UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2003, or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____ to _____

Commission file number 0-20618

RAILAMERICA, INC.

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

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

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

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

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. o

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2003 computed by reference to the average bid and asked prices of registrant’s common stock reported on the New York Stock Exchange on such date was $ 262.3 million.

The number of shares outstanding of registrant’s Common Stock, $.001 par value per share, as of March 10, 2004 was 33,317,633.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III (Items 10, 11, 12, 13 and 14) will be incorporated by reference from the registrant’s Definitive Proxy Statement for its 2004 Annual Meeting of Stockholders to be filed with the Commission pursuant to Regulation 14A.

TABLE OF CONTENTS

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

PART I

ITEM 1. BUSINESS

GENERAL

     We are the largest owner and operator of short line freight railroads in North America and a leading owner and operator of a regional freight railroad in Australia. We own, lease or operate a diversified portfolio of 47 railroads with approximately 11,900 miles of track located in the United States, Australia and Canada. Through our diversified portfolio of rail lines, we operate in numerous geographic regions with varying concentrations of commodities hauled.

     We are currently in discussions to sell our Australian railroad, Freight Australia. We have engaged investment advisors and expect to complete the sale during 2004. Accordingly, Freight Australia’s results of operations for the periods presented have been reclassified to discontinued operations in our consolidated financial statements.

     In February 2004, we completed the sale of our 55% equity interest in Ferronor, a Chilean railroad, for $18.1 million, consisting of $10.8 million of cash, a secured instrument for $5.7 million due no later than June 2010 and a secured instrument from Ferronor for $1.7 million due no later than February 2007, both bearing interest at LIBOR plus 3%. Ferronor’s results of operations for the periods presented have been reclassified to discontinued operations in our consolidated financial statements.

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

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

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Since 1997, we have grown significantly through the following acquisitions:

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

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

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

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

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

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In January 2002, we acquired StatesRail, Inc., a holding company of 8 railroads in the United States, for $84.4 million.

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In January 2002, we acquired ParkSierra Corp., a holding company of 3 railroads in the United States, for $46.2 million.

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In May 2003, we acquired a branch line, in Mobile, Alabama, that is contiguous to our existing Alabama and Gulf Coast Railway for $15.1 million.

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In June 2003, we acquired the San Luis & Rio Grande Railroad, a branch line in Colorado, for $7.2 million.

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In January 2004, we acquired the Central Michigan Railway, for $25.3 million.

BUSINESS STRATEGY

     INCREASE REVENUE THROUGH FOCUSED MARKETING EFFORTS AND RELIABLE RAIL SERVICE. In North America and Australia, we strive to increase our revenue through focused marketing efforts and cost effective and reliable service. In North America, we work with customers, industrial development organizations and our Class I interchange partners to develop transportation solutions to meet the needs of our customers. We specialize in developing customer-driven solutions for logistical issues, with local and regional marketing representatives working directly with customers to ensure that rail transportation services meet their needs. The operating focus of our North American railroads is on meeting and exceeding the customer’s expectations by providing frequent, dependable rail service at reasonable rates. In Australia, we market our services to potential customers across the continent, as the open access rules in that country allow us to operate over the track owned by other companies, although most of our revenue is generated in the State of Victoria.

     REDUCE DEBT TO 50% OF CAPITALIZATION. At December 31, 2003, our net debt (defined as total long-term debt including debt attributable to Australia, less cash) to total capitalization was 58%. Our goal is to reduce this amount to 50% by the end of 2004. We intend to accomplish this through our previously announced $100 million asset rationalization plan, retention of earnings and generation of free cash flow. Our asset rationalization plan includes the sale of our 55% equity interest in Ferronor, which was completed in February 2004, the sale of Freight Australia, our Australian railroad, as well as the sale of other non-strategic and non-core assets in North America.

     CONTINUE TO GROW THROUGH SELECTIVE ACQUISITIONS. Since 1997, we have made ten significant acquisitions of railroad companies, which owned or had equity interests in 53 railroads for total consideration in excess of $650 million. All of these railroads have been successfully integrated into our operations and in total have added in excess of 11,000 miles of track to our operations.

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

     Acquisition opportunities in North America generally come from three sources. First, certain Class I railroads have stated an intent to sell certain branch lines during 2004. We believe, based on our strong operating performance and relationships with the Class I railroads, we are a logical choice to acquire some of these properties. Second, as the short line industry itself continues to consolidate, we believe our industry reputation, demonstrated access to capital, breadth of geographic coverage and ability to efficiently evaluate and negotiate prospective transactions place us in a good position to acquire other short lines or groups of short lines. Third, as

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industrial companies divest of their railroad operations we believe our cost-effective and customer oriented approach makes us a strong candidate to acquire some of these railroads.

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

FINANCIAL INFORMATION ABOUT SEGMENTS

     Financial information relating to our segments for each of the three years in the period ended December 31, 2003 appears in Note 17 captioned “Segment Information” of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report at page F-29, and is incorporated herein by specific reference.

NORTH AMERICAN RAILROADS

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

     UNITED STATES. We own, lease or operate 37 short line rail properties and one tourist railroad in the United States with approximately 6,900 miles of track. Our properties are geographically diversified and operate in 26 states. We have clusters of rail properties in the Southeastern, Southwestern, Midwestern, Great Lakes, New England and Pacific Coast regions of the United States. We believe that this cluster strategy provides economies of scale and helps achieve operational synergies.

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

INDUSTRY OVERVIEW

     The U.S. railroad industry is dominated by major Class I railroads, which operated approximately 100,000 miles of track in 2002. In addition to large railroad operators, there were more than 540 short line and regional railroads, which operated approximately 41,000 miles of track in 2002.

     The railroad industry is subject to regulations of various government agencies, primarily the Surface Transportation Board, or STB. For regulatory purposes, the STB classifies railroads into three groups: Class I, Class II and Class III, based on annual operating revenue. For 2002, the Class I railroads had operating revenue of at least $272.0 million, Class II railroads had revenue of $21.8 million to $271.9 million, and Class III railroads had revenue of less than $21.8 million. These thresholds are adjusted annually for inflation.

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

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2002 UNITED STATES INDUSTRY OVERVIEW

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

SALES AND MARKETING

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

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

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

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

     Interline and local traffic generated 87%, 87% and 84% of our total freight revenue in 2003, 2002, and 2001, respectively. We believe that high levels of interline and local traffic provide us with greater stability of revenue because this traffic represents shipments to or from customers located along our lines and cannot be easily diverted to other rail carriers, unlike bridge traffic.

     Our railroads compete directly with other modes of transportation, principally motor carriers and, to a lesser extent, ship and barge operators. The extent of this competition varies significantly among our railroads. Competition is based primarily upon the rate charged and the transit time required, as well as the quality and reliability of the service provided, for an origin-

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to-destination package. To the extent other carriers are involved in transporting a shipment, we cannot control the cost and quality of service. Cost reductions achieved by major rail carriers over the past several years have generally improved their ability to compete with alternate modes of transportation.

     The following table summarizes freight revenue by type of traffic carried by our North American railroads in 2003, 2002 and 2001 in dollars and as a percent of total freight revenue.

NORTH AMERICA
FREIGHT REVENUE
(DOLLARS IN THOUSANDS)

     All of our short line properties interchange traffic with Class I railroads. The following table summarizes our significant connecting carriers in 2003, 2002 and 2001 by freight revenue and carloads as a percentage of total interchanged (interline and bridge) traffic.

NORTH AMERICA
INTERCHANGED TRAFFIC

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

     In 2003, we served approximately 1,600 customers in North America. These customers shipped and/or received a wide variety of products. Although most of our North American railroads have a well-diversified customer base, several of the smaller rail lines have one or two dominant customers. In both 2003 and 2002, our 10 largest North American customers accounted for approximately 27% of North American transportation revenue.

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     The following table sets forth by number and percentage the carloads hauled by our North American railroads during the years ended December 31, 2003, 2002 and 2001.

CARLOADS CARRIED BY COMMODITY GROUP

EMPLOYEES

     Currently, we have approximately 1,650 full-time railroad employees and 125 full-time corporate employees in North America. Approximately 820 of these employees are subject to collective bargaining agreements.

SAFETY

     We endeavor to conduct safe railroad operations for the benefit and protection of employees, customers and the communities served by our railroads. Our safety program, led by the Vice President of Safety and Operating Practices, involves all of our employees and is administered by each Regional Vice President. Operating personnel are trained and certified in train operations, hazardous materials handling, personal safety and all other areas subject to governmental rules and regulations. Each U.S. employee involved in train operations is subject to pre-employment and random drug testing whether or not required by federal regulation. We believe that each of our North American railroads complies in all material respects with federal, state, provincial and local regulations. Additionally, each railroad is given flexibility to develop more stringent safety rules based on local requirements or practices. We also participate in committees of the AAR, governmental and industry sponsored safety programs including Operation Lifesaver (the national grade crossing awareness program) and the American Short Line and Regional Railroad Association Safety Committee. Our reportable injury frequency ratio, measured as reportable injuries per 200,000 man hours worked, decreased to 2.03 in 2003 from 3.05 in 2002 and 3.37 in 2001.

REGULATION

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

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

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

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

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

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

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

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

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

FREIGHT AUSTRALIA

     We own Freight Australia, a regional freight railroad operating in the State of Victoria, and adjoining states in Australia. Freight Australia was purchased from the Government of the State of Victoria, Australia on April 30, 1999 for total consideration of $103 million. Freight Australia operates over 3,150 miles of track under a prepaid 45 year lease from the State of Victoria. We are currently in discussions to sell our Australian railroad, Freight Australia. We have engaged investment advisors and expect to sell Freight Australia during 2004. Accordingly, Freight Australia’s results of operations for the periods presented have been reclassified to discontinued operations in our consolidated financial statements.

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INDUSTRY OVERVIEW

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

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

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

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general freight between coastal industrial centers, ports and cities and the interior, and

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

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

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

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

SALES AND MARKETING

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

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

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

     Freight Australia’s customers span a variety of industries, with particular emphasis on companies in the Australian agricultural industry for whom we carry bulk grain and other agricultural products. One customer, AWB Limited, represented 11% of Freight Australia’s operating revenue for the year ended 2003, 20% for the year ended 2002 and 30% for the year ended 2001. Additionally, track access fees from V/Line Passenger represented 16% of Freight Australia’s operating revenue in 2003, 15% in 2002, and 13% in 2001.

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     The following table sets forth by dollar amount (in thousands of U.S. dollars) and percentage Freight Australia’s transportation and infrastructure revenue for the years ended December 31, 2003, 2002 and 2001.

     Freight Australia competes directly with other railroads in the open access Australian railway network as well as with other modes of transportation, principally motor carriers and, to a lesser extent, ship operators. Competition is based primarily upon the rate charged and the transit time required, as well as the quality and reliability of the service provided, for an origin-to-destination package. Cost reductions achieved by Freight Australia over the past several years have generally improved its ability to compete with alternate modes of transportation.

EMPLOYEES

     Freight Australia currently has 723 employees. Most of these employees are subject to collective bargaining agreements.

SAFETY

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

REGULATION

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

     The Rail Corporations Act 1996, known as RCA, regulates the operation of the State of Victoria’s passenger trains and trams and rail network. Part 2A of the RCA outlines an access regime, which applies to railways and rail infrastructure and gives power to the ESC to arbitrate on terms and conditions of access to declared services.

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

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

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

FERRONOR

     Ferronor owns and operates the only north-south railroad in northern Chile, extending from La Calera near Santiago, where it connects with Chile’s southern railway, Ferrocarril del Pacifico, S.A., to its northern terminus at Iquique, approximately 120 miles south of the Peruvian border. It also operates several east-west branch lines that link a number of iron, copper and mineral salt mines and production facilities with several Chilean Pacific port cities. Ferronor also serves Argentina and Bolivia through traffic interchanged with the Belgrano Cargas Railroad and the Antofagasta (Chile)-Bolivia Railway. In addition, commencing in 2002, Ferronor began operating the Porterillos Railway, a customer-owned 57 mile freight railroad. In February 2004, we sold our equity interest in Ferronor for $18.1 million, consisting of $10.8 million of cash, a secured note for $5.7 million due no later than June 2010 and a secured note from Ferronor for $1.7 million due no later than February 2007, both bearing interest at LIBOR plus 3%. Ferronor’s results of operations have been presented as discontinued operations in our financial statements.

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ITEM 2. PROPERTIES

NORTH AMERICAN RAILROAD PROPERTIES

     We operate over 8,745 miles of track in North America. The following map displays all of our North American railroad properties that we operated as of March 10, 2004:

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     The following table sets forth information with respect to the North American railroad properties that we owned as of March 10, 2004: