......................  $ 356,945     $ 245,099     $ 472,799     $ 252,850    $(436,526)      $ 891,168
                                              =========     =========     =========     =========     ========       =========

LIABILITIES, REDEEMABLE PREFERRED
    STOCK AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Current maturities of long-term debt .....  $  16,635     $      --     $   2,695     $   6,853     $ (1,699)      $  24,484
  Accounts payable .........................         --         1,831        15,667        18,536           --          36,035
  Accrued expenses .........................      7,638         1,356        18,635        12,260           --          39,889
                                              ---------     ---------     ---------     ---------     --------       ---------
        Total current liabilities ..........     24,273         3,187        36,997        37,649       (1,699)        100,408
                                              ---------     ---------     ---------     ---------     --------       ---------
Long-term debt, less current maturities ....    251,117            --         8,842        17,244           --         277,203
Subordinated debt ..........................    118,942        20,679            --         5,367           --         144,988
Deferred income taxes ......................    (28,978)      (12,607)      108,991        29,417           --          96,822
Minority interest and other liabilities ....     15,155             2        20,317        20,729       (5,415)         50,788
Redeemable convertible preferred stock .....         --            --            --            --           --              --
Stockholders' equity:
  Common stock .............................         --            29         5,565        62,035      (67,600)             29
  Additional paid-in capital ...............         --       224,248       278,322        45,623     (323,945)        224,248
  Retained earnings ........................    (14,118)        9,561        37,499        50,826      (37,867)         45,902
  Accumulated other comprehensive income ...     (9,446)           --       (23,734)      (16,040)          --         (49,220)
                                              ---------     ---------     ---------     ---------     --------       ---------
        Total stockholders' equity .........    (23,564)      233,839       297,652      142,444     (429,412)        220,959
                                              ---------     ---------     ---------     ---------     --------       ---------
        Total liabilities, redeemable
          preferred stock and
          stockholders' equity .............  $ 356,945     $ 245,099     $ 472,799     $ 252,850   $(436,526)      $ 891,168
                                              =========     =========     =========     =========    =========       =========

</TABLE>

                                      F-29
<PAGE>


                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21.      GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED

RAILAMERICA, INC.

CONSOLIDATING STATEMENT OF INCOME
For the year ended December 31, 2001
(in thousands)



<TABLE>
<CAPTION>

                                                                                           NON
                                                             COMPANY      GUARANTOR      GUARANTOR
                                                ISSUER      (PARENT)     SUBSIDIARIES   SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED
                                              ----------   -----------  ------------   ------------  ------------  -------------
<S>                                           <C>           <C>           <C>           <C>           <C>          <C>
 Operating revenue .........................  $      --     $   1,776     $ 182,047     $ 185,808     $     --        $ 369,631
                                              ---------     ---------     ---------     ---------     --------        ---------

 Operating expenses:
   Transportation ..........................         --            --        94,379       114,693           --          209,072
   Selling, general and administrative .....        185        15,077        32,184        17,206           --           64,652
   Gain on sale and impairment of
      assets (net)..........................         26            --        (6,440)          (20)          --           (6,434)
   Depreciation and amortization ...........      1,031           130        12,777        13,663           --           27,601
                                              ---------     ---------     ---------     ---------     --------        ---------
         Total operating expenses ..........      1,242        15,207       132,900       145,542           --          294,891
                                              ---------     ---------     ---------     ---------     --------        ---------
         Operating (loss) income ...........     (1,242)      (13,431)       49,147        40,266           --           74,740
 Interest expense ..........................    (14,522)       (1,581)      (23,854)      (13,523)          --          (53,480)
 Equity in earnings of subsidiaries ........     25,253        12,614            --            --      (37,867)              --
 Minority interest and other income
      (expense) ............................         --        15,064        (7,490)       (6,555)          --            1,019
                                              ---------     ---------     ---------     ---------     --------        ---------
       Income from continuing
           operations before income taxes ..      9,489        12,666        17,803        20,188      (37,867)          22,279
 Provision for income taxes ................     (3,099)       (4,371)        5,114         7,361           --            5,005
                                              ---------     ---------     ---------     ---------     --------        ---------
       Income before extraordinary item ....     12,588        17,037        12,689        12,827      (37,867)          17,274
 Extraordinary loss from early
    extinguishment of debt (net of tax) ....       (238)           --            --            --           --             (236)
                                              ---------     ---------     ---------     ---------     --------        ---------
         Net income ........................  $  12,352     $  17,037     $  12,689     $  12,827     $(37,867)       $  17,038
                                              =========     =========     =========     =========     ========        =========


</TABLE>

                                      F-30
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED

RAILAMERICA, INC.

Consolidating Statement of Cash Flow
For the year ended December 31, 2001
(in thousands)

<TABLE>
<CAPTION>
                                                                                                Non
                                                                    Company     Guarantor    Guarantor
                                                        Issuer     (Parent)    Subsidiaries Subsidiaries Eliminations  Consolidated
                                                      ---------     --------   ------------ ------------ ------------ -------------
<S>                                                   <C>           <C>          <C>          <C>          <C>          <C>
Cash flows from operating activities:
  Net income .....................................    $  12,352     $ 17,037     $ 12,689     $ 12,827     $(37,867)    $  17,038
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depreciation and amortization ..............        4,584          891       13,853       12,682           --        32,011
      Write-off of deferred loan costs ...........          378           --           --           --           --           378
      Minority interest in income of subsidiary ..           --           --           --        1,350           --         1,350
      Equity in earnings of subsidiaries .........      (25,253)     (12,614)          --           --       37,867            --
      Gain on sale or disposal of properties .....           --           --       (6,428)          (6)          --        (6,434)
      Deferred income taxes ......................       (3,244)      (4,371)       3,904        6,637           --         2,926
      Changes in operating assets and liabilities,
        net of acquisitions and dispositions:
        Accounts receivable ......................           11        1,038        3,450          799           --         5,298
        Other current assets .....................           12         (515)       5,049        4,041           --         8,587
        Accounts payable .........................          (74)       1,294        4,356       (4,404)          --         1,172
        Accrued expenses .........................       (2,249)         218      (11,397)         942           --       (12,485)
        Other liabilities ........................           --            2        1,194          424           --         1,620
        Deposits and other .......................           92          338        2,625          454           --         3,509
                                                      ---------     --------     --------     --------     --------     ---------
          Net cash provided by (used in) operating
            activities ...........................      (13,390)       3,318       29,297       35,745           --        54,970
                                                      ---------     --------     --------     --------     --------     ---------

Cash flows from investing activities:
  Purchase of property, plant and equipment ......           (7)        (421)     (30,674)     (30,573)          --       (61,675)
  Proceeds from sale of properties ...............           --           --       13,592        4,910           --        18,502
  Change in restricted cash in escrow ............           --         (245)       1,291           --           --         1,046
  Deferred acquisition costs and other ...........           --       (2,319)          42       (2,300)          --        (4,577)
                                                      ---------     --------     --------     --------     --------     ---------
          Net cash used in investing activities ..           (7)      (2,985)     (15,749)     (27,962)          --       (46,703)
                                                      ---------     --------     --------     --------     --------     ---------

Cash flows from financing activities:
  Proceeds from issuance of long-term debt .......       84,800           --          649          141           --        85,590
  Principal payments on long-term debt ...........     (136,762)          --       (5,326)          --           --      (142,088)
  Disbursements/receipts on intercompany debt ....       65,360      (58,142)     (11,357)       4,139           --            --
  Sale of Common Stock ...........................           --       89,736           --           --           --        89,736
  Proceeds from exercise of stock options
    and warrants .................................           --        8,343           --           --           --         8,343
  Preferred stock dividends paid .................           --         (241)          --           --           --          (241)
  Purchase of treasury stock .....................           --       (1,987)          --           --           --        (1,987)
  Deferred financing costs paid ..................           --           --           --           --           --            --
                                                      ---------     --------     --------     --------     --------     ---------
          Net cash provided by (used in)
            financing activities .................       13,398       37,709      (16,034)       4,280           --        39,353
                                                      ---------     --------     --------     --------     --------     ---------

Net (decrease) increase in cash ..................           --       38,042       (2,487)      12,063           --        47,619
Effect of exchange rates on cash .................           --           --           --        (948)           --          (948)
Cash, beginning of period ........................           --            7        2,944       10,139           --        13,090
                                                      ---------     --------     --------     --------     --------     ---------
Cash, end of period ..............................    $      --     $ 38,049     $    457     $ 21,254     $     --     $  59,761
                                                      =========     ========     ========     ========     ========     =========

</TABLE>




                                      F-31
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21.  GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED

RAILAMERICA, INC.
Consolidating Balance Sheet
At December 31, 2000
(in thousands)


<TABLE>
<CAPTION>
                                                                                               Non
                                                                   Company     Guarantor    Guarantor
                                                    Issuer        (Parent)   Subsidiaries  Subsidiaries  Eliminations  Consolidated
                                                   ---------     ---------   ------------  ------------  ------------  ------------
<S>                                                <C>           <C>           <C>           <C>           <C>           <C>
ASSETS

Current Assets:
  Cash                                             $      --     $       7     $   2,943     $  10,140     $      --     $  13,090
  Cash held in escrow                                     --            --         2,525         2,014            --         4,539
  Accounts and notes receivable                           11         1,735        35,682        27,135        (1,699)       62,864
  Other current assets                                    23           829         6,930        11,769            --        19,551
                                                   ---------     ---------     ---------     ---------     ---------     ---------
        Total current assets                              34         2,571        48,080        51,058        (1,699)      100,044
Property, plant and equipment, net                        48           638       415,961       298,373            --       715,020
Other assets                                          15,018         1,899         3,617         4,105            --        24,639
Investment in and advances to affiliates             450,563       164,772        32,037      (161,811)     (485,561)           --
                                                   ---------     ---------     ---------     ---------     ---------     ---------
        Total assets                               $ 465,663     $ 169,880     $ 499,695     $ 191,725     $(487,260)    $ 839,703
                                                   =========     =========     =========     =========     =========     =========

LIABILITIES, REDEEMABLE PREFERRED
    STOCK AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Current maturities of long-term debt             $  13,557     $      --     $   1,427     $   7,273     $  (1,699)    $  20,558
  Accounts payable                                        74           537        13,748        25,393            --        39,752
  Accrued expenses                                     9,888         1,280        19,902        16,235            --        47,305
                                                   ---------     ---------     ---------     ---------     ---------     ---------
        Total current liabilities                     23,519         1,817        35,077        48,901        (1,699)      107,615
Long-term debt, less current maturities              423,818            --      (105,214)       19,694            --       338,298
Subordinated debt                                         --        20,609       117,660         3,142            --       141,411
Deferred income taxes                                (11,664)       (6,842)       92,590        13,204            --        87,288
Minority interest and other liabilities                   --            --        11,500        18,129         5,415        35,044
Redeemable convertible preferred stock                    --         6,613            --            --            --         6,613
Stockholders' equity:
  Common stock                                            --            19           972        27,772       (28,744)           19
  Additional paid-in capital                              --       118,502       310,880        47,314      (358,194)      118,502
  Retained earnings                                   29,990        29,162        36,230        37,818      (104,038)       29,162
  Accumulated other comprehensive income                  --            --            --       (24,249)           --       (24,249)
                                                   ---------     ---------     ---------     ---------     ---------     ---------
        Total stockholders' equity                    29,990       147,683       348,082       (88,655)     (490,976)      123,434
                                                   ---------     ---------     ---------     ---------     ---------     ---------
        Total liabilities, redeemable preferred
          stock and stockholders' equity           $ 465,663     $ 169,880     $ 499,695     $ 191,725     $(487,260)    $ 839,703
                                                   =========     =========     =========     =========     =========     =========




</TABLE>



                                      F-32

<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


21. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED

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


<TABLE>
<CAPTION>
                                                                                             Non
                                                                Company     Guarantor      Guarantor
                                                  Issuer        (Parent)   Subsidiaries  Subsidiaries  Eliminations  Consolidated
                                                 ---------     ---------   ------------  ------------  ------------  ------------
<S>                                              <C>           <C>           <C>           <C>           <C>           <C>
Operating revenue                                $      --     $     594     $ 169,353     $ 188,582     $    (593)    $ 357,936
                                                 ---------     ---------     ---------     ---------     ---------     ---------
Operating expenses:
  Transportation                                        --            --        87,897       123,075            --       210,972
  Selling, general and administrative                  530        11,730        34,090        16,336          (593)       62,093
  Gain on sale and impairment of assets (net)         (762)           --       (10,753)          331            --       (11,184)
  Depreciation and amortization                        944           121        12,987        11,969            --        26,021
                                                 ---------     ---------     ---------     ---------     ---------     ---------
        Total operating expenses                       712        11,851       124,221       151,711          (593)      287,902
                                                 ---------     ---------     ---------     ---------     ---------     ---------
        Operating income                              (712)      (11,257)       45,132        36,871            --        70,034
Interest expense                                   (48,428)       (1,910)       (2,247)       (3,365)           --       (55,950)
Interest in equity of subsidiaries                  55,891        25,301            --            --       (81,192)           --
Minority interest and other income (expense)            --             7           223        (1,756)           --        (1,526)
                                                 ---------     ---------     ---------     ---------     ---------     ---------
      Income from continuing
          operations before income taxes             6,751        12,141        43,108        31,750       (81,192)       12,558
Provision for income taxes                         (11,548)       (3,093)       10,130         7,461            --         2,950
                                                 ---------     ---------     ---------     ---------     ---------     ---------
     Income from continuing operations              18,299        15,234        32,978        24,289       (81,192)        9,608
Discontinued operations:
  Gain on disposal of discontinued segment              --            --        13,527        (2,000)           --        11,527
  Loss from operations of discontinued
    segment                                             --            --        (5,077)        1,851            --        (3,226)
                                                 ---------     ---------     ---------     ---------     ---------     ---------
Income (loss) before extraordinary item             18,299        15,234        41,428        24,140       (81,192)       17,909
Extraordinary loss from early extinguishment
  of debt (net of tax)                              (1,299)       (1,321)       (1,376)           --            --        (3,996)
Cumulative effect of accounting change                  --        (2,252)           --            --            --        (2,252)
                                                 ---------     ---------     ---------     ---------     ---------     ---------
        Net income                               $  17,000     $  11,661     $  40,052     $  24,140     $ (81,192)    $  11,661
                                                 =========     =========     =========     =========     =========     =========

</TABLE>








                                      F-33
<PAGE>

                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED

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

<TABLE>
<CAPTION>

                                                                                                Non
                                                                  Company     Guarantor      Guarantor
                                                    Issuer        (Parent)   Subsidiaries   Subsidiaries Eliminations  Consolidated
                                                   ---------     ---------   ------------   ------------ ------------  ------------
<S>                                                <C>           <C>           <C>           <C>          <C>               <C>
Cash flows from operating activities:
  Net income (loss)                                $  17,000     $  11,661     $  40,052     $  24,140    $  (81,192)     $ 11,661
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depreciation and amortization                    4,594         1,236        15,751        12,985            --        34,566
      Write-off of deferred loan costs                 1,615         1,353           735         1,154            --         4,857
      Interest paid in kind                               --            --         5,806            --            --         5,806
      Minority interest in income of
        subsidiary                                        --            --            --           995            --           995
      Equity interest in earnings of affiliate       (55,891)      (25,301)           --          (554)       81,192          (554)
      (Gain) loss on sale or disposal of
        properties                                      (762)           --       (31,857)        3,065            --       (29,554)
      Cumulative effect of accounting change              --         2,252            --            --            --         2,252
      Deferred income taxes                          (13,984)       (4,431)       20,549        (4,931)           --        (2,797)
      Changes in operating assets and liabilities,
        net of acquisitions and dispositions:
        Accounts receivable                             (356)          745        (2,676)        5,941            --         3,654
        Other current assets                             (23)         (388)       (1,802)        4,668            --         2,455
        Accounts payable                                  74          (240)       (2,977)        5,382            --         2,239
        Accrued expenses                               9,889           295        (2,562)       (1,863)           --         5,759
        Other liabilities                                 --            --         4,671          (600)           --         4,071
        Deposits and other                               263        (1,552)         (392)          704            --          (977)
                                                   ---------     ---------     ---------     ----------    ---------     ---------
          Net cash provided by operating
            activities                               (37,581)      (14,370)       45,297        51,088            --        44,433
                                                   ---------     ---------     ---------     ----------    ---------     ---------

Cash flows from investing activities:
  Purchase of property, plant and equipment              (52)          (26)      (24,034)      (38,387)           --       (62,499)
  Proceeds from sale of properties                        --            --        80,976        15,678            --        96,654
  Acquisitions, net of cash acquired                      --            --      (148,922)           --            --      (148,922)
  Change in cash in escrow                                --            --        (2,507)       (2,032)           --        (4,539)
  Deferred acquisition costs and other                    --        (2,711)           --            --            --        (2,711)
                                                   ---------     ---------     ---------     ----------    ---------     ---------
          Net cash used in investing activities          (52)       (2,737)      (94,486)      (24,742)           --      (122,017)
                                                   ---------     ---------     ---------     ----------    ---------     ---------

Cash flows from financing activities:
  Proceeds from issuance of long-term debt           539,150           986         6,040         3,059            --       549,235
  Principal payments on long-term debt               (97,186)      (11,699)     (156,010)     (183,212)           --      (448,107)
  Disbursements/receipts on intercompany debt       (385,991)       29,805       201,256       154,930            --            --
  Proceeds from exercise of stock options                 --           234            --            --            --           234
  Preferred stock dividends paid                          --          (289)           --            --            --          (289)
  Purchase of treasury stock                              --        (1,992)           --            --            --        (1,992)
  Deferred financing costs paid                      (18,340)          (23)         (617)           --            --       (18,980)
                                                   ---------     ---------     ---------     ----------    ---------     ---------
          Net cash provided by financing
            activities                                37,633        17,022        50,669       (25,223)           --        80,101
                                                   ---------     ---------     ---------     ----------    ---------     ---------

Net (decrease) increase in cash                           --           (85)        1,480         1,123            --         2,517
Effect of exchange rates on cash                          --            --            --        (1,025)           --        (1,025)
Cash, beginning of period                                 --            92         1,464        10,042            --        11,598
                                                   ---------     ---------     ---------     ----------    ---------     ---------
Cash, end of period                                $      --     $       7     $   2,943     $  10,140     $      --     $  13,090
                                                   =========     =========     =========     ==========    =========     =========


</Table>




                                      F-34
<PAGE>
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED

RAILAMERICA, INC.
Consolidating Statement of Income
For the Year Ended December 31, 1999
(in thousands)

<TABLE>
<CAPTION>

                                                                                     Non
                                                    Company       Guarantor       Guarantor
                                                   (Parent)     Subsidiaries    Subsidiaries    Eliminations    Consolidated
                                                  ---------     ------------    ------------    ------------    ------------
<S>                                               <C>             <C>             <C>             <C>             <C>
Operating revenue                                 $      --       $  27,166       $ 102,652       $      --       $ 129,818
                                                  ---------       ---------       ---------       ---------       ---------
Operating expenses:
  Transportation                                         --          13,490          65,949              --          79,439
  Selling, general and administrative                 4,825           4,374          10,351              --          19,550
  Net gain on sale of assets                             --              --          (3,629)             --          (3,629)
  Depreciation and amortization                         108           2,320           6,751              --           9,179
                                                  ---------       ---------       ---------       ---------       ---------
        Total operating expenses                      4,933          20,184          79,422              --         104,539
                                                  ---------       ---------       ---------       ---------       ---------
        Operating income                             (4,933)          6,982          23,231              --          25,279
Interest expense                                     (1,584)         (3,221)        (15,685)             --         (20,490)
Interest in earnings of subsidiaries                 13,934              --              --         (13,934)             --
Minority interest and other income (expense)             45            (267)            671              --             449
                                                  ---------       ---------       ---------       ---------       ---------
      Income from continuing
          operations before income taxes              7,462           3,494           8,217         (13,934)          5,238
Provision for income taxes                           (2,459)          1,328             345              --            (787)
                                                  ---------       ---------       ---------       ---------       ---------
     Income from continuing operations                9,921           2,166           7,872         (13,934)          6,025
Discontinued operations:
  Income from operations of discontinued
    segments                                             --              --           3,896              --           3,896
                                                  ---------       ---------       ---------       ---------       ---------
        Net income                                $   9,921       $   2,166       $  11,768       $ (13,934)      $   9,921
                                                  =========       =========       =========       =========       =========
</TABLE>








                                      F-35


<PAGE>




                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED

RAILAMERICA, INC.
Consolidating Statement of Cash Flows
For the Year Ended December 31, 1999
(In thousands)


<TABLE>
<CAPTION>

                                                                                          Non
                                                           Company       Guarantor      Guarantor
                                                          (Parent)     Subsidiaries    Subsidiaries    Eliminations   Consolidated
                                                         ---------     ------------    ------------    ------------   ------------
<S>                                                      <C>             <C>             <C>             <C>             <C>
Cash flows from operating activities:
  Net income (loss)                                      $   9,921       $   2,166       $  11,768       $  (13,934)     $   9,921
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depreciation and amortization                            855           2,494          10,785               --         14,134
      Minority interest in income of subsidiary                 --              --           1,551           13,934          1,551
      Equity interest in earnings of affiliate             (13,934)             --            (230)              --           (230)
      Gain on insurance settlement                              --              --          (4,069)              --         (4,069)
      Loss (gain) on sale or disposal of properties             56             407            (345)              --            118
      Deferred income taxes                                  1,918          (9,181)         10,665               --          3,402
      Changes in operating assets and liabilities,
        net of acquisitions and dispositions:
        Accounts receivable                                    802           5,533          (8,581)              --         (2,246)
        Other current assets                                   175           1,003          (5,280)              --         (4,102)
        Accounts payable                                      (359)         (3,965)          7,568               --          3,244
        Accrued expenses                                      (203)         (1,963)          5,492               --          3,326
        Other liabilities                                       --              --          (2,294)              --         (2,294)
        Deposits and other                                    (245)              4          (1,014)              --         (1,255)
                                                         ---------       ---------       ---------       ----------      ---------
          Net cash provided by operating activities         (1,014)         (3,502)         26,016               --         21,500
                                                         ---------       ---------       ---------       ----------      ---------
Cash flows from investing activities:
  Purchase of property, plant and equipment                   (457)        (13,458)        (37,476)              --        (51,391)
  Proceeds from sale of properties                              --             166             998               --          1,163
  Acquisitions, net of cash acquired                            --            (257)         (8,196)              --         (8,453)
  Cash held in discontinued operations                          --              --            (656)              --           (656)
  Deferred acquisition costs and other                         639              --              --               --            639
                                                         ---------       ---------       ---------       ----------      ---------
          Net cash used in investing activities                182         (13,549)        (45,330)              --        (58,698)
                                                         ---------       ---------       ---------       ----------      ---------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt                 146,405           8,630              --               --        182,085
  Principal payments on long-term debt                    (126,473)        (18,445)         (5,265)              --       (150,183)
  Disbursements/receipts on intercompany debt              (35,636)         32,287          30,399               --             --
  Sale of convertible preferred stock                        4,095              --              --               --          4,095
  Sale of common stock                                      11,868              --              --               --         11,868
  Proceeds from exercise of stock options                      581              --              --               --            581
  Preferred stock dividends paid                              (843)             --              --               --           (843)
  Purchase of treasury stock                                (1,224)             --              --               --         (1,224)
  Deferred loan costs paid                                  (2,603)           (152)             --               --         (2,755)
                                                         ---------       ---------       ---------       ----------      ---------
          Net cash provided by financing activities         (3,830)         22,320          25,134               --         43,624
                                                         ---------       ---------       ---------       ----------      ---------

Effect of exchange rates on cash                                --              --              87               --             87
                                                         ---------       ---------       ---------       ----------      ---------
Net increase (decrease) in cash                             (4,662)          5,269           5,907               --          6,513
Cash, beginning of period                                    4,754             230             101               --          5,085
                                                         ---------       ---------       ---------       ----------      ---------
Cash, end of period                                      $      92       $   5,499       $   6,008       $       --      $  11,598
                                                         =========       =========       =========       ==========      =========



</TABLE>



                                      F-36