UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended March 31, 2005, or

For the transition period from ____ to _____

Commission file number 0-20618

RAILAMERICA, INC.

5300 Broken Sound Blvd, N.W., Boca Raton, Florida 33487
(Address of principal executive offices) (Zip code)

(561) 994-6015
(Issuer’s telephone number)

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 o

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

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 – 37,769,657 shares as of May 6, 2005

RAILAMERICA, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

QUARTER ENDED MARCH 31, 2005

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2005 and December 31, 2004
(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 months ended March 31, 2005 and 2004
(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 three months ended March 31, 2005 and 2004
(in thousands)
(unaudited)

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

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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 March 31, 2005 and December 31, 2004 and the results of operations and cash flows for the three months ended March 31, 2005 and 2004. The December 31, 2004 balance sheet is derived from the Company’s audited financial statements for the year ended December 31, 2004. Operating results for the three months ended March 31, 2005 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.
	The Company’s principal operations consist of rail freight transportation in North America.
	During the second quarter of 2004, the Company committed to a plan to dispose of the Arizona Eastern Railway Company. The Company completed the sale of the Arizona Eastern Railway Company in December 2004. The results of operations for the Arizona Eastern Railway Company have been reclassified to discontinued operations for the periods presented.
	During December 2004, the Company also completed the sale of its West Texas and Lubbock Railroad. The results of operations for the West Texas and Lubbock Railroad have been reclassified to discontinued operations for the periods presented.
	In August 2004, the Company completed the sale of Freight Australia to Pacific National for AUD $285 million (US $204 million). In addition, the Share Sale Agreement provided for an additional payment to RailAmerica of AUD $7 million (US $5 million) based on the changes in the net assets of Freight Australia from September 30, 2003 through August 31, 2004, which was received by the Company in December 2004. 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 reclassified to 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 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.
	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 2004 annual report on Form 10-K.

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

2.	NEW ACCOUNTING PRONOUNCEMENTS
	In March 2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations –an interpretation of FASB Statement No. 143” (FIN 47). FIN 47 clarifies the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” and requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. Any uncertainty about the amount and/or timing of the future settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company is currently determining the impact of FIN 47 on its financial reporting and disclosures.
	In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123-R), which amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to require companies to recognize, in their financial statements, the cost of employee services received in exchange for equity instruments issued, and liabilities incurred, to employees in share-based payment transactions, such as employee stock options and similar awards. On April 14, 2005, the Securities and Exchange Commission delayed the effective date to annual periods, rather than interim periods, beginning after June 15, 2005. Upon adoption of this Statement, the prospective method of accounting for stock-based compensation will be utilized. Management is still determining if the adoption of this pronouncement will result in amounts similar to the current pro forma disclosures under SFAS 123 disclosed in footnote 3 below.
3.	STOCK-BASED COMPENSATION
	As of March 31, 2005, 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 on 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. 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 and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

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

4.	EARNINGS PER SHARE
	For the three months ended March 31, 2005 and 2004, basic earnings per share is calculated using the weighted average number of common shares outstanding during the period.
	For the three months ended March 31, 2005, 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. A total of 0.3 million options and warrants were excluded from the calculation for the three months ended March 31, 2005, as such securities were anti-dilutive.
	For the three months ended March 31, 2004, 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. A total of 1.1 million options and warrants were excluded from the calculation for the three months ended March 31, 2004, as was the assumed conversion of $13.7 million (1.4 million shares) of convertible debentures, as such securities were anti-dilutive.
	The following is a summary of the income from continuing operations available to common stockholders and weighted average shares (in thousands):

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

5.	DISCONTINUED OPERATIONS
	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 determined that the expected proceeds from the sale would be lower than anticipated and accordingly recorded an impairment charge of $4 million during the third quarter of 2004. The Company completed the sale of the Arizona Eastern Railway Company during December 2004, for $2.8 million in cash, resulting in a pretax gain on the sale of $0.3 million, or $0.2 million after tax.
	The results of operations for the Arizona Eastern Railway Company were as follows (in thousands):

	During the fourth quarter of 2004, the Company committed to a plan to dispose of the West Texas and Lubbock Railroad. The Company completed the sale of the West Texas and Lubbock Railroad during December 2004, for $1.8 million in cash and a long term note for $3.8 million, resulting in a gain on the sale of $0.1 million, before and after tax. During the quarter ended March 31, 2005, the Company sold a remaining parcel of land owned by the West Texas and Lubbock Railroad for a gain of $0.4 million, or $0.2 million after tax.
	The results of operations for the West Texas and Lubbock Railroad were as follows (in thousands):

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

5.	DISCONTINUED OPERATIONS, continued
	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 by the Company during the third quarter of 2004. In addition, the Share Sale Agreement provided for an additional payment to RailAmerica of AUD $7 million (US $5 million) based on the changes in the net assets of Freight Australia from September 30, 2003 through August 31, 2004, which was received by the Company in December 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 $39.5 million). The Company believes the ultimate impact of 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.
	For the three months ended March 31, 2004, interest expense of $1.3 million was allocated to the Australian discontinued operations as permitted under the Emerging Issues Task Force Issue No. 87-24, “Allocation of Interest to Discontinued Operations.” The interest allocation was 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):

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. No income or expense was recognized from operations for the first quarter ended 2004.

10

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

6.	EXPANSION OF OPERATIONS
	On October 16, 2004, the Company’s wholly-owned subsidiary, the Indiana & Ohio Central Railroad Inc., purchased 107 miles of railroad from Cincinnati, Ohio to Columbus, Ohio, known as the Midland Subdivision, for $8.6 million from CSX Transportation, Inc. The Company also entered into a 25-year lease of related real estate. The Company paid the $8.6 million by drawing on its revolving credit facility.
	In the second quarter of 2004, the Company’s wholly-owned subsidiary, the Central Railroad Company of Indianapolis, executed an agreement with CSX Transportation, Inc. to lease 276 miles of railroad known as the Chicago, Ft. Wayne & Eastern Railroad (“CF&E”) for twenty years, with an option for two five-year extensions starting on August 1, 2004. This agreement required a $10 million initial payment and annual lease payments of approximately $1.2 million for the term of the lease. The Company is amortizing the $10 million payment on a straight-line basis over the 20-year term of the lease. The annual lease payments may vary depending upon the extent to which the CF&E’s unit trains utilize CSX locomotive power during the preceding lease year.
	On January 25, 2004, the Company’s wholly-owned subsidiary, the Huron and Eastern Railway, acquired the assets of the Central Michigan Railway Company, which operates 100 miles of rail line in Michigan, for $25.3 million in cash.
	The results of operations of these acquisitions have been included in the Company’s consolidated financial statements since the date of their acquisitions. Additionally, the pro forma impact of these acquisitions and leases is not material.

11

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

7.	DEBT
	On September 29, 2004, the Company entered into an amended and restated $450 million senior credit facility. The facility consists of a $350 million term loan facility, with a $313 million U.S. tranche and a $37 million Canadian tranche, and a $100 million revolving loan facility with a $90 million U.S. dollar tranche and a $10 million Canadian dollar tranche. The term loans mature on September 30, 2011 and require 1% annual principal amortization and bear interest at LIBOR plus 2%, or 4.875% as of March 31, 2005. The revolving loans mature on September 30, 2010 and bear interest at LIBOR plus 1.75%. The interest rate for both the term loans and revolver will increase in the second quarter of 2005 by 0.25% due to the Company’s leverage ratio exceeding 4.0. The leverage ratio was 4.08 for the last twelve months ended March 31, 2005. The Company also may incur additional indebtedness under the credit facility consisting of up to $100 million aggregate principal amount of additional term loans to fund acquisitions, subject to the satisfaction of conditions set forth in the amended and restated credit agreement, including the consent of the Administrative Agent and Lead Arranger and compliance with all financial covenants set forth in the agreement on a pro forma basis on the date of the additional borrowing. As of March 31, 2005, the Company had no borrowings outstanding under the revolving credit facility.
	The U.S. term loan and the U.S. dollar denominated revolver are collateralized by the assets of and guaranteed by the Company and most of its U.S. subsidiaries. The Canadian term loan and the Canadian dollar denominated revolver are collateralized by the assets of and guaranteed by the Company and most of its U.S. and Canadian subsidiaries. The loans were provided by a syndicate of banks with UBS Securities LLC, as lead arranger, UBS AG, Stamford Branch, as administrative agent and The Bank of Nova Scotia as collateral agent.
	In addition, the amended and restated senior credit facility also contains financial covenants that 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 amended and restated senior credit facility can be affected by events beyond the Company’s control. Failure to comply with the obligations in the amended and restated senior credit facility could result in an event of default, which, if not cured or waived, could permit acceleration of the term loans and revolving loans or other indebtedness which could have a material adverse effect on the Company. The Company was in compliance with each of these covenants as of March 31, 2005 and anticipates being in compliance with its covenants for the next twelve months.
	On September 29, 2004, the Company repurchased approximately $125.7 million of its $130 million principal amount senior subordinated notes due August 15, 2010 through a tender offer and consent solicitation launched on August 31, 2004. Prior to expiration of the consent solicitation on September 14, 2004, holders of a majority of the outstanding notes tendered their securities and consented to the proposed amendments to the related indenture. The supplemental indenture incorporating the proposed amendments, which remove most of the restrictive covenants contained in the indenture, became effective on September 29, 2004. The proceeds from the sale of Freight Australia and from the amended and restated senior credit facility were used to fund the purchase of the notes.
	During the three months ended March 31, 2004, $8.1 million of the Company’s junior convertible subordinated debentures were converted to common stock, leaving an outstanding balance of $13.7 million, which was converted prior to July 31, 2004, or repaid in August 2004.

12

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

8.	HEDGING ACTIVITIES
	The Company uses derivatives to hedge against increases in fuel prices and interest rates. The Company formally documents the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for the use of the hedging instrument. This documentation includes linking the derivatives that are designated as fair value or cash flow hedges to specific assets or liabilities on the balance sheet, commitments or forecasted transactions. The Company assesses at the time a derivative contract is entered into, and at least quarterly, whether the derivative item is effective in offsetting the changes in fair value or cash flows. Any change in fair value resulting from ineffectiveness, as defined by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” is recognized in current period earnings. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is recorded in accumulated other comprehensive income as a separate component of Stockholders’ Equity and reclassified into earnings in the period during which the hedged transaction affects earnings.
	The Company monitors its hedging positions and credit ratings of its counterparties and does not anticipate losses due to counterparty nonperformance.
	Fuel costs represented 11% of total revenue during the three months ended March 31, 2005. Due to the significance of fuel costs to the operations of the Company and the historical volatility of fuel prices, the Company periodically hedges against fluctuations in the price of its diesel fuel purchases. The fuel-hedging program includes the use of derivatives that are accounted for as cash flow hedges. As of March 31, 2005, we have entered into fuel swap agreements to hedge the equivalent of 750,000 gallons per month from January 2005 through December 2005, at an average price of $1.45 per gallon, including taxes, transportation and distribution costs. The fair value of these hedges was a net receivable of $2.8 million at March 31, 2005.
	On April 10, 2003, the Company entered into two interest rate collar corridors for a total notional amount of $100 million with an effective date of November 24, 2003 and expiring on November 24, 2005. Under the terms of these interest rate collar corridors the LIBOR component of the Company’s interest rates can fluctuate between 1.50% and 2.81%. However, if LIBOR exceeds 5.00%, the Company is responsible for interest at that LIBOR rate. The interest rate collar corridors qualify, are designated and are accounted for as cash flow hedges under SFAS No. 133. The fair value of these interest rate collar corridors was a net receivable of $0.4 million at March 31, 2005.
	On August 13, 2004, the Company entered into an interest rate swap for a notional amount of $50 million for the period commencing November 24, 2004 through November 24, 2005. Under the terms of the interest rate swap, the Company is required to pay a fixed interest rate of 2.655% on $50 million while receiving a variable interest rate equal to the 90 day LIBOR rate. The swap qualifies, is designated and is accounted for as a cash flow hedge under SFAS No. 133. The fair value of this swap was a net receivable of $0.3 million at March 31, 2005.
	On August 13, 2004, the Company entered into an interest rate cap for a notional amount of $50 million with an effective date of November 24, 2004 and expiring on November 24, 2005. Under the terms of this cap, the LIBOR component of the Company’s interest rate can fluctuate up to 3.00%. The cap qualifies, is designated and is accounted for as a cash flow hedge under SFAS No. 133. The fair value of this cap was a net receivable of $0.2 million at March 31, 2005.
	On November 30, 2004, the Company entered into an interest rate swap for a notional amount of $100 million for the period commencing November 25, 2005, through November 24, 2007. Under the terms of the interest rate swap, the Company is required to pay a fixed interest rate of 4.05% on $100 million while receiving a variable interest rate equal to the 90 day LIBOR rate. The swap qualifies, is designated and is accounted for as a cash flow hedge under SFAS No. 133. The fair value of this swap was a net receivable of $0.9 million at March 31, 2005.
	On December 8, 2004, the Company entered into an interest rate cap for a notional amount of $50 million with an effective date of November 25, 2005, expiring on November 24, 2006. Under the terms of this cap, the LIBOR component of the Company’s interest rate can fluctuate up to 4.00%. The cap qualifies, is designated and is accounted for as a cash flow hedge under SFAS No. 133. The fair value of this cap was a net receivable of $0.3 million at March 31, 2005.

13

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

9.	INCOME TAX PROVISION
	The Company’s effective income tax rates in the first quarters of 2005 and 2004 for continuing operations were 17% and 38%, respectively. The rate for the first quarter of 2005 includes a tax benefit of approximately $1.7 million related to the track maintenance credit provisions enacted by the American Jobs Creation Act of 2004.
	In addition to the maintenance credit mentioned above, the American Jobs Creation Act of 2004 (the “Act”) created a temporary dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided certain criteria are met. Although the Act was signed into law in October 2004, the practical application of a number of the provisions of the repatriation provision remain unclear. Tax authorities are expected to provide clarifying language on the key elements of the repatriation provisions. However, the clarifying language is expected to affect the Company’s evaluation of the economic value of implementing any individual opportunity and its ability to meet the overall qualifying criteria. As a result, the Company will be unable to complete a determination of the Act’s effect on its plan for reinvestment or repatriation of foreign earnings until the clarifying language is released.
	Amounts under consideration for application of the temporary dividend received deduction as a result of the repatriation provision range from $1 million to $5 million. Such repatriations would impact the income tax provision from a range of approximately $100,000 to $500,000. The Company expects to complete its evaluation of this matter within a reasonable period of time after clarifying language is released.
10.	COMPREHENSIVE INCOME
	Other comprehensive income (loss) consists of foreign currency translation adjustments and unrealized gains and losses on derivative instruments designated as hedges. As of March 31, 2005, accumulated other comprehensive income consisted of $3.1 million of unrealized gains related to hedging transactions and $25.3 million of cumulative translation adjustment gains. The following table reconciles net income to comprehensive income (loss) for the three months ended March 31, 2005 and 2004 (in thousands).

11.	PENSION DISCLOSURES
	Components of the net periodic pension cost for the three months ended March 31, 2005 and 2004 were as follows (in thousands):

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

12.	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.
	On February 7, 2005, the Surface Transportation Board, or STB, entered an Order setting the terms for sale of the Company’s Toledo, Peoria &Western Railway’s, or TPW’s, 76 mile La Harpe – Hollis Line in west central Illinois to Keokuk Junction Railway Company, or KJRY, as a result of KJRY’s application under the Feeder Line Statute, 49 USC sec. 10907. Management believes that the STB-ordered sale of the line at the mandated price of $4.2 million was not in accordance with the rules and regulations governing such STB action and did not reflect the line’s value or adequately compensate TPW. As a result, the Company intends to appeal the Order to the U.S. Circuit Court of Appeals for the 7th Circuit. Management is unable to predict the outcome of this appeal. As a result of the sale, the Company recorded a loss on sale of the Hollis Line of $0.8 million.
	In the fourth quarter of 2003, a tunnel at the Company’s Central Oregon & Pacific Railroad experienced a significant fire, the cause of which has not been determined. The Company has insurance coverage up to $10 million to cover the reconstruction of the tunnel. The Company has concluded that the total costs to repair and reconstruct the tunnel have exceeded its insurance coverage and has recorded $2.0 million in expenses due to the fire, but does not believe it will have any further material impact on its financial position, results of operations or cash flows, as the tunnel was re-opened in April 2005.
	The Company has a $3.7 million contingent obligation, under certain events of default or if line abandonment occurs, to the Canadian National Railroad in connection with its properties. The contingent obligation bears no interest and has no pre-defined terms of payment or maturity.
	The Company’s operations are subject to extensive environmental regulation. The Company records liabilities for remediation and restoration costs related to past activities when the Company’s obligation is probable and the costs can be reasonably estimated. Costs of ongoing compliance activities are expensed as incurred. The Company’s recorded liabilities for these issues represent its best estimates (on an undiscounted basis) of remediation and restoration costs that may be required to comply with present laws and regulations. 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.

15

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

13.	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, except for the income statement results of the Arizona Eastern Railway Company and West Texas and Lubbock Railroad due to their classification as discontinued operations. The international segment has been restated for the exclusion of the Chilean and Australian operations, due to their classification as discontinued operations.
	Business segment information for the three months ended March 31, 2005 and 2004 is as follows (in thousands):

THREE MONTHS END