UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

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

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

Commission file number 001-32579

 

RAILAMERICA, INC.

(Exact name of registrant as specified in its charter)

Delaware		65-0328006
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

7411 Fullerton Street, Suite 300, Jacksonville, Florida 32256
(Address of Principal Executive Offices) (Zip Code)

(800) 342-1131
(Registrant’s Telephone Number, Including Area Code)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No þ

As of November 1, 2010 there were 54,861,304 shares of the registrant’s common stock outstanding.

 

 

RAILAMERICA, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2010

						Page
Part I.		Financial Information					3
		Item 1.		Financial Statements			3
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
		Item 3.		Quantitative and Qualitative Disclosures about Market Risk			38
		Item 4.		Controls and Procedures			39
Part II.		Other Information					40
		Item 1A.		Risk Factors			40
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			40
		Item 6.		Exhibits			41
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

RAILAMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Unaudited)

		September 30,				December 31,
		2010				2009
		(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents		$	113,898			$	190,218
Accounts and notes receivable, net of allowance of $5,427 and $4,557, respectively			81,661				66,619
Current deferred tax assets			12,697				12,697
Other current assets			13,691				21,958
Total current assets			221,947				291,492
Property, plant and equipment, net			978,310				952,527
Intangible assets			141,401				136,654
Goodwill			212,258				200,769
Other assets			13,971				17,187
Total assets		$	1,567,887			$	1,598,629
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt		$	466			$	669
Accounts payable			56,002				53,948
Accrued expenses			45,844				34,675
Total current liabilities			102,312				89,292
Long-term debt, less current maturities			2,759				3,013
Senior secured notes			570,601				640,096
Deferred income taxes			194,503				185,002
Other liabilities			19,749				21,895
Total liabilities			889,924				939,298
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, 400,000,000 shares authorized; 54,877,105 shares issued and outstanding at September 30, 2010; and 54,364,306 shares issued and outstanding at December 31, 2009			549				544
Additional paid in capital and other			634,836				630,653
Retained earnings			47,619				46,386
Accumulated other comprehensive loss			(5,041	)			(18,252	)
Total stockholders’ equity			677,963				659,331
Total liabilities and stockholders’ equity		$	1,567,887			$	1,598,629

The accompanying Notes are an integral part of the Consolidated Financial Statements.

RAILAMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(In thousands, except per share data)
Operating revenue		$	128,257			$	110,137			$	362,655			$	316,620
Operating expenses:
Transportation			54,497				47,524				164,779				138,974
Selling, general and administrative			29,721				26,799				89,907				74,943
Other			5,675				—				5,675				—
Net (gain) loss on sale of assets			(1,708	)			(159	)			(1,717	)			855
Depreciation and amortization			11,581				10,365				33,259				30,931
Total operating expenses			99,766				84,529				291,903				245,703
Operating income			28,491				25,608				70,752				70,917
Interest expense (including amortization costs of $6,020, $10,398, $20,194 and $18,990, respectively)			(19,735	)			(27,507	)			(64,592	)			(62,770	)
Other income (loss)			2,264				24				(5,177	)			(1,396	)
Income (loss) from continuing operations before income taxes			11,020				(1,875	)			983				6,751
Provision for (benefit from) income taxes			3,052				(5,378	)			(250	)			(3,028	)
Income from continuing operations			7,968				3,503				1,233				9,779
Discontinued operations:
Gain (loss) on disposal of discontinued business (net of income taxes (benefit) of $(11) and $12,005, respectively)			—				(20	)			—				12,931
Net income		$	7,968			$	3,483			$	1,233			$	22,710
Dividends declared and paid per common share		$	—			$	—			$	—			$	0.46
Basic earnings per common share:
Continuing operations		$	0.15			$	0.08			$	0.02			$	0.23
Discontinued operations			0.00				0.00				0.00				0.30
Net income		$	0.15			$	0.08			$	0.02			$	0.53
Diluted earnings per common share:
Continuing operations		$	0.15			$	0.08			$	0.02			$	0.23
Discontinued operations			0.00				0.00				0.00				0.30
Net income		$	0.15			$	0.08			$	0.02			$	0.53
Weighted Average common shares outstanding:
Basic			54,872				43,721				54,769				43,688
Diluted			54,872				43,721				54,769				43,688

The accompanying Notes are an integral part of the Consolidated Financial Statements.

RAILAMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		For the Nine Months Ended
		September 30,
		2010				2009
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	1,233			$	22,710
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including amortization of debt issuance costs classified in interest expense			36,863				39,858
Amortization of swap termination costs			16,582				10,026
Net gain on sale or disposal of properties			(1,717	)			(70	)
Foreign exchange gain on debt			—				(1,160	)
Swap termination costs			—				(55,750	)
Loss on extinguishment of debt			8,357				2,593
Equity compensation costs			5,525				3,146
Deferred income taxes and other			(3,770	)			3,336
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable			(9,565	)			1,906
Other current assets			9,056				1,315
Accounts payable			(2,808	)			(605	)
Accrued expenses			10,326				(1,841	)
Other assets and liabilities			(2,210	)			(20,336	)
Net cash provided by operating activities			67,872				5,128
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment			(46,771	)			(34,451	)
Proceeds from sale of assets			3,251				20,071
Acquisitions, net of cash acquired			(23,926	)			—
Deferred disposition costs and other			—				(355	)
Net cash used in investing activities			(67,446	)			(14,735	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of senior secured notes			—				709,830
Principal payments on long-term debt			(391	)			(625,677	)
Repurchase of senior secured notes			(76,220	)			—
Costs associated with sale of common stock			(106	)			—
Dividends paid to common stockholders			—				(19,485	)
Deferred financing costs paid			(224	)			(20,018	)
Net cash provided by (used in) financing activities			(76,941	)			44,650
Effect of exchange rates on cash			195				214
Net increase (decrease) in cash			(76,320	)			35,257
Cash, beginning of period			190,218				26,951
Cash, end of period		$	113,898			$	62,208

The accompanying Notes are an integral part of the Consolidated Financial Statements.

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

1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The interim consolidated financial statements presented herein include the accounts of RailAmerica, Inc. and all of its subsidiaries (“RailAmerica” or the “Company”). All of RailAmerica’s consolidated subsidiaries are wholly-owned. All significant intercompany transactions and accounts have been eliminated in consolidation. These interim consolidated financial statements have been prepared by the Company, without audit, and accordingly do not contain all disclosures which would be required in a full set of financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). In the opinion of management, the unaudited financial statements for the three and nine months ended September 30, 2010 and 2009, are presented on a basis consistent with the audited financial statements and contain all adjustments, consisting only of normal recurring adjustments, necessary to provide a fair statement of the results for interim periods. The results of operations for interim periods are not necessarily indicative of results of operations for the full year. The consolidated balance sheet data for 2009 was derived from the Company’s audited financial statements for the year ended December 31, 2009, but does not include all disclosures required by GAAP.

In October 2010, the Company entered into a new agreement with Canadian Pacific Railway Company (“CP”) to operate portions of the Ottawa Valley Railway (“OVRR”) line, a previously discontinued operation. As a result of this new operating agreement, this railroad is no longer considered discontinued for financial statement presentation purposes and thus, the results of operations of the OVRR have been reclassified to continuing operations on our statement of operations for all periods presented.

Organization

RailAmerica is a leading owner and operator of short line and regional freight railroads in North America, operating a portfolio of 40 individual railroads with approximately 7,300 miles of track in 27 states and three Canadian provinces. The Company’s principal operations consist of rail freight transportation and ancillary rail services.

Use of Estimates

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

2. EARNINGS PER SHARE

For the three and nine months ended September 30, 2010 and 2009, basic and diluted earnings per share are calculated using the weighted average number of common shares outstanding during the year. The basic earnings per share calculation includes all vested and unvested restricted shares as a result of their dividend participation rights.

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

		For the Three Months								For the Nine Months
		Ended								Ended
		September 30,								September 30,
		2010				2009				2010				2009
Income from continuing operations (basic and diluted)		$	7,968			$	3,503			$	1,233			$	9,779
Compensation expense recorded for dividends paid on unvested restricted shares, net of tax			—				—				—				307
Income from continuing operations available to common stockholders (basic and diluted)		$	7,968			$	3,503			$	1,233			$	10,086
Weighted average shares outstanding (basic and diluted)			54,872				43,721				54,769				43,688

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

3. STOCK-BASED COMPENSATION

The Company has the ability to issue restricted shares under its incentive compensation plan. Restricted shares granted to employees are scheduled to vest over three to five year periods. The grant date fair values of the restricted shares are based upon the fair market value of the Company at the time of grant. Prior to the Company’s initial public offering in October 2009, the Company engaged an unrelated valuation specialist to perform a fair value analysis of the Company at the end of each quarter.

Stock-based compensation expense related to restricted stock grants for the three months ended September 30, 2010 and 2009 was $2.0 million and $1.2 million, respectively. Stock-based compensation expense related to restricted stock grants for the nine months ended September 30, 2010 and 2009 was $5.5 million and $3.1 million, respectively.

A summary of the status of restricted shares as of September 30, 2010, and the changes during the nine months then ended and the weighted average grant date fair values is presented below:

		Time Based
Balance at December 31, 2009			1,286,329			$	13.10
Granted			660,688			$	11.89
Vested			(359,276	)		$	12.89
Cancelled			(42,641	)		$	13.02
Balance at September 30, 2010			1,545,100			$	12.64

4. ACQUISITIONS

On July 1, 2010, the Company acquired Atlas Railroad Construction Company (“Atlas”) and related assets for $23.9 million in cash including closing adjustments for working capital, which were approximately $2.4 million, net of cash acquired. The acquisition was funded from existing cash on hand. Founded in 1954, Atlas is a railroad engineering, construction, maintenance and repair company operating primarily in the U.S. Midwest and Northeast. Atlas provides railroad construction services principally to short line and regional railroads, public-transit agencies and industrial customers. The results of operations of Atlas have been included in the Company’s consolidated financial statements since July 1, 2010, the acquisition date.

In accordance with ASC 805, Business Combinations Topic, the acquisition was accounted for under the acquisition method of accounting. Assets acquired and liabilities assumed were recorded at their estimated fair value. As a result of the consideration paid, an estimated $11.3 million of goodwill was recorded related to the acquired entity. The main drivers of goodwill were Atlas’s historical revenue growth rate as well as expectations for future revenue and Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) growth from organic and strategic initiatives including synergies from further integration of processes across the RailAmerica network and leveraging our natural customer, Class I, shortline and governmental relationships. These expectations of future business performance were key factors influencing the premium paid for the Atlas business. The goodwill associated with this acquisition is not deductible for tax purposes.

The preliminary allocation of purchase price is as follows (in thousands):

Current assets		$	6,607
Intangible assets			9,430
Goodwill			11,326
Property, plant and equipment			6,459
Total assets acquired			33,822
Current liabilities			(4,182	)
Deferred tax liabilities			(5,715	)
Total liabilities assumed			(9,897	)
Purchase price		$	23,925

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

The Atlas trade name was considered an indefinite-lived intangible asset and was assigned a value of $1.8 million. Definite-lived intangible assets were assigned the following amounts and weighted average amortization periods (dollars in thousands):

		Value				Weighted Average Life
		Assigned				(Years)
Customer relationships		$	6,720				20.0
Project backlog		$	110				0.5
Non-compete agreements		$	810				4.0

5. DISCONTINUED OPERATIONS

Alberta Railroad Properties

During the fourth quarter of 2005, the Company committed to a plan to dispose of the Alberta Railroad Properties, comprised of the Lakeland & Waterways Railway, Mackenzie Northern Railway and Central Western Railway. The sale of the Alberta Railroad Properties was completed in January 2006 for $22.1 million in cash. During the three months ended September 30, 2009, the Company recorded an adjustment of $(0.03) million, or $(0.02) million, after tax, as a loss on sale of discontinued operations related to outstanding liabilities associated with the disposed entities. During the nine months ended September 30, 2009, the Company recorded an adjustment of $0.2 million, or $0.2 million, after tax, as a gain on disposal of discontinued operations related to outstanding liabilities associated with the disposed entities.

Freight Australia

In August 2004, the Company completed the sale of its Australian railroad, Freight Australia, to Pacific National for AUD $285 million (US $204 million). On May 14, 2009, the Company received a notice from the Australian Taxation Office (“ATO”) indicating that they would not be taking any further action in relation to its audit of the reorganization transactions undertaken by the Company’s Australian subsidiaries prior to the sale. As a result, the Company removed the previously recorded tax reserves resulting in a benefit to the continuing operations tax provision of $2.5 million related to the accrual of interest subsequent to the Company’s acquisition, an adjustment to the gain on disposal of discontinued operations of $12.3 million and reduced its accrual for consulting fees resulting in a gain on disposal of discontinued operations of $0.7 million, or $0.5 million, after tax during the nine months ended September 30, 2009.

6. LONG-TERM DEBT

$740 Million 9.25% Senior Secured Notes

On June 23, 2009, the Company sold $740.0 million of 9.25% senior secured notes due July 1, 2017 in a private offering, for gross proceeds of $709.8 million after deducting the initial purchaser’s fees. The notes are secured by first-priority liens on substantially all of the Company’s and the guarantors’ assets. The guarantors are defined essentially as the Company’s existing and future wholly-owned domestic restricted subsidiaries. The net proceeds received from the issuance of the notes were used to repay the outstanding balance of the $650 million bridge credit facility, as described below, and $7.4 million of accrued interest thereon, pay costs of $57.1 million to terminate interest rate swap arrangements, including $1.3 million of accrued interest, entered into in connection with the bridge credit facility, pay fees and expenses related to the offering and for general corporate purposes.

The Company may redeem up to 10% of the aggregate principal amount of the notes issued during any 12-month period commencing on the issue date at a price equal to 103% of the principal amount thereof plus accrued and unpaid interest, if any. The Company may also redeem some or all of the notes at any time before July 1, 2013, at a price equal to 100% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the redemption date and a make-whole premium. In addition, prior to July 1, 2012, the Company may redeem up to 35% of the notes at a redemption price of 109.25% of their principal amount thereof plus accrued and unpaid interest, if any, with the proceeds from an equity offering. Subsequent to July 1, 2013, the Company may redeem the notes at 104.625% of their principal amount. The premium then reduces to 102.313% commencing on July 1, 2014 and then 100% on July 1, 2015 and thereafter. On November 16, 2009, the Company redeemed $74 million aggregate principal amount of the notes at a cash redemption price of 103%, plus accrued interest thereon to, but not including, the redemption date. On June 24, 2010, the Company redeemed an additional $74 million aggregate principal amount of the notes at a cash redemption price of 103%, plus accrued interest thereon to, but not including, the redemption date.

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

On November 2, 2009, the Company commenced an exchange offer of the privately placed senior secured notes for senior secured notes which have been registered under the Securities Act of 1933, as amended. The registered notes have terms that are substantially identical to the privately placed notes. The exchange offer expired on December 2, 2009.

$40 Million ABL Facility

In connection with the issuance of the senior secured notes on June 23, 2009, the Company also entered into a $40 million Asset Backed Loan Facility (“ABL Facility”). The ABL Facility matures on June 23, 2013 and bears interest at LIBOR plus 4.0%. Obligations under the ABL Facility are secured by a first-priority lien on the ABL collateral. ABL collateral includes accounts receivable, deposit accounts, securities accounts and cash. As of September 30, 2010, the Company had no outstanding balance under the Facility and approximately $21.0 million of undrawn availability, taking into account borrowing base limitations.

The ABL Facility and indenture governing the senior secured notes contain various covenants and restrictions that will limit the ability of the Company and its restricted subsidiaries to incur additional indebtedness, pay dividends, make certain investments, sell or transfer certain assets, create liens, designate subsidiaries as unrestricted subsidiaries, consolidate, merge or sell substantially all the assets, and enter into certain transactions with affiliates. It is anticipated that proceeds from any future borrowings would be used for general corporate purposes.

On June 10, 2010, the Company entered into Amendment No. 1 (the “Amendment”) to its ABL Facility improving certain terms of the ABL Facility. Among other things, this Amendment eliminates the LIBOR-based interest rate floor of 2.5%, modifies the borrowing base calculation and reporting requirements to require less frequent financial reporting in certain circumstances, adjusts the limitations on permitted acquisitions and restricted payments and amends the financial covenants to incorporate cash balances in certain definitions.

$650 Million Bridge Credit Facility

As part of the merger transaction in which the Company was acquired by certain private equity funds managed by affiliates of Fortress Investment Group LLC (“Fortress”), the Company terminated the commitments under its former amended and restated credit agreement and repaid all outstanding loans and other obligations in full under this agreement. In order to fund this repayment of debt and complete the merger transaction, on February 14, 2007, the Company entered into a $650 million bridge credit facility agreement. The facility consisted of a $587 million U.S. dollar term loan commitment and a $38 million Canadian dollar term loan commitment, as well as a $25 million revolving loan facility with a $20 million U.S. dollar tranche and a $5 million Canadian dollar tranche. The Company entered into an amendment on July 1, 2008 to extend the maturity of the bridge credit facility for one year with an additional one year extension at its option. Under the amended bridge credit facility agreement, the term loans and revolving loans carried an interest rate of LIBOR plus 4.0%. Prior to amendment, the bridge credit facility agreement, including the revolving loans, paid interest at LIBOR plus 2.25%. The outstanding borrowings under this facility were classified as non-current as of December 31, 2008, as the Company had the intent and ability to exercise its option to extend the maturity to August 15, 2010. The $25 million revolving loan facility was available for immediate borrowing if necessary.

In November 2008, the Company entered into Amendment No. 1 to the amended bridge credit facility agreement which permitted the Company to enter into employee and office space sharing agreements with affiliates and included a technical amendment to the definitions of interest coverage ratio and interest expense.

The U.S. and Canadian dollar term loans and the U.S. and Canadian dollar revolvers were 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 Citigroup Global Markets, Inc. and Morgan Stanley Senior Funding, Inc., as co-lead arrangers, Citicorp North America, Inc., as administrative agent and collateral agent and Morgan Stanley Senior Funding, Inc. as syndication agent.

As discussed above, all borrowings under the bridge credit facility were repaid with the proceeds from the issuance of the senior secured notes.

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

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective beginning second quarter 2009, ASC 825 requires disclosures about fair value of financial instruments in quarterly reports as well as in annual reports. For RailAmerica, this statement applies to certain investments, such as cash equivalents, and long-term debt. Also, ASC 820 clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument held by the Company:

	•		Current assets and current liabilities: The carrying value approximates fair value due to the short maturity of these items.
	•		Long-term debt: The fair value of the Company’s senior secured notes is based on secondary market indicators. The carrying amount of the Company’s other long term debt approximates its fair value.
	•		Derivatives: The carrying value is based on fair value as of the balance sheet date. Companies are required to maximize the use of observable inputs (Level 1 and Level 2), when available, and to minimize the use of unobservable inputs (Level 3) when determining fair value. The Company’s measurement of the fair value of interest rate derivatives is based on estimates of the mid-market values for the transactions provided by the counterparties to these agreements. For derivative instruments in an asset position, the Company also analyzes the credit standing of the counterparty and factors it into the fair value measurement. ASC 820 states that the fair value of a liability also must reflect the nonperformance risk of the reporting entity. Therefore, the impact of the Company’s credit worthiness has also been factored into the fair value measurement of the derivative instruments in a liability position. This methodology is a market approach, which under ASC 820 utilizes Level 2 inputs as it uses market data for similar instruments in active markets. See Note 8 for further fair value disclosure of the Company’s interest rate swap. As the Company terminated its interest rate swap agreement in conjunction with the refinancing of its bridge credit facility on June 23, 2009, the swap had no fair value as of December 31, 2009 or September 30, 2010.

The carrying amounts and estimated fair values of the Company’s financial instruments were as follows (in thousands):

		September 30, 2010
		Carrying				Fair
		Amount				Value
Cash and cash equivalents		$	113,898			$	113,898
9.25% Senior secured notes		$	570,601			$	650,608

8. DERIVATIVE FINANCIAL INSTRUMENTS

The Company adopted Derivatives and Hedging Topic, ASC 815-10-65, on January 1, 2009, which enhances the disclosure requirements about an entity’s derivative instruments and hedging activities. The expanded disclosure required by ASC 815 is presented below.

The Company may use derivatives to hedge against increases in interest rates. The Company formally documents the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for the use of the hedging instrument. This documentation includes linking the derivatives that are designated as cash flow hedges to specific assets or liabilities on the balance sheet, commitments or forecasted transactions. The Company assesses at the time a derivative contract is entered into, and at least quarterly, whether the derivative item is effective in offsetting the changes in fair value or cash flows. Any change in fair value resulting from ineffectiveness 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 hedge transaction affects earnings.

For derivative instruments in an asset position, the Company analyzes the credit standing of the counterparty and factors it into the fair value measurement. Fair Value Measurements and Disclosures Topic, ASC 820 states that the fair value of a liability must reflect the nonperformance risk of the reporting entity. Therefore, the impact of the Company’s credit worthiness was factored into the fair value

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

measurement of the derivative instruments in a liability position. The Company monitors any hedging positions and the credit ratings of its counterparties.

On February 14, 2007, the Company entered into an interest rate swap with a termination date of February 15, 2014. The total notional amount of the swap started at $425 million for the period from February 14, 2007 through November 14, 2007, increased to a total notional amount of $525 million for the period from November 15, 2007 through November 14, 2008, and ultimately increased to $625 million for the period from November 15, 2008 through February 15, 2014. Under the terms of the interest rate swap, the Company was required to pay a fixed interest rate of 4.9485% on the notional amount while receiving a variable interest rate equal to the 90 day LIBOR. This swap qualified, was designated and was accounted for as a cash flow hedge under ASC 815. This interest rate swap agreement was terminated in June 2009, in connection with the repayment of the bridge credit facility, and thus had no fair value at December 31, 2009. Interest expense of $0.3 million was recognized during the nine months ended September 30, 2009 for the portion of the hedge deemed ineffective. Pursuant to ASC 815, the fair value balance of the swap at termination remains in accumulated other comprehensive loss, net of tax, and is amortized to interest expense over the remaining life of the original swap (through February 14, 2014). Interest expense for the quarters ended September 30, 2010 and 2009, included $4.9 million and $9.1 million of amortization expense related to the terminated swap, respectively. Interest expense for the nine months ended September 30, 2010 and 2009, included $16.6 million and $10.0 million of amortization expense related to the terminated swap, respectively. As a result of the $74 million redemption of the notes during June 2010, an additional $1.7 million of unamortized expense was recognized during the nine months ended September 30, 2010. This was the result of the face value of outstanding senior secured notes dropping below the notional amount of the swap. As of September 30, 2010, accumulated other comprehensive loss included $15.8 million, net of tax, of unamortized loss relating to the terminated swap. Reclassifications from accumulated other comprehensive loss to interest expense in the next twelve months will be approximately $13.9 million, or $8.6 million, net of tax.

For the nine months ended September 30, 2009, the amount of loss recognized in the consolidated statement of operations was as follows (in thousands):

The Effect of Derivative Instruments on Statement of Operations

Amount of Gain

or (Loss)

Recognized in

Accumulated

Location of Gain

Amount of Gain

Amount of Gain

Other

(Loss)

(Loss)

Location of Gain

(Loss)

Comprehensive

Reclassified from

Reclassified from

(Loss) Recognized

Recognized in

Income (AOCI)

AOCI into

AOCI into

in Income on

Income on

Derivatives in ASC 815

on Derivative

Income

Income

Derivative

Derivative

Cash Flow Hedging

(Effective

(Effective

(Effective

(Ineffective

(Ineffective

Relationships

Portion)

Portion)

Portion)

Portion)

Portion)

Interest Rate Swap

$

5,322

Interest Expense

$

(7,270

)

Interest Expense

$

(278

)

See Note 7 for additional information regarding the fair value of derivative instruments.

9. COMMON STOCK TRANSACTIONS

During the three months ended September 30, 2010 and 2009, the Company accepted 462 and 837 shares in lieu of cash payments by employees for payroll tax withholdings relating to stock based compensation. During the nine months ended September 30, 2010 and 2009, the Company accepted 105,246 and 47,691 shares in lieu of cash payments by employees for payroll tax withholdings relating to stock based compensation.

In June 2009, the Company declared and paid a cash dividend in the amount of $20.0 million to its common shareholders. Approximately $0.5 million of the cash dividend was paid to holders of unvested restricted shares. This amount was accounted for as compensation expense and presented as a reduction of cash flow from operations.

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

10. TRACK MAINTENANCE AGREEMENT

In the first quarter of 2009, the Company entered into a track maintenance agreement with an unrelated third-party customer (“Shipper”). Under the agreement, the Shipper paid for qualified railroad track maintenance expenditures during 2009 in exchange for the assignment of railroad track miles which permits the Shipper to claim certain tax credits pursuant to Section 45G of the Internal Revenue Code. The reduction in maintenance expenditures is reflected in the Transportation functional category in the consolidated results of operations. For the three and nine months ended September 30, 2009, the Shipper paid for $4.6 million and $13.1 million of maintenance expenditures, respectively, and $5.2 million of capital expenditures during the three months ended September 30, 2009. The Company incurred $0.1 million and $0.3 million of consulting fees related to the agreement during the three and nine months ended September 30, 2009, respectively. The track maintenance tax credit has not been renewed by Congress for 2010 and therefore, there was no track maintenance agreement entered into during the nine months ended September 30, 2010.

11. INCOME TAX PROVISION

The overall income tax rate for the three months ended September 30, 2010 and 2009 for continuing operations were a provision of 27.7% and a benefit of 286.8%, respectively. The overall tax rate for the three months ended September 30, 2010 was favorably impacted by the jurisdictional mix of operating income along with the reduction of certain tax reserves due to the lapse of the statute of limitations for certain tax years. The Company’s overall tax rate for the three months ended September 30, 2009 was favorably impacted by converting certain operating subsidiaries to single member limited liability companies and by the adjustment of the Company’s deferred tax balances resulting from a change in estimate of the Company’s apportioned state tax rates. Other factors benefiting the effective tax rate included the reduction of certain tax reserves due to the lapse of the statute of limitations for certain tax years and the recovery of previously paid states taxes from filed refund claims.

The overall income tax rate for the nine months ended September 30, 2010 and 2009 for continuing operations were a benefit of 25.4% and a benefit of 44.9%, respectively. The overall tax rate for the nine months ended September 30, 2010 was favorably impacted by the jurisdictional mix of operating income, a reduction of certain tax reserves due to the lapse of the statute of limitations for certain tax years and offset by an expense relating to stock-based compensation plans. The Company’s overall tax rate for the nine months ended September 30, 2009 was favorably impacted by the resolution of the Australian tax audit, the conversion of certain operating subsidiaries to single member limited liability companies and the adjustment of the Company’s deferred tax balances resulting from a change in estimate of the Company’s apportioned state rates.

A reconciliation of the beginning and ending amount of unrecognized tax positions is as follows (in thousands):

Balance at January 1, 2010		$	6,097
Additions for tax positions of prior years			33
Lapse of statute of limitations			(551	)
Balance at September 30, 2010		$	5,579

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

12. COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) consists of foreign currency translation adjustments, unrealized gains and losses on derivative instruments designated as hedges and unrealized actuarial gains and losses related to pension benefits. As of September 30, 2010, accumulated other comprehensive loss consisted of $15.8 million of unrealized losses, net of tax, related to hedging transactions, $0.4 million of unrealized actuarial gains, net of tax, associated with pension benefits and $10.3 million of cumulative translation adjustment gains. The following table reconciles net income to comprehensive income (loss) for the three and nine months ended September 30, 2010 and 2009 (in thousands):

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
Net income		$	7,968			$	3,483			$	1,233			$	22,710
Other comprehensive income:
Unrealized gain on derivatives designated as hedges, net of taxes of $3,262			—				—				—				5,322
Amortization of terminated swap costs, net of taxes of $1,853, $3,440, $6,301 and $3,809, respectively			3,021				5,614				10,281				6,217
Write-off of terminated swap costs, net of taxes of $642			—				—				1,047				—
Change in cumulative translation adjustments			3,938				13,424				1,883				19,338
Total comprehensive income		$	14,927			$	22,521			$	14,444			$	53,587

13. PENSION DISCLOSURES

Components of the net periodic pension and benefit cost for the three and nine months ended September 30, 2010 and 2009 were as follows (in thousands):

		Pension Benefits
		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
Service cost		$	47			$	41			$	141			$	133
Interest cost			168				145				504				409
Expected return on plan assets			(133	)			(101	)			(400	)			(288	)
Amortization of net actuarial loss			34				11				103				30
Amortization of prior service costs			6				5				17				15
Net cost recognized		$	122			$	101			$	365			$	299

		Health and Welfare
		Benefits
		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
Service cost		$	11			$	11			$	32			$	32
Interest cost			32				31				97				92
Amortization of net actuarial gain			(15	)			(18	)			(46	)			(53	)
Net cost recognized		$	28			$	24			$	83			$	71

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

14. COMMITMENTS AND CONTINGENCIES

In the ordinary course of conducting its business, the Company becomes involved in various legal actions and other claims. 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. Settlement costs associated with litigation are included in Transportation expense on the Consolidated Statement of Operations.

The Company’s operations are subject to extensive environmental regulation. The Company records liabilities for remediation and restoration costs related to past activities when the Company’s obligation is probable and the costs can be reasonably estimated. Costs of ongoing compliance activities to current operations are expensed as incurred. The Company’s recorded liabilities for these issues represent its best estimates (on an undiscounted basis) of remediation and restoration costs that may be required to comply with present laws and regulations. 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.

The Company is subject to claims for employee work-related and third-party injuries. Work-related injuries for employees are primarily subject to the Federal Employers’ Liability Act (“FELA”). The Company retains an independent actuarial firm to assist management in assessing the value of personal injury claims and cases. An analysis has been performed by an independent actuarial firm and is reviewed by management. The methodology used by the actuary includes a development factor to reflect growth or reduction in the value of these personal injury claims. It is based largely on the Company’s historical claims and settlement experience. Actual results may vary from estimates due to the type and severity of the injury, costs of medical treatments and uncertainties in litigation.

On August 28, 2005, a railcar containing styrene located on the Company’s Indiana & Ohio Railway (“IORY”) property in Cincinnati, Ohio, began venting, due to a chemical reaction. Styrene is a potentially hazardous chemical used to make plastics, rubber and resin. In response to the incident, local public officials temporarily evacuated residents and businesses from the immediate area until public authorities confirmed that the tank car no longer posed a threat. As a result of the incident, several civil lawsuits were filed, and claims submitted, against the Company and others connected to the tank car. Motions for class action certification were filed. Settlements were achieved with what the Company believes to be all potential individual claimants. In cooperation with the Company’s insurer, the Company has paid settlements to a substantial number of affected businesses, as well. All business interruption claims have been resolved. Total payments to-date exceed the self insured retention, so the IORY’s liability for civil matters has likely been exhausted. The incident also triggered inquiries from the Federal Railroad Administration (“FRA”) and other federal, state and local authorities charged with investigating such incidents. A settlement was reached with the FRA, requiring payment of a $50,000 fine but no admission of liability by the IORY. Because of the chemical release, the U.S. Environmental Protection Agency (“U.S. EPA”) is investigating whether criminal negligence contributed to the incident, and whether charges should be pressed. A conference with the Company’s attorneys and the U.S. EPA attorneys took place on January 14, 2009, at which time legal theories and evidence were discussed in an effort to influence the U.S. EPA’s charging decision. The meeting concluded before the matters were fully discussed and a continuance was scheduled for March 13, 2009. The IORY submitted a proffer addendum in May 2009 analyzing its compliance under the Clean Air Act. The EPA has advised that its workload has delayed its review and response. The statute of limitations was extended by a tolling agreement as to the IORY only (the Company has been dropped from this violation) through February 27, 2011. Should this investigation lead to environmental criminal charges against the IORY, potential fines upon conviction could range widely and could be material. As of September 30, 2010, the Company has accrued $1.4 million for this incident, which is expected to be paid out within the next year.

Government grants

In August 2010, the Company’s New England Central Railroad (“NECR”) was awarded a federal government grant of $50 million through the State of Vermont to improve and upgrade the track on its property. As part of the agreement, the NECR has committed to contribute up to approximately $19 million of capital funds and materials to the project. The project is expected to be completed within the next two years from the grant date. There was no material impact to the Company’s financial statements for the quarter ended September 30, 2010 as a result of this grant.

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

15. RELATED PARTY TRANSACTIONS

As of January 1, 2009, the Company was party to five short-term operating lease agreements with Florida East Coast Railway LLC, (“FECR”) an entity also owned by investment funds managed by affiliates of Fortress. During 2009, the Company entered into five additional lease agreements with the same entity. All but one of these agreements relate to the leasing of locomotives between the companies for ordinary business operations, which are based on current market rates for similar assets. With respect to such agreements, during the quarters ended September 30, 2010 and 2009, on a net basis the Company paid FECR $0.5 million and $0.2 million, respectively. During the nine months ended September 30, 2010 and 2009, on a net basis the Company paid FECR $1.5 million and $0.4 million, respectively.

The remaining lease relates to the sub-leasing of office space by FECR to the Company. During the quarters ended September 30, 2010 and 2009, FECR billed the Company $0.2 million and $0.3 million, respectively, under the sub-lease agreement. During the nine months ended September 30, 2010 and 2009, FECR billed the Company $0.8 million and $0.8 million, respectively, under the sub-lease agreement. As of September 30, 2010 the Company had a payable of $0.3 million due to FECR under these lease agreements.

Effective January 1, 2010, the Company entered into a Shared Services Agreement with FECR and its affiliates which provides for services to be provided from time to time by certain of our senior executives and other employees and for certain reciprocal administrative services, including finance, accounting, human resources, purchasing and legal. The agreements are generally consistent with arms-length arrangements with third parties providing similar services. The net amount of payments to be made by us under these agreements is expected to be less than $1 million in the aggregate on an annual basis. As of September 30, 2010, the Company had a payable of $0.2 million due to FECR under this agreement.

In October 2009, certain of the Company’s executives entered into consulting agreements with FECR. Under the terms of these agreements, the executives are to provide assistance to the FECR with strategic initiatives designed to grow FECR’s revenue and enhance the value of the franchise. Consideration for the executive’s performance is in the form of restricted stock units of FECR common stock that will vest 25% over four years. Since the consulting agreements are with a related-party, the Company is required to recognize compensation expense over the vesting period in labor and benefits expense with a corresponding credit in other income (loss) for management fee income. During the three and nine months ended September 30, 2010, the Company recognized $0.1 million and $0.4 million of compensation expense and $0.1 million and $0.4 million of management fee income related to these consulting agreements, respectively.

In October 2009, certain of the Company’s executives entered into consulting agreements with Florida East Coast Industries, Inc., (“FECI”) an entity also owned by investment funds managed by affiliates of Fortress. Under the terms of these agreements, the executives are to provide assistance to FECI with strategic initiatives designed to enhance the value of FECI’s rail-related assets. Consideration for the executive’s performance is in the form of restricted stock units of FECI common stock that will vest 50%, 25%, and 25% over the next three years. Since the consulting agreements are with a related-party, the Company is required to recognize compensation expense over the vesting period in labor and benefits expense with a corresponding credit in other income (loss) for management fee income. During the three and nine months ended September 30, 2010, the Company recognized $0.3 million and $1.0 million of compensation expense and $0.3 million and $1.0 million of management fee income related to these consulting agreements, respectively.

16. OTHER INCOME

In August 2010, the Company entered into a purchase agreement to acquire warrants and other securities of a railroad which was contingent upon that railroad’s principal stockholder not consummating a refusal right to purchase the same securities. The principal stockholder exercised this right and thus based on the terms of the purchase agreement, the Company received a break-up fee of $2 million from the seller. This break-up fee is reflected, net of expenses incurred of $0.2 million, as part of other income (loss) on the Company’s consolidated statement of operations.

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

17. GUARANTOR FINANCIAL STATEMENT INFORMATION

In June 2009, the Company sold in a private offering $740.0 million aggregate principal amount of 9.25% senior secured notes which mature on July 1, 2017. In October 2009, the Company filed with the SEC a Form S-4 registration statement to exchange the privately placed notes with registered notes. The terms of the registered notes are substantially identical to those of the privately placed notes. The notes are jointly and severally guaranteed on a senior secured basis by all of the Company’s existing and future wholly-owned domestic restricted subsidiaries, with certain exceptions. All guarantor subsidiaries are 100% owned by the Company. All amounts in the following tables are in thousands.

RailAmerica, Inc.

Consolidating Balance Sheet
September 30, 2010

										Non
		Company				Guarantor				Guarantor
		(Parent)				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents		$	—			$	104,079			$	9,819			$	—			$	113,898
Accounts and notes receivable, net of allowance			120				70,531				11,010				—				81,661
Current deferred tax assets			12,697				—				—				—				12,697
Other current assets			398				11,960				1,333				—				13,691
Total current assets			13,215				186,570				22,162				—				221,947
Property, plant and equipment, net			461				898,320				79,529				—				978,310
Intangible Assets			—				105,900				35,501				—				141,401
Goodwill			—				204,679				7,579								212,258
Other assets			12,896				1,075				—				—				13,971
Investment in and advances to affiliates			1,241,610				1,104,327				35,807				(2,381,744	)			—
Total assets		$	1,268,182			$	2,500,871			$	180,578			$	(2,381,744	)		$	1,567,887
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt		$	—			$	466			$	—			$	—			$	466
Accounts payable			5,311				50,437				254				—				56,002
Accrued expenses			16,515				25,318				4,011				—				45,844
Total current liabilities			21,826				76,221				4,265				—				102,312
Long-term debt, less current maturities			—				2,759				—				—				2,759
Senior secured notes			570,601				—				—				—				570,601
Deferred income taxes			(8,177	)			179,937				22,743				—				194,503
Other liabilities			5,969				12,924				856				—				19,749
Stockholders’ equity:
Common stock			549				1,493				—				(1,493	)			549
Additional paid-in capital			634,836				2,215,024				127,311				(2,342,335	)			634,836
Retained earnings			47,619				12,422				13,723				(26,145	)			47,619
Accumulated other comprehensive income (loss)			(5,041	)			91				11,680				(11,771	)			(5,041	)
Total stockholders’ equity			677,963				2,229,030				152,714				(2,381,744	)			677,963
Total liabilities and stockholders’ equity		$	1,268,182			$	2,500,871			$	180,578			$	(2,381,744	)		$	1,567,887

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

RailAmerica, Inc.

Consolidating Statement of Operations
For the three months ended September 30, 2010

										Non
		Company				Guarantor				Guarantor
		(Parent)				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Operating revenue		$	51			$	111,991			$	16,215			$	—			$	128,257
Operating expenses:
Transportation			—				47,555				6,942				—				54,497
Selling, general and administrative			7,313				20,700				1,708				—				29,721
Other			—				5,675				—				—				5,675
Net gain on sale of assets			—				(1,601	)			(107	)			—				(1,708	)
Depreciation and amortization			1				10,763				817				—				11,581
Total operating expenses			7,314				83,092				9,360				—				99,766
Operating (loss) income			(7,263	)			28,899				6,855				—				28,491
Interest expense			(2,836	)			(15,762	)			(1,137	)			—				(19,735	)
Equity in earnings of subsidiaries			12,959				—				—				(12,959	)			—
Other income (loss)			8,160				(4,813	)			(1,083	)			—				2,264
Income (loss) before income taxes			11,020				8,324				4,635				(12,959	)			11,020
Provision for (benefit from) income taxes			3,052				—				—				—				3,052
Net income (loss)		$	7,968			$	8,324			$	4,635			$	(12,959	)		$	7,968

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

RailAmerica, Inc.

Consolidating Statement of Operations
For the nine months ended September 30, 2010

										Non
		Company				Guarantor				Guarantor
		(Parent)				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Operating revenue		$	152			$	315,203			$	47,300			$	—			$	362,655
Operating expenses:
Transportation			(3	)			143,738				21,044				—				164,779
Selling, general and administrative			25,034				60,031				4,842				—				89,907
Other			—				5,675				—				—				5,675
Net loss (gain) on sale of assets			1				(1,667	)			(51	)			—				(1,717	)
Depreciation and amortization			54				30,864				2,341				—				33,259
Total operating expenses			25,086				238,641				28,176				—				291,903
Operating (loss) income			(24,934	)			76,562				19,124				—				70,752
Interest expense			(14,866	)			(46,343	)			(3,383	)			—				(64,592	)
Equity in earnings of subsidiaries			28,063				—				—				(28,063	)			—
Other income (loss)			12,498				(14,425	)			(3,250	)			—				(5,177	)
Income (loss) before income taxes			761				15,794				12,491				(28,063	)			983
Provision for (benefit from) income taxes			(472	)			360				(138	)			—				(250	)
Net income (loss)		$	1,233			$	15,434			$	12,629			$	(28,063	)		$	1,233

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

RailAmerica, Inc.

Consolidating Statement of Cash Flows
For the nine months ended September 30, 2010

										Non
		Company				Guarantor				Guarantor
		(Parent)				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Cash flows from operating activities:
Net income (loss)		$	1,233			$	15,434			$	12,629			$	(28,063	)		$	1,233
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization, including amortization costs classified in interest expense			3,375				31,147				2,341				—				36,863
Equity in earnings of subsidiaries			(28,063	)			—				—				28,063				—
Amortization of swap termination costs			16,582				—				—				—				16,582
Net gain on sale or disposal of properties			—				(1,668	)			(49	)			—				(1,717	)
Loss on extinguishment of debt			8,357				—				—				—				8,357
Equity compensation costs			5,525				—				—				—				5,525
Deferred income taxes and other			(4,111	)			360				(19	)			—				(3,770	)
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable			(60	)			(5,655	)			(3,850	)			—				(9,565	)
Other current assets			(212	)			8,327				941				—				9,056
Accounts payable			3,220				(2,027	)			(4,001	)			—				(2,808	)
Accrued expenses			13,057				(1,096	)			(1,635	)			—				10,326
Other assets and liabilities			(866	)			21				(1,365	)			—				(2,210	)
Net cash provided by operating activities			18,037				44,843				4,992				—				67,872
Cash flows from investing activities:
Purchase of property, plant and equipment			(417	)			(42,174	)			(4,180	)			—				(46,771	)
Proceeds from sale of assets			—				3,035				216				—				3,251
Acquisitions, net of cash acquired			—				(23,926	)			—				—				(23,926	)
Net cash used in investing activities			(417	)			(63,065	)			(3,964	)			—				(67,446	)
Cash flows from financing activities:
Principal payments on long-term debt			—				(391	)			—				—				(391	)
Repurchase of senior secured notes			(76,220	)			—				—				—				(76,220	)
(Disbursements)/receipts on intercompany debt			(63,240	)			67,993				(4,753	)			—				—
Costs associated with sale of common stock			(106	)			—				—				—				(106	)
Deferred financing costs paid			(95	)			(129	)			—				—				(224	)
Net cash provided by (used in) financing activities			(139,661	)			67,473				(4,753	)			—				(76,941	)
Effect of exchange rates on cash			—				—				195				—				195
Net increase (decrease) in cash			(122,041	)			49,251				(3,530	)			—				(76,320	)
Cash, beginning of period			122,041				54,828				13,349				—				190,218
Cash, end of period		$	—			$	104,079			$	9,819			$	—			$	113,898

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

RailAmerica, Inc.

Consolidating Balance Sheet
December 31, 2009

										Non
		Company				Guarantor				Guarantor
		(Parent)				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents		$	122,041			$	54,828			$	13,349			$	—			$	190,218
Accounts and notes receivable, net of allowance			60				59,575				6,984				—				66,619
Current deferred tax assets			12,697				—				—				—				12,697
Other current assets			184				19,560				2,214				—				21,958
Total current assets			134,982				133,963				22,547				—				291,492
Property, plant and equipment, net			97				876,380				76,050				—				952,527
Intangible Assets			—				101,913				34,741				—				136,654
Goodwill			—				193,353				7,416				—				200,769
Other assets			16,051				1,153				(17	)			—				17,187
Investment in and advances to affiliates			1,155,110				1,190,835				32,136				(2,378,081	)			—
Total assets		$	1,306,240			$	2,497,597			$	172,873			$	(2,378,081	)		$	1,598,629
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt		$	—			$	669			$	—			$	—			$	669
Accounts payable			5,388				48,658				(98	)			—				53,948
Accrued expenses			3,448				25,837				5,390				—				34,675
Total current liabilities			8,836				75,164				5,292				—				89,292
Long-term debt, less current maturities			—				3,013				—				—				3,013
Senior secured notes			640,096				—				—				—				640,096
Deferred income taxes			(8,807	)			168,530				25,279				—				185,002
Other liabilities			6,784				12,922				2,189				—				21,895
Stockholders’ equity:
Common stock			544				1,493				—				(1,493	)			544
Additional paid-in capital			630,653				2,214,974				127,311				(2,342,285	)			630,653
Retained earnings			46,386				21,262				3,202				(24,464	)			46,386
Accumulated other comprehensive income (loss)			(18,252	)			239				9,600				(9,839	)			(18,252	)
Total stockholders’ equity			659,331				2,237,968				140,113				(2,378,081	)			659,331
Total liabilities and stockholders’ equity		$	1,306,240			$	2,497,597			$	172,873			$	(2,378,081	)		$	1,598,629