UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 0-20618

RAILAMERICA, INC.

5300 Broken Sound Blvd, N.W., Boca Raton, Florida 33487

(561) 994-6015

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X]   No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, par value $.001 – 36,984,411 shares as of November 5, 2004

1

RAILAMERICA, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2004

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2004 and December 31, 2003
(in thousands, except share data)
(unaudited)

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

3

RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30, 2004 and 2003
(in thousands, except earnings per share)
(unaudited)

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

4

RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2004 and 2003
(in thousands)
(unaudited)

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

5

RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.		BASIS OF PRESENTATION
		The consolidated financial statements included herein have been prepared by RailAmerica, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.
		In the opinion of management, the consolidated financial statements contain all adjustments of a recurring nature and disclosures necessary to present fairly the financial position of the Company as of September 30, 2004 and December 31, 2003, the results of operations for the three and nine months ended September 30, 2004 and 2003, and the cash flows for the nine months ended September 30, 2004 and 2003. The December 31, 2003 balance sheet is derived from the Company’s audited financial statements for the year ended December 31, 2003. Operating results for the three and nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts have been reclassified to conform to the current period presentation.
		During the second quarter of 2004, the Company committed to a plan to dispose of the Arizona Eastern Railway Company. Subsequent to committing to the disposal plan, the Company has determined that the expected proceeds from the sale will be lower than anticipated and accordingly has recorded an impairment charge of $4 million during the three months ended September 30, 2004. The Company expects to complete the sale of the Arizona Eastern Railway Company by the end of 2004. The results of operations for the Arizona Eastern Railway Company have been classified to discontinued operations for 2004 and 2003. In addition, the assets and liabilities of the Arizona Eastern Railway Company have been classified as assets and liabilities of discontinued operations in the September 30, 2004 balance sheet.
		In August 2004, the Company completed the sale of Freight Australia to Pacific National for AUD $285 million (US $204 million). During the three months ended September 30, 2004, the Company recognized a pre-tax gain of $20.7 million, or $2.3 million, after-tax on the transaction. In addition, the Share Sale Agreement provides for an additional payment to RailAmerica based on the changes in the net assets of Freight Australia from September 30, 2003, through August 31, 2004, and also provides various representations and warranties by RailAmerica to the buyer. Potential claims against RailAmerica for violations of most of the representations and warranties are capped at AUD $50 million (US$35.8 million). The Company believes the ultimate impact of the net asset adjustment and the representations and warranties will not have a material impact on the Company’s future results of operations. However, they could have a material impact on future cash flows. The proceeds from the sale of Freight Australia were used to repay senior debt and repurchase the Company’s senior subordinated notes. Freight Australia’s results of operations for the periods prior to the sale on August 31, 2004, have been presented as discontinued operations in the Company’s consolidated financial statements.
		In February 2004, the Company completed the sale of its 55% equity interest in Ferronor, a Chilean railroad, for $18.1 million, consisting of $10.8 million in 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 90 day LIBOR plus 3%. During the nine months ended September 30, 2004, the Company recognized a $4.0 million tax charge resulting from the sale of its interest in Ferronor and the repatriation of the cash to the U.S. Ferronor’s results of operations for the periods prior to the sale date on February 2, 2004, have been classified as discontinued operations in the Company’s consolidated financial statements.
		The accounting principles which materially affect the financial position, results of operations and cash flows of the Company are set forth in Notes to the Consolidated Financial Statements, which are included in the Company’s 2003 annual report on Form 10-K.

6

RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.		STOCK-BASED COMPENSATION
		As of September 30, 2004, the Company has two stock option plans under which employees and non-employee directors may be granted options to purchase shares of the Company’s common stock at the fair market value at the date of grant. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. With the exception of the stock option cost associated with the former Chief Executive Officer’s retirement, no stock option-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock–Based Compensation,” to stock-based employee compensation.

3.		EARNINGS PER SHARE
		For the three and nine months ended September 30, 2004 and 2003, basic earnings per share is calculated using the weighted average number of common shares outstanding during the period.
		For the three and nine months ended September 30, 2004, diluted earnings per share is calculated using the same number of shares as the basic earnings per share calculation because potentially dilutive common shares arising out of stock options and warrants are anti-dilutive due to the net loss. Had the Company reported net income, approximately 1.0 million and 1.2 million additional shares would have been included in the diluted earnings per share calculation for options and warrants for the three and nine months ended September 30, 2004, respectively, and, depending on the amount of earnings, 0.3 million and 1.1 million shares, respectively, would have been included in the diluted earnings per share calculation for the convertible debt. An additional 0.3 million and 0.5 million options and warrants still would have been excluded from the calculation for the three and nine months ended September 30, 2004, respectively, as such securities would continue to be anti-dilutive even if the Company reported income.
		For the three and nine months ended September 30, 2003, diluted earnings per share is calculated using the sum of the weighted average number of common shares outstanding plus potentially dilutive common shares arising out of stock options, warrants and convertible debt. A total of 7.3 million and 8.0 million options and warrants were excluded from the calculation for the three and nine months ended September 30, 2003, respectively, as such securities were anti-dilutive.

7

RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3.		EARNINGS PER SHARE, continued
		The following is a summary of the income (loss) from continuing operations available to common stockholders and weighted average shares (in thousands):

4.		DISCONTINUED OPERATIONS
		In August 2004, the Company completed the sale of Freight Australia to Pacific National for AUD $285 million (US $204 million). The U.S. dollar proceeds include approximately $4.3 million as a result of foreign exchange hedges that were entered into during the quarter ended September 30, 2004. In addition, the Share Sale Agreement provides for an additional payment to RailAmerica based on the changes in the net assets of Freight Australia from September 30, 2003, through August 31, 2004, and also provides various representations and warranties by RailAmerica to the buyer. Potential claims against RailAmerica for violations of most of the representations and warranties are capped at AUD $50 million (US$35.8 million). The Company believes the ultimate impact of the net asset adjustment and the representations and warranties will not have a material impact on the Company’s future results of operations. However, they could have a material impact on future cash flows. During the three months ended September 30, 2004, the Company recognized a pre-tax gain of $20.7 million, or $2.3 million, after-tax. The proceeds from the sale of Freight Australia were used to repay senior debt and repurchase the Company’s senior subordinated notes. Freight Australia’s results of operations have been classified as discontinued operations on the Company’s consolidated financial statements. In addition, the assets and liabilities of Freight Australia have been classified as assets and liabilities of discontinued operations on the December 31, 2003 balance sheet.
		Interest expense was allocated to the Australian discontinued operations as permitted under the Emerging Issues Task Force Issue , (“EITF”), No. 87-24, “Allocation of Interest to Discontinued Operations,” for all periods presented. For the three months ended September 30, 2004 and 2003, $0.7 million and $1.2 million, respectively, of interest expense was allocated to discontinued operations. For the nine months ended September 30, 2004 and 2003, $3.3 million and $3.6 million, respectively, of interest expense was allocated to discontinued operations. The interest allocations were calculated based upon the ratio of net assets to be discontinued less debt that is required to be paid as a result of the disposal transaction, to the sum of total net assets of the Company plus consolidated debt, less debt required to be paid as a result of the disposal transaction and debt that can be directly attributed to other operations of the Company.
		The results of operations for Freight Australia were as follows (in thousands):

8

RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4.		DISCONTINUED OPERATIONS, continued
		During the second quarter of 2004, the Company committed to a plan to dispose of the Arizona Eastern Railway Company. Subsequent to committing to the disposal plan, the Company has determined that the expected proceeds from the sale will be lower than anticipated and accordingly has recorded an impairment charge of $4 million during the three months ended September 30, 2004. The Company expects to complete the sale of the Arizona Eastern Railway Company by the end of 2004. The results of operations for the Arizona Eastern Railway Company have been classified as discontinued operations for 2004 and 2003. In addition, the assets and liabilities of the Arizona Eastern Railway Company have been classified as assets and liabilities of discontinued operations in the September 30, 2004 balance sheet.
		The results of operations for the Arizona Eastern Railway Company were as follows (in thousands):

The major classes of assets and liabilities of the Arizona Eastern Railway Company were as follows (in thousands):

9

RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4.		DISCONTINUED OPERATIONS, continued
		In February 2004, the Company completed the sale of its 55% equity interest in Ferronor, a Chilean railroad, for $18.1 million, consisting of $10.8 million in 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 90 day LIBOR plus 3%. During the quarter ended March 31, 2004, the Company recognized a $4.0 million tax charge resulting from the sale of its interest in Ferronor and the repatriation of the cash to the U.S. Ferronor’s results of operations have been presented in discontinued operations on the Company’s consolidated financial statements.
		The results of operations for Ferronor were as follows (in thousands):