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

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-K

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

   For the fiscal year ended December 31, 1999  Commission File Number 0-20618

                                   ----------

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

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

      5300 Broken Sound Blvd, N.W.
           BOCA RATON, FLORIDA                                 33487
----------------------------------------                    ----------
(Address of principal executive offices)                    (Zip Code)

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

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

                          Common Stock, $.001 Par Value

                          Common Stock Purchase Rights

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

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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

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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

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

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


PART II

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

PART III

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


PART IV

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

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

PART I

ITEM 1.  BUSINESS

GENERAL

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

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

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



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RECENT DEVELOPMENTS

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

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

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

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

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

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

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

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



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BUSINESS STRATEGY

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

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

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

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

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

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

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


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

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

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

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

NORTH AMERICAN RAILROAD OPERATIONS

         The Company currently owns, leases and/or operates 43 rail properties
in North America and has equity interests in an additional five rail properties.
All of the Company's North American rail properties are short line railroads
that provide transportation services for both on-line customers and Class I
railroads which interchange with the Company's rail lines. Short line railroads
are typically less than 350 miles long, serve a particular class of customers in
a small geographic area and interchange with Class I railroads. Short line rail
operators primarily serve customers on their line by transporting products to
and from the Class I interchanges. Each of the Company's North American rail
lines is typically the only rail carrier directly serving its customers. The
ability to haul heavy and large quantities of freight as part of a long-distance
haul make the Company's rail services generally a more effective, lower-cost
alternative to other modes of transportation, including motor carriers.

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


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

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

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

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

         TRAFFIC. Rail traffic may be categorized as interline, local or bridge
traffic. Interline traffic either originates or terminates with customers
located along a rail line and is interchanged with other rail carriers. Local
traffic both originates and terminates on the same rail line and does not
involve other carriers. Bridge traffic neither originates nor terminates on a
rail carrier's line, but rather passes over the line from one connecting rail
carrier to another.

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



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

                                 FREIGHT REVENUE
                             (DOLLARS IN THOUSANDS)

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

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

                              INTERCHANGED TRAFFIC

<TABLE>
<CAPTION>
                                                   1999                    1998
                                           -------------------     -----------------------
                                                 FREIGHT                  FREIGHT
                                            REVENUES CARLOADS      REVENUES      CARLOADS

<S>                                          <C>         <C>         <C>         <C>
Canadian Pacific                             28.5%       24.4%        --          --
Burlington Northern Sante Fe Railway         26.6%       34.2%       63.0%       66.2%
Canadian National Railways                   20.4%       21.6%        --          --
CSXT Transportation, Inc.                    14.6%       10.0%       31.5%       28.2%
Union Pacific Corporation                     3.5%        3.3%        1.9%        1.8%
All other railroads                           6.4%        6.5%        3.6%        3.8%
                                            ------      ------      ------      ------
    Total interchanged traffic              100.0%      100.0%      100.0%      100.0%
                                            ======      ======      ======      ======

</TABLE>


         Charges for interchanged traffic are generally billed to the customers
by the connecting carrier and cover the entire transportation of a shipment from
origin to destination, including the portion that travels over the Company's
lines. The Company's revenues from such traffic are generally collected through
fees paid directly to the Company by the connecting carriers rather than by




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customers on its lines and are payable regardless of whether the connecting
carriers are able to collect from the customers. The fees payable by connecting
carriers are set forth in contracts entered into by each of the Company's
railroads with their respective connecting carriers and are subject to periodic
adjustments.

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

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

                       CARLOADS CARRIED BY COMMODITY GROUP

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

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



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

         SAFETY. The Company endeavors to conduct safe railroad operations for
the benefit and protection of employees, customers and the communities served by
the Company's railroads. The Company's safety program, led by the Assistant Vice
President of Safety, involves all of the Company's employees and is administered
on a daily basis by each Regional Vice President. Operating personnel are
trained and certified in train operations, hazardous materials handling, proper
radio procedures and all other areas subject to governmental rules and
regulations. Each employee involved in train operations is subject to
pre-employment and random drug testing whether or not required by federal
regulation. The Company believes that each of its North American railroads
complies in all material respects with federal, state and local regulations.
Additionally, each railroad is given flexibility to develop more stringent
safety rules based on local requirements or practices. The Company also
participates in governmental and industry sponsored safety programs including
Operation Lifesaver (the national grade crossing awareness program) and the
American Short Line Railroad Association Safety Committee.

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

         The Company's railroads are typically the only rail carriers directly
serving their customers; however, the Company's railroads compete directly with
other modes of transportation, principally motor carriers and, to a lesser
extent, ship and barge operators. The extent of this competition varies
significantly among the Company's railroads. Competition is based primarily upon
the rate charged and the transit time required, as well as the quality and
reliability of the service provided, for an origin-to-destination package. To
the extent other carriers are involved in transporting a shipment, the Company
cannot control the cost and quality of service.

INTERNATIONAL RAILROAD OPERATIONS

         AUSTRALIAN RAILROAD OPERATIONS

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



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

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

         CUSTOMERS. Freight Victoria's customers span a variety of industries,
with particular emphasis on companies in the Australian agricultural industry
for whom we carry bulk grain and other agricultural products.

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

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

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

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


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

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

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

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

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

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

CHILEAN RAILROAD OPERATIONS

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

         Ferronor operates the only north-south railroad in northern Chile,
extending from La Calera near Santiago, where it connects with Chile's southern
railway, Ferrocarril del Pacifico, S.A., to its northern terminus at Iquique,
approximately 120 miles south of the Peruvian border. It also operates several
east-west branch lines that link a number of iron, copper and limestone mines


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

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

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

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

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

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

TRAILER MANUFACTURING OPERATIONS

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

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




                                       13
<PAGE>   14


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

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

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

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

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

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

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




                                       14
<PAGE>   15


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

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

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

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

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

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

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

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



                                       15
<PAGE>   16


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

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

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

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

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

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

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

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



                                       16
<PAGE>   17


REGULATION

         UNITED STATES. The Company's subsidiaries in the United States are
subject to various safety and other laws and regulations by numerous government
agencies, including (1) regulation by the Surface Transportation Board ("STB")
and the Federal Railroad Administration ("FRA"), (2) labor related statutes
including the Railway Labor Act, Railroad Retirement Act, the Railroad
Unemployment Insurance Act, and the Federal Employer's Liability Act, and (3)
regulation by agencies in the states in which the Company does business.
Additionally, the Company is subject to STB regulation in connection with its
acquisition of new railroad properties. As a result of the enactment in 1980 of
the Staggers Rail Act, which amended the Interstate Commerce Act, and the
enactment of the ICC Termination Act of 1995, there has been a significant
relaxation in regulation governing rail carriers, which management believes has
greatly simplified the purchase and sale of short line railroad properties and
expedited the closing of such transactions.

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

         As a result of the Staggers Rail Act, railroads have received
considerable rate and market flexibility including the ability to obtain
wholesale exemptions from numerous provisions of the Interstate Commerce Act.
The Staggers Rail Act allowed the deregulation of all containerized and truck
trailer traffic handled by railroads. On regulated traffic, railroads and
shippers are permitted to enter into contracts for rates and provision of
transportation services without the need to file tariffs. Moreover, on regulated
traffic, the Staggers Rail Act allows railroads considerable freedom to raise or
lower rates without objection from captive shippers. While the ICC Termination




                                       17
<PAGE>   18


Act retained maximum rate regulation on traffic over which railroads have
exclusive control, the new law relieved railroads from the requirements of
filing tariffs and rate contracts with the STB on all traffic other than
agricultural products.

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

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

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

         The RAIL CORPORATIONS ACT 1996 (the "RCA") regulates the operation of
the State of Victoria's passenger trains and trams and rail network. Part 2A of
the RCA outlines an access regime which potentially applies to railways and rail
infrastructure and gives power to the ORG to regulate access to relevant
services. At present, however, no rail transport services have been declared to
be subject to the regime. ORG and the Department of Infrastructure, however,
advise that a Discussion Paper in relation to the regulation of the rail
transport authority is currently being prepared and is expected to be issued
before the end of April 2000. This paper is likely to contain draft declarations
(in relation to specific rail services which may be made subject to the access
regime in Part 2A) and draft pricing orders.

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

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

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



                                       18
<PAGE>   19


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

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

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

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

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

         A determination of ORG may, among other things:

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

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

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

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

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

         (2)      determining the terms and conditions of access.

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

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




                                       19
<PAGE>   20


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

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

         The Secretary must conduct safety audits of every person accredited at
least once every 12 months, to ensure that the accredited person is complying
with the requirements of accreditation. The Secretary may charge the accredited
person a fee for the safety audit service subject to the limits set out in the
relevant regulations. An accredited person has a duty to inquire into accidents
and incidents.

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

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

         Acquisition of additional railroad operations in Canada, whether
federally or provincially regulated, may be subject to review by the Investment
Canada Act (the "ICA"), a federal statute which applies to every acquisition of



                                       20
<PAGE>   21


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

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

NORTH AMERICAN RAILROAD INDUSTRY

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

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

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

                             1998 INDUSTRY OVERVIEW
<TABLE>
<CAPTION>

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

                                       21
<PAGE>   22

         As a result of deregulation, Class I railroads have been able to
concentrate on core, long-haul routes, while divesting many of their low-density
branch lines to smaller and more cost-efficient freight railroad operators such
as the Company. Divesting branch lines allows Class I railroads to increase
traffic density, improve railcar utilization and avoid rail line abandonment.
The proportion of total track miles operated by short line and regional
railroads in the U.S. has increased dramatically as a result of these
divestitures.

         Because of the focus by short line railroads on increasing traffic
volume through increased customer service and more efficient operations, traffic
volume on short line railroads frequently increases after divestiture by Class I
operators. Consequently, these transactions often result in net increases in
divesting carriers' freight traffic because much of the business originating or
terminating on branch lines feeds into divesting carriers' core routes.

         Rail traffic may be categorized into three categories: interline, local
and bridge. Interline traffic either originates or terminates with customers
located along a rail line and is interchanged with other rail carriers. Local
traffic both originates and terminates on the same rail line and does not
involve other rail carriers. Bridge traffic neither originates nor terminates on
a rail carrier's line, but rather passes over the line from one connecting
carrier to another.

INTERNATIONAL RAILROAD INDUSTRY

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

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

ITEM 2. DESCRIPTION OF PROPERTY

NORTH AMERICAN RAILROAD PROPERTIES

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



                                       22
<PAGE>   23


<TABLE>
<CAPTION>

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

                                       23
<PAGE>   24

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

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

                                       24
<PAGE>   25


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

* - Date acquired by RailTex.

CHILEAN RAILROAD PROPERTIES

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

         Ferronor operates the only north-south railroad in northern Chile,
extending from La Calera near Santiago, where it connects with Chile's southern
railway, Ferrocarril del Pacifico, S.A., to its northern terminus at Iquique,
approximately 120 miles south of the Peruvian border. It also operates several
east-west branch lines that link a number of iron, copper and limestone mines
and production facilities with several Chilean Pacific port cities. Ferronor
also serves Argentina and Bolivia through traffic interchanged with the General
Belgrano Railroad and the Ferrocarriles Antofagasta Bolivia.



                                       25
<PAGE>   26


AUSTRALIAN RAILROAD PROPERTIES

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

TEXAS MANUFACTURING PROPERTIES

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

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

ONTARIO, CANADA MOTOR CARRIER PROPERTIES

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

NORTH AMERICAN ROLLING STOCK

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

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


<TABLE>
<CAPTION>
                                                                       LOCOMOTIVES
                 HORSEPOWER/UNIT                          OWNED           LEASED             TOTAL
                 ---------------                          ------       -----------           -----
                 <S>                                      <C>           <C>                   <C>
                 Over 2000                                   5               --                 5
                 1500 to 2000                               92               28               120
                 Under 1500                                 11               --                11
                                                          ----            ------             ----
                                                           108               28               136
                                                          ====            ======             ====
</TABLE>

                                       26
<PAGE>   27

INTERNATIONAL ROLLING STOCK

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

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

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

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

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

ADMINISTRATIVE OFFICES

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

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



                                       27
<PAGE>   28


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

ITEM 3. LEGAL PROCEEDINGS

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

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

         No matters were submitted to a vote of security holders during the
fourth quarter of 1999.



                                       28
<PAGE>   29


PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

<TABLE>
<CAPTION>

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


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

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

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



                                       29
<PAGE>   30


ITEM 6.  SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>

                                                   YEAR ENDED DECEMBER 31,
                                   ----------------------------------------------------
                                   1995         1996       1997        1998       1999
                                   -----       ------     -----       -----        ----
<S>                               <C>         <C>        <C>        <C>        <C>
INCOME STATEMENT DATA

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

BALANCE SHEET DATA

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

OPERATING DATA

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


                                       30
<PAGE>   31


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

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

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

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

NORTH AMERICAN RAILROAD OPERATIONS

         The Company's historical results of operations include the operations
of its acquired railroads from the dates of acquisition as follows:
<TABLE>
<CAPTION>
<S>                                                                   <C>
NAME OF RAILROAD                                                       DATE OF ACQUISITION
----------------                                                       -------------------
Evansville Terminal Company ("ETC")                                    July 1, 1996
                                                                         (disposed of September 30, 1997)
Cascade and Columbia River Railroad                                    September 6, 1996
Otter Tail Valley Railroad                                             October 1, 1996
Gettysburg Railway and Gettysburg Scenic Rail Tours                    November 18, 1996
                                                                         (disposed of October 31, 1997)
Minnesota Northern Railroad                                            December 28, 1996
St. Croix Valley Railroad                                              September 8, 1997
Ventura County Railroad                                                September 1, 1998
E&N Railway                                                            January 6, 1999
RaiLink properties (6 railroads)                                       August 1, 1999
Toledo, Peoria and Western Railroad                                    September 1, 1999
</TABLE>



                                       31
<PAGE>   32


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

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

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

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

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

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




                                       32
<PAGE>   33


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

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

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

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

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

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


                                       33
<PAGE>   34


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

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

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

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

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

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

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

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

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



                                       34
<PAGE>   35


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

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

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

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

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

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

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

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

INTERNATIONAL RAILROAD OPERATIONS

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



                                       35
<PAGE>   36


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

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

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

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

FERRONOR.

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

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



                                       36
<PAGE>   37


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

FREIGHT VICTORIA

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

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

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

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

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

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

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


                                       37
<PAGE>   38


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

TRAILER MANUFACTURING OPERATIONS

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

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

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

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


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

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




                                       38
<PAGE>   39


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

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

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

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

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



                                       39
<PAGE>   40



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

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

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

RESULTS OF MOTOR CARRIER OPERATIONS

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

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

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


                                       40
<PAGE>   41



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

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

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

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

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

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

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

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

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

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



                                       41
<PAGE>   42


CORPORATE OVERHEAD

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

LIQUIDITY AND CAPITAL RESOURCES - COMBINED OPERATIONS

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

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

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

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

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



                                       42
<PAGE>   43


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

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

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

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

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

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

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




                                       43
<PAGE>   44



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

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

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

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

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

         In August 1999, the Company issued $22.5 million aggregate principal
amount of its junior convertible subordinated debentures. Interest on the
debentures accrues at the rate of 6% per annum and is payable semi-annually,
commencing January 31, 2000. The debentures are convertible, at the option of
the holder, into shares of RailAmerica at a conversion price of $10 per share,
subjected to adjustment in selected circumstances. The debentures mature on July
31, 2004, are general unsecured obligations and rank subordinate in right of
payment to all senior indebtedness. At RailAmerica's option, the debentures may
be redeemed at par, plus accrued but unpaid interest thereon to the date of
redemption, in whole or in part, if the closing price of RailAmerica's common
stock is above 200% of the conversion price for 10 consecutive trading days.

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



                                       44
<PAGE>   45


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

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

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

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

INFLATION

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

IMPACT OF YEAR 2000

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




                                       45
<PAGE>   46


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

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

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

NEW ACCOUNTING PRONOUNCEMENTS

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

ITEM 7A.  MARKET RISK

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

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

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



                                       46
<PAGE>   47


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

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

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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Consolidated Financial Statements of the Company, the accompanying
notes thereto and the independent auditor's report are included as part of this
Form 10-K and immediately follow the signature page of this Form 10-K.

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

None.



                                       47
<PAGE>   48


PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11.  EXECUTIVE COMPENSATION

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

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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



                                       48
<PAGE>   49
PART IV

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

(a)    Exhibits

         2.1      Amended and Restated Stock Purchase Agreement, dated as of
                  August 3, 1999 by and among RailAmerica, Inc., Florida Rail
                  Lines, Inc. Bank Austria AG, Grand Cayman Branch, CSX
                  Transportation, Inc., Delaware Otsego Corporation, The Brenner
                  Group and The Toledo, Peoria and Western Railroad
                  Corporation(8)
         2.2      Agreement and Plan of merger, dated as of October 14, 1999,
                  among RailAmerica, Inc., Cotton Acquisition Corp. and RailTex,
                  Inc.(9)
         3.1      Amended and Restated Articles of Incorporation of Registrant,
                  as amended(2)
         3.2      By-laws of Registrant(1)
         4.1      Form of Common Stock Rights Agreement, dated as of January 6,
                  1998, between the Registrant and American Stock Transfer &
                  Trust Company(6)
         4.2      Certificate of Designation of Series A Convertible Redeemable
                  Preferred Stock(19)
         4.3      Third Amendment to the Rights Agreement, dated as of
                  January 13, 2000, between the Company and American Stock
                  Transfer & Trust Company(10)
         4.4      Warrant Agreement, dated as February 4, 2000, among the
                  Company and RailAmerica Funding, Inc.
         4.5      Asset Bridge Warrant Agreement, dated as of February 4, 2000,
                  among the Company and RailAmerica Holdings Funding, Inc.
         10.41    Employment Agreement between Gary O. Marino and RailAmerica,
                  Inc.(7)+
         10.43    Stock Option Agreement, dated November 11, 1994, between
                  RailAmerica, Inc. and Gary O. Marino(7)+
         10.45    RailAmerica, Inc. 1995 Non-Employee Director Stock Option
                  Plan(2)
         10.46    RailAmerica, Inc. 1995 Employee Stock Purchase Plan(2)
         10.47    RailAmerica, Inc. Corporate Senior Executive Bonus Plan(2)+
         10.55    Confidential Private Placement Memorandum dated September 20,
                  1996.(3)
         10.56    Stock Purchase Agreement, dated as of September 20, 1996, by
                  and among Otter Tail Valley Railroad Company, Inc. and Dakota
                  Rail, Inc.(4)
         10.59    RailAmerica, Inc. Nonqualified Deferred Compensation Trust(5)+
         10.60    Nonqualified Deferred Compensation Agreement between
                  RailAmerica, Inc. and Gary O. Marino(5)+
         10.63    RailAmerica, Inc. 1998 Executive Incentive Compensation
                  Plan(6)+
         10.64    Sale of Assets Agreement dated February 22, 1999 by and among
                  RailAmerica, Inc., Freight Victoria Limited and V/Line Freight
                  Corporation 10.2 Primary Infrastructure (11)
         10.65    Lease dated April 30, 1999 by and among the Director of Public
                  Transport and Freight Victoria Limited(12)
         10.66    Asset Purchase Agreement, dated December 17, 1998, by and
                  among Canadian Pacific Railway Company and E&N Railway Company
                  (1998) Ltd., a subsidiary of RailAmerica, Inc.(13)
         10.67    Noncompete Agreement, dated December 1999, by and between
                  Ronald A. Rittenmeyer and the Company(14)
         10.68    Purchase Agreement, dated as of November 4, 1998 by and among
                  RailTex Global Investments, L.L.C., RailTex International
                  Holdings, Inc. and GEEMF II Latin America, L.L.C.(15)
         10.69    Memorandum of Understanding, dated as of October 29, 1999,
                  providing for the



                                       49
<PAGE>   50



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


----------

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



                                       50

<PAGE>   51



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

(b)      Reports on Form 8-K.

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

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

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



                                       51






<PAGE>   52

                                   SIGNATURES



         In accordance with Section 13 or 15(d) of the Securities Exchange act
of 1934, the Company has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                  RAILAMERICA, INC.


                  By: /s/  Gary O. Marino
                      ---------------------------------------
                      Gary O. Marino, Chief Executive Officer
                      (Principal Financial officer)



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

                  Dated  March 27, 2000



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


<TABLE>
<CAPTION>
         SIGNATURES                     TITLE                                                    DATE
         ----------                     -----                                                    ----
<S>                                     <C>                                                    <C>


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



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



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



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



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



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



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



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



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



</TABLE>



                                       52

<PAGE>   53
                       RAILAMERICA, INC. AND SUBSIDIARIES

                          INDEX OF FINANCIAL STATEMENTS

                                     -------


The following consolidated financial statements of RailAmerica, Inc. and
Subsidiaries are referred to in Item 7:

<TABLE>
<CAPTION>
                                                                                                         PAGES
                                                                                                         -----

<S>                                                                                                         <C>
Report of Independent Certified Public Accountants                                                        F-2

Report of Independent Certified Public Accountants                                                        F-3

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

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

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

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

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

</TABLE>


<PAGE>   54









               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders of
RailAmerica, Inc.

In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of income, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of RailAmerica, Inc. and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Empresa De
Transporte Ferroviario S.A., a 55% owned subsidiary of the Company, which
statements reflect total assets of $87,555,000 and $74,306,000 as of December
31, 1999 and 1998, respectively, and total revenues of $19,115,000 and
$15,312,000 for the years ended December 31, 1999 and 1998. Those statements
were audited by other auditors whose report thereon has been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts included
for Empresa De Transporte Ferroviario S.A., is based solely on the report of the
other auditors. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Ft. Lauderdale, Florida
March 15, 2000



                                      F-2
<PAGE>   55
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Shareholders of
Ferronor S.A.:


We have audited the balance sheets of Empresa de Transporte Ferroviario S.A
("Ferronor") as of December 31, 1999 and 1998, and the related statements of
income and cash flows for the years ended December 31, 1999 and 1998 and for the
ten-month period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We have conducted our audits in accordance with generally accepted auditing
standards in Chile, which are substantially consistent with those followed in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and the significant
estimates made by the management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

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





Charles A. Bunce                               ARTHUR ANDERSEN - LANGTON CLARKE

February 4, 2000 Santiago, Chile



                                      F-3
<PAGE>   56

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

<TABLE>
<CAPTION>

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

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

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

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


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


                                      F-4
<PAGE>   57

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


<TABLE>
<CAPTION>

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

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

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

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

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



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



                                      F-5
<PAGE>   58


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

<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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

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

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

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

  Total comprehensive income


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

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

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

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

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

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

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

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

  Total comprehensive income


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

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

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

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

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

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

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

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

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

 </TABLE>


 <TABLE>
 <CAPTION>

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

<S>                               <C>                          <C>               <C>
Balance, January 1, 1997          $     67,441                 $ (1,139,269)     $ 15,992,107

Net income                                  --                           --         1,939,199

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

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

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

Exercise of stock options                   --                           --           748,040

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

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

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

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

Issuance of common stock                    --                           --           677,177

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

Exercise of stock options                   --                           --           870,875

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

Exercise of warrants                        --                           --           934,668

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

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

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

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

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

Exercise of stock options                   --                           --           580,810

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

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

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

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

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

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

</TABLE>







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



                                      F-6
<PAGE>   59
                       RAILAMERICA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the years ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

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

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

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

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


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


                                      F-7
<PAGE>   60




                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         Organization and Principles of Consolidation

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

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

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

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

         Use of Estimates

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

         Inventories

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



                                      F-8
<PAGE>   61


                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

         Cash and Cash Equivalents

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

         Concentration of Credit Risk

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

         Property, Plant and Equipment

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

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

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

         Income Taxes

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



                                      F-9
<PAGE>   62


                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

         Revenue Recognition

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

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

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



                                      F-10
<PAGE>   63

                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

         Foreign Currency Translation

         The financial statements and transactions of the Company's foreign
         operations are maintained in their functional currency. Assets and
         liabilities are translated at current exchange rates in effect at the
         balance sheet date. Translation adjustments, which result from the
         process of translating the financial statements into United States
         dollars, are accumulated in the cumulative translation adjustment
         account, which is a component of accumulated other comprehensive
         income. Revenues and expenses are translated at the average exchange
         rate for each period. Gains and losses from foreign currency
         transactions are included in net income. The aggregate gain on foreign
         currency translation for 1999 was $0.7 million. As a result of a
         decline in the value of the Australian dollar against the U.S. dollar,
         the Company recorded a transaction loss of approximately $2.6 million
         during the first quarter of fiscal year 2000.


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

         Recent Accounting Pronouncements

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


                                      F-11
<PAGE>   64
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

2.       EARNINGS PER SHARE

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

         Diluted earnings per share is calculated using the sum of the weighted
         average number of common shares outstanding plus potentially dilutive
         common shares arising out of stock options and warrants. Options and
         warrants totaling 1.8 million were excluded from the diluted earnings
         per share calculation as the exercise prices of these options and
         warrants were greater than the average market price of the Common
         Stock. Assumed conversion of $26.5 million of convertible debt and the
         convertible preferred stock are anti-dilutive and are not included in
         the calculation.

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

<TABLE>
<CAPTION>
                                                       1999          1998        1997
                                                     --------      --------    -------

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

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

 3.      DISCONTINUED OPERATIONS:

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

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



                                      F-12
<PAGE>   65
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

 3.      DISCONTINUED OPERATIONS, continued

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

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

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

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

 4.      ACQUISITIONS:

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



                                      F-13
<PAGE>   66
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

 4.      ACQUISITIONS, continued

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

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

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



                                      F-14
<PAGE>   67
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

4.       ACQUISITIONS, continued

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

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

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

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

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

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

</TABLE>



                                      F-15
<PAGE>   68

                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

 4.      ACQUISITIONS, continued

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

 5.      GREAT SOUTHERN RAILWAY LIMITED

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

 6.      PROPERTY, PLANT AND EQUIPMENT:

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

<TABLE>
<CAPTION>
                                                                                       1999              1998
                                                                                  --------------   --------------

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

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



                                      F-16
<PAGE>   69
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

 6.      PROPERTY, PLANT AND EQUIPMENT, continued

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

 7.      INVESTMENT IN AFFILIATE:

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

 8.      OTHER ASSETS:

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

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

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

 9.      RELATED PARTY TRANSACTIONS:

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



                                      F-17
<PAGE>   70

                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

 9.      RELATED PARTY TRANSACTIONS, continued

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

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

10.      LONG-TERM DEBT:

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

<TABLE>
<CAPTION>
                                                                                            1999           1998
                                                                                         ----------     ----------
<S>                                                                                       <C>             <C>
         Revolving line of credit.  See below                                             $ 121,005       $ 44,207

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

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

</TABLE>




                                      F-18
<PAGE>   71
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

10.      LONG-TERM DEBT, continued
<TABLE>
<CAPTION>

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

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

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

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

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

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

         Capital lease obligations                                                            1,042          1,459

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

         Ferronor refinanced certain short-term debt as of January 28, 1999 with
         Banco de Desarrollo. The refinancing consists of two credit lines. The
         first credit line is a $5.0 million facility which bears interest at
         the interbank cost (7.08% at December 31, 1999) plus 1.75% with
         interest to be paid over 120 equal monthly installments and principal
         to be paid over 96 equal installments beginning two years from the
         funding. The second credit line is a $7.7 million facility which bears
         interest at LIBOR plus 2.75% and is payable in 120 equal monthly
         installments (including interest).

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



                                      F-19
<PAGE>   72
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

10.      LONG-TERM DEBT, continued

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

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

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

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

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

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

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

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

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

                                      F-20
<PAGE>   73
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

10.      LONG-TERM DEBT, continued

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

         Capital Leases

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

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

<TABLE>
<CAPTION>
                                                                    CAPITAL           OPERATING
                                                                    LEASES             LEASES
                                                                    ------             ------

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

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

11.      SUBORDINATED DEBT:

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



                                      F-21
<PAGE>   74

                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

12.      CONVERTIBLE SUBORDINATED DEBT:

         In August 1999, the Company issued $22.5 million aggregate principal
         amount of its junior convertible subordinated debentures. Interest on
         the debentures accrues at the rate of 6% per annum and is payable
         semi-annually, commencing January 31, 2000. The debentures are
         convertible, at the option of the holder, into shares of RailAmerica at
         a conversion price of $10, subjected to adjustment in selected
         circumstances. The debentures mature on July 31, 2004, are general
         unsecured obligations and rank subordinate in right of payment to all
         senior indebtedness. At RailAmerica's option, the debentures may be
         redeemed at par, plus accrued but unpaid interest thereon to the date
         of redemption, in whole or in part, if the closing price of
         RailAmerica's common stock is above 200% of the conversion price for 10
         consecutive trading days.

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

13.      REDEEMABLE PREFERRED STOCK:

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

14.      COMMON STOCK TRANSACTIONS:

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





                                      F-22
<PAGE>   75

                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

14.      COMMON STOCK TRANSACTIONS, continued

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

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

15.      OTHER REVENUE:

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

[CAPTION]
<TABLE>

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

16.      INCOME TAX PROVISION:

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

<TABLE>
<CAPTION>
                                                                     1999             1998             1997
                                                                     ----             ----             ----
<S>                                                           <C>                <C>             <C>
             Domestic                                           $  (2,978)           $  (2,327)     $   (1,140)
             Foreign Subsidiaries                                   8,217                1,440           1,013
                                                                ---------            ---------      ----------
                                                                 $  5,239            $    (887)     $     (127)
                                                                =========            =========      ==========
</TABLE>





                                      F-23
<PAGE>   76

                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

16.      INCOME TAX PROVISION, continued

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

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

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

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

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

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

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

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


                                      F-24
<PAGE>   77


                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

16.      INCOME TAX PROVISION, continued

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

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

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

         Deferred tax liabilities:

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

         The liability method of accounting for deferred income taxes requires a
         valuation allowance against deferred tax assets if, based on the weight
         of available evidence, it is more likely than not that some or all of
         the deferred tax assets will not be realized. It is management's belief
         that it is more likely than not that a portion of the deferred tax
         assets will not be realized. The Company has established a valuation
         allowance of $0.3 million at December 31, 1999 and $0.5 million at
         December 31, 1998, respectively. The valuation allowance at December
         31, 1999 is comprised of $0.2 million, which relates to prior and
         current year state net operating losses, and $0.1 million which relates
         to prior and current year Chilean net operating losses of Ferronor.





                                      F-25
<PAGE>   78

                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

16.      INCOME TAX PROVISION, continued

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

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

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

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

         No provision was made in 1999 for U.S. income taxes on undistributed
         earnings of the Chilean, Canadian or Australian subsidiaries as it is
         the intention of management to utilize those earnings in their
         respective operations for an indefinite period of time.

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

17.      OTHER INCOME:

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

18.      STOCK OPTIONS:

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


                                      F-26
<PAGE>   79


                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

18.      STOCK OPTIONS, continued

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

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

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

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



                                      F-27
<PAGE>   80


                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

18.      STOCK OPTIONS, continued

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

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

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

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

         These calculations only take into account the options issued since
         January 1, 1995. The fair value of each option grant is estimated on
         the date of grant using the Black-Scholes option-pricing model with the
         following weighted-average assumptions used for grants in 1999, 1998
         and 1997: dividend yield 0.0%; expected volatility of 45%-55%;
         risk-free interest rate of 5.50% -7.8%; and expected lives of 10 years.
         The weighted average fair value of options granted for 1999, 1998 and
         1997 were $5.86, $3.97, and $3.08, respectively.

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

<TABLE>
<CAPTION>
                                                                                                   WEIGHTED
                                                                                                    AVERAGE
                                                                             NUMBER OF              EXERCISE
                                                                               SHARES                PRICE
                                                                             ---------             ---------

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


                                      F-28
<PAGE>   81
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

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

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

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

<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>
         $3.40-$5.00        836,750            5.92              $4.24           836,750          $4.24
         $5.01-$7.00        248,250            8.50              $6.13            80,916          $6.13
         $7.01-$9.50        755,000            8.80              $8.74           308,333          $8.36
                          ---------                                            ---------
                          1,840,000                                            1,225,999
                          =========                                            =========
</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 January 1 or December 31, of any
         given year, whichever is lower. For the years ended December 31, 1999,
         1998 and 1997, 16,500, 18,289 and 23,433 shares of common stock,
         respectively, were sold to employees under this plan.

19.      NONCASH INVESTING AND FINANCING ACTIVITIES:

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

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



                                      F-29
<PAGE>   82

                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

19.      NONCASH INVESTING AND FINANCING ACTIVITIES, continued

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

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

<TABLE>
<CAPTION>

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

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



                                      F-30
<PAGE>   83


                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

20.      FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

21.      PENSION AND OTHER BENEFIT PROGRAMS

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

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

         The following chart summarizes the benefit obligations, assets, funded
         status and rate assumptions associated with the defined benefit plan
         (in thousands).

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





                                      F-31
<PAGE>   84

                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

21.      PENSION AND OTHER BENEFIT PROGRAMS, continued

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

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

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

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

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

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

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

         Profit Sharing Plan

         The Company maintains a contributory profit sharing plan as defined
         under Section 401(k) of the U.S. Internal Revenue Code. The Company
         made contributions to this plan at a rate of 50% of the employees
         contribution up to a maximum annual contribution of $1,500 per eligible
         employee. An employee becomes 100% vested with respect to the employer
         contributions after completing six years of service. Employer
         contributions during the years ended December 31, 1999, 1998 and 1997
         were approximately $81,000, $66,000 and $40,000, respectively.

22.      OTHER LIABILITIES

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

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

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

23.      COMMITMENTS AND CONTINGENCIES:

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



                                      F-32
<PAGE>   85

                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

23.      COMMITMENTS AND CONTINGENCIES, continued

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

24.      SEGMENT INFORMATION:

         The Company's continuing operations have been classified into two
         business segments: North American rail transportation and International
         rail transportation. The North American rail transportation segment
         includes the operations of the Company's railroad subsidiaries in the
         United States and Canada and the International rail transportation
         segment includes the operations of Company's railroad subsidiaries in
         Chile and Australia. During 1999, the Company's trailer manufacturing
         segment was classified as a discontinued operation and is reported that
         way for all period presented.

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


<TABLE>
<CAPTION>
                                                                NORTH AMERICAN    INTERNATIONAL
                                             CONSOLIDATED          RAILROADS        RAILROADS          OTHER
                                             ------------        -------------    --------------       -----

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

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

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

         YEAR ENDED DECEMBER 31, 1997:

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

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

</TABLE>


                                      F-33
<PAGE>   86
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

24.      SEGMENT INFORMATION, continued

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

<TABLE>
<CAPTION>

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

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

         YEAR ENDED DECEMBER 31, 1998:


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

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

         YEAR ENDED DECEMBER 31, 1997:


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

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

          * - Amount includes $4.1 million casualty gain.

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



                                      F-34
<PAGE>   87
                       RAILAMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     -------

25.      SUBSEQUENT EVENTS:

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

26.      UNAUDITED QUARTERLY FINANCIAL DATA:

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

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

         Quarterly financial data for 1998 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                        $  5,853      $  9,117     $ 10,848     $ 11,439
         Operating income                         $    612      $  1,216     $  1,581     $  2,089
         Income (loss) from
           continuing operations                  $   (172)     $    170     $    193     $    (77)
         Net income                               $    603      $  1,332     $  1,361     $    910
         Basic income (loss) from
           continuing operations per share        $  (0.02)     $   0.02     $   0.02     $  (0.01)
         Diluted income (loss) from
           continuing operations per share        $  (0.02)     $   0.02     $   0.02     $  (0.01)
</TABLE>


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



                                      F-35