RailAmerica, Inc. Reports Third Quarter 2010 Results

Oct 27, 2010, 16:05 ET from RailAmerica

JACKSONVILLE, Fla., Oct. 27 /PRNewswire-FirstCall/ --

Third Quarter Highlights

  • Carloads up 5% and revenue up 16% versus third quarter 2009.
  • Operating income of $28.5 million.
  • Adjusted income from continuing operations(1) of $0.18 per share.
  • Income from continuing operations of $0.15 per share.

RailAmerica, Inc. (NYSE: RA) today reported financial results for the quarter ended September 30, 2010.  Third quarter 2010 revenue increased 16% to $128.3 million from $110.1 million in the third quarter of 2009.  Freight revenue increased 11% to $97.7 million with carloads up 5%.  Non-freight revenue increased 38% to $30.6 million.  Excluding the acquisition of Atlas Railroad Construction Company and the new Ottawa Valley Railway operating agreement, non-freight revenue increased 11% versus third quarter 2009.

John Giles, RailAmerica's President and Chief Executive Officer, said, "Operating income was up 35% versus a year ago excluding the impact of 45G tax credits.  These strong results were driven by our continued focus on operating efficiency and solid revenue growth.  From a strategic standpoint, we made significant progress by completing the acquisition of Atlas and entering into the new long-term agreement with Ottawa Valley Railway.  Pursuing additional, value enhancing acquisitions and investments remains a strategic priority for our team."

RailAmerica reported third quarter 2010 income from continuing operations of $8.0 million, or $0.15 per diluted share.  This compares to income from continuing operations of $3.5 million, or $0.08 per diluted share, for the third of quarter 2009.  Third quarter 2010 results include expenses of $0.05 per diluted share for interest rate swap termination costs partially offset by a benefit of $0.02 per diluted share from a transaction break-up fee (net of acquisition expenses).  Third quarter 2009 results include charges of $0.12 per diluted share for interest rate swap termination costs.  Both third quarter 2010 and 2009 had favorable adjustments to income taxes.

Operating income increased 11% to $28.5 million in third quarter 2010 from $25.6 million in the third quarter of 2009.  For third quarter 2010 the increase in freight revenue was due to higher volume and average revenue per car.  Non-freight revenue was up mainly due to the Atlas acquisition.  Third quarter operating expenses increased $15.2 million due to higher volume, the inclusion of Atlas Railroad Construction Company and the absence of 45G tax credit benefits in third quarter 2010.  Third quarter 2009 results include a $4.5 million 45G tax credit.  Results that exclude the impact of the 45G tax benefit are shown below.

    
    
    
                                             For the Three Months Ended
    ($ in thousands)                                September 30,
                                             --------------------------
                                                2010           2009
                                              --------       --------
    
    Operating revenue                         $128,257       $110,137
    Operating expense                          (99,766)       (84,529)
                                              ---------      ---------
    Operating income, reported                  28,491         25,608
    
    Less: Benefit from 45G tax credit
     monetization                                    -         (4,539)
                                              ---------      ---------
    Operating income before 45G benefit (1)    $28,491        $21,069
    
    (1) See schedule at the end of press release for a reconciliation of 
    non-GAAP financial measure

As previously announced, RailAmerica, Inc. will present its third quarter earnings on Thursday, October 28, 2010 at 8:30 a.m. Eastern Time via live teleconference and webcast.  Those interested in participating via teleconference may dial (877) 756-2088.  Callers outside the U.S. may dial (574) 941-1456.  The conference ID number is 14939140.  Participants should dial in no later than 10 minutes prior to the call.  Presentation materials and access to the live webcast will be available in the Investors section of RailAmerica's website (www.railamerica.com).  Following the earnings call, a webcast replay will be archived on the Company's website.  A telephone replay will be available through November 11, 2010 beginning approximately two hours after the call.  The recording can be accessed by dialing (800) 642-1687 or (706) 645-9291.  The conference ID number is 14939140.

RailAmerica, Inc. owns and operates 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 U.S. states and three Canadian provinces.

Cautionary Note Regarding Forward-Looking Statements

Certain items in this press release and other information we provide from time to time may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not necessarily limited to, statements relating to future events and financial performance. Words such as "anticipates," "expects," "intends," "plans," "projects," "believes," "appears," "may," "will," "would," "could," "should," "seeks," "estimates" and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements. RailAmerica, Inc. can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this press release. Factors that could have a material adverse effect on our operations and future prospects or that could cause actual results to differ materially from RailAmerica, Inc.'s expectations include, but are not limited to, prolonged capital markets disruption and volatility, general economic conditions and business conditions, our relationships with Class I railroads and other connecting carriers, our ability to obtain railcars and locomotives from other providers on which we are currently dependent, legislative and regulatory developments including rulings by the Surface Transportation Board or the Railroad Retirement Board, strikes or work stoppages by our employees, our transportation of hazardous materials by rail, rising fuel costs, goodwill assessment risks, acquisition risks, competitive pressures within the industry, risks related to the geographic markets in which we operate; and other risks detailed in RailAmerica, Inc.'s filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the Commission on March 26, 2010.  In addition, new risks and uncertainties emerge from time to time, and it is not possible for RailAmerica, Inc. to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this press release. RailAmerica, Inc. expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

(1) See schedule at the end of press release for a reconciliation of non-GAAP financial measure

    
    
                         RAILAMERICA, INC. AND SUBSIDIARIES
    
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (Unaudited)
    
                                          For the Three       For the Nine
                                          Months Ended        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
    
    
    
                         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
                                                  ==========     ==========
    
    
    
                             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
                                                     ========    =======
    
    
    
                      RAILAMERICA, INC. AND SUBSIDIARIES
    
                        SELECTED FINANCIAL INFORMATION
                            (amounts in thousands)
                                 (unaudited)
    
                                         Three Months Ended September 30,
                                       ------------------------------------
                                              2010               2009
                                       -----------------  -----------------
    Operating revenue                  $128,257   100.0%  $110,137   100.0%
    Operating expenses:
     Labor and benefits                  38,745    30.2%    35,755    32.4%
     Equipment rents                      8,721     6.8%     8,900     8.1%
     Purchased services                   9,830     7.7%     7,430     6.7%
     Diesel fuel                          9,760     7.6%     8,373     7.6%
     Casualties and insurance             4,816     3.8%     4,593     4.2%
     Materials                            6,782     5.3%     2,977     2.7%
     Joint facilities                     2,454     1.9%     2,497     2.3%
     Other expenses                       8,785     6.8%     8,337     7.5%
     Track maintenance credit (45G)           -     0.0%    (4,539)  (4.1)%
     Net gain on sale of assets          (1,708)  (1.3)%      (159)  (0.1)%
     Depreciation and amortization       11,581     9.0%    10,365     9.4%
                                       --------   -----   --------   -----
     Total operating expenses            99,766    77.8%    84,529    76.7%
                                       --------   -----   --------   -----
     Operating income                  $28,491    22.2%   $25,608    23.3%
                                       ========   =====   ========   =====
    
    
    
                                         Nine Months Ended September 30,
                                       ------------------------------------
                                              2010               2009
                                       -----------------  -----------------
    Operating revenue                  $362,655   100.0%  $316,620   100.0%
    Operating expenses:
     Labor and benefits                 114,381    31.5%   101,216    32.0%
     Equipment rents                     25,857     7.1%    27,327     8.6%
     Purchased services                  28,058     7.8%    23,123     7.3%
     Diesel fuel                         31,522     8.7%    23,285     7.3%
     Casualties and insurance            13,255     3.7%    13,965     4.4%
     Materials                           14,581     4.0%     8,138     2.6%
     Joint facilities                     6,545     1.8%     4,822     1.5%
     Other expenses                      26,162     7.2%    24,833     7.8%
     Track maintenance credit (45G)           -     0.0%   (12,792)  (4.0)%
     Net (gain) loss on sale of assets   (1,717)  (0.5)%       855     0.3%
     Depreciation and amortization       33,259     9.2%    30,931     9.8%
                                       -------    -----   --------   -----
     Total operating expenses           291,903    80.5%   245,703    77.6%
                                       --------   -----   --------   -----
     Operating income                   $70,752    19.5%   $70,917    22.4%
                                       ========   =====   ========   =====
    
    
    
                      RAILAMERICA, INC. AND SUBSIDIARIES
        Railroad Freight Revenue, Carloads and Average Freight Revenue
                                  Per Carload
                         Comparison by Commodity Group
                                  (unaudited)
    
                        Three Months Ended             Three Months Ended
                        September 30, 2010             September 30, 2009
                   ----------------------------   ----------------------------
                                      Average                       Average
                                      Freight                       Freight
                   Freight           Revenue per Freight           Revenue per    
                   Revenue  Carloads  Carload    Revenue  Carloads  Carload
                   -------  --------  ---------- -------  -------- -----------
                       (Amounts in thousands, except carloads and average 
                                  freight revenue per carload)
    Agricultural
     Products      $16,690    32,730      $510   $15,370    31,405      $489
    Chemicals       14,639    23,947       611    12,112    20,946       578
    Coal            10,303    47,176       218     9,381    46,806       200
    Metallic Ores
     and Metals     10,136    18,145       559     6,049    10,382       583
    Pulp, Paper
     and Allied
     Products        9,582    17,565       546     8,162    16,267       502
    Non-Metallic
     Minerals and
     Products        8,819    21,421       412     8,562    20,081       426
    Forest Products  6,709    11,780       570     6,748    12,078       559
    Food or Kindred
     Products        6,642    13,660       486     6,061    13,042       465
    Waste and Scrap
     Materials       5,934    14,231       417     5,468    14,350       381
    Petroleum        4,165     9,027       461     4,648     9,909       469
    Other            2,492     7,175       347     3,957     8,958       442
    Motor Vehicles   1,554     2,642       588     1,483     4,047       366
                   -------   -------      ----   -------   -------      ----
    Total          $97,665   219,499      $445   $88,001   208,271      $423
                   =======   =======      ====   =======   =======      ====
    
    
    
    
                         Nine Months Ended             Nine Months Ended
                         September 30, 2010            September 30, 2009
                   ----------------------------   ----------------------------
                                      Average                       Average
                                      Freight                       Freight
                   Freight           Revenue per Freight           Revenue per
                   Revenue  Carloads  Carload    Revenue  Carloads  Carload
                   -------  --------  ---------- -------  -------- -----------
                       (Amounts in thousands, except carloads and average
                                  freight revenue per carload)
    Agricultural
     Products      $46,580    97,704      $477   $39,916    88,484      $451
    Chemicals       43,928    71,908       611    35,135    60,977       576
    Coal            29,662   134,142       221    28,339   136,341       208
    Metallic Ores
     and Metals     29,198    51,214       570    16,854    29,919       563
    Pulp, Paper
     and Allied
     Products       27,809    49,050       567    24,105    47,177       511
    Non-Metallic
     Minerals and
     Products       26,005    60,624       429    24,620    58,870       418
    Food or Kindred
     Products       20,821    42,617       489    19,219    39,196       490
    Forest Products 20,685    36,091       573    20,559    36,004       571
    Waste and Scrap
     Materials      17,921    43,361       413    14,791    39,762       372
    Petroleum       14,492    31,006       467    14,388    31,260       460
    Other            8,335    22,098       377    15,527    43,179       360
    Motor Vehicles   5,326     9,202       579     4,154    11,405       364
                  --------   -------      ----   -------   -------      ----
    Total         $290,762   649,017      $448  $257,607   622,574      $414
                  ========   =======      ====  ========   =======      ====
    
    

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES

Adjusted income (loss) from continuing operations is a supplemental measure of profitability that is not calculated or presented in accordance with U.S. generally accepted accounting principles ("GAAP").  We use non-GAAP financial measures as a supplement to our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.  However, Adjusted income (loss) from continuing operations has limitations as an analytical tool.  It is not a measurement of our profitability under GAAP and should not be considered as an alternative to Income (loss) from continuing operations as a measure of profitability.

Adjusted income (loss) from continuing operations assists us in measuring our performance and profitability of our operations without the impact of foreign exchange loss (gain) on debt and transaction costs related to debt extinguishment, acquisitions and swap termination. The following table sets forth the reconciliation of Adjusted income (loss) from continuing operations.

    
    
                                                     2010
                                      ----------------------------------
    (In thousands, except per
     share data)                             Q1                Q2
                                       After     Per      After    Per
                                        Tax     Share      Tax    Share
                                      ----------------------------------
    
    Income (loss) from continuing
     operations                       ($2,514) ($0.05)  ($4,221) ($0.08)
    
    Add:
    Amortization of swap termination
     costs                              3,644     0.07    3,437     0.06
    Loss on extinguishment of debt          -        -    5,098     0.09
    Acquisition (income) expense            -        -      159     0.00
    
    Adjusted income (loss) from
     continuing operations             $1,130    $0.02   $4,473    $0.08
    
    Weighted Average common shares
     outstanding (diluted)             54,568            54,869
    
    
                                                     2010
                                      ----------------------------------
    (In thousands, except per
     share data)                              Q3              Q3 YTD
                                        After     Per     After    Per
                                         Tax     Share     Tax    Share
                                      ----------------------------------
    
    Income (loss) from continuing
     operations                        $7,968    $0.15   $1,233    $0.02
    
    Add:
    Amortization of swap termination
     costs                              2,973     0.05   10,054     0.18
    Loss on extinguishment of debt          -        -    5,098     0.09
    Acquisition (income) expense      (1,043)    (0.02)    (884)   (0.02)
    
    Adjusted income (loss) from
     continuing operations             $9,898    $0.18  $15,501    $0.28
    
    Weighted Average common shares
     outstanding (diluted)             54,872            54,769
    
    
    
                                                     2009
                                      ----------------------------------
    (In thousands, except per
     share data)                               Q1               Q2
                                         After    Per     After    Per
                                          Tax    Share     Tax    Share
                                      ----------------------------------
    
    Income from continuing operations    $809    $0.02   $5,467    $0.13
    
    Add:
    Amortization of swap termination
     costs                                  -        -      583     0.01
    Foreign exchange loss (gain) on
     debt                                 698     0.02   (1,394)   (0.03)
    Loss on extinguishment of debt          -        -    1,556     0.04
    Acquisition costs                       -        -                 -
    
    Adjusted income (loss) from
     continuing operations             $1,507    $0.03   $6,212    $0.15
    
    Weighted Average common shares
     outstanding (diluted)             43,604            43,740
    
    
    
                                                     2009
                                      ----------------------------------
    (In thousands, except per
     share data)                              Q3               Q3 YTD
                                        After     Per      After    Per
                                         Tax     Share      Tax    Share
                                      -----------------------------------
    
    Income from continuing operations  $3,503    $0.08   $9,779    $0.23
    
    Add:
    Amortization of swap termination
     costs                              5,432     0.12    6,015     0.14
    Foreign exchange loss (gain) on
     debt                                   -        -     (696)   (0.02)
    Loss on extinguishment of debt          -        -    1,556     0.04
    Acquisition costs                       -        -        -        -
    
    Adjusted income (loss) from
     continuing operations             $8,935    $0.20  $16,654    $0.39
    
    Weighted Average common shares
     outstanding (diluted)             43,721            43,688
    
    Note: Numbers may not add due to rounding

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES

Operating Income Before 45G Benefit and Operating Ratio Before 45G Benefit are supplemental measures of profitability that are not calculated or presented in accordance with U.S. generally accepted accounting principles ("GAAP").  We use non-GAAP financial measures as a supplement to our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.  However, Operating Income Before 45G Benefit and Operating Ratio Before 45G Benefit have limitations as an analytical tool.  They are not measurements of our profitability under GAAP and should not be considered as an alternative to Operating Income or Operating Ratio as a measure of profitability.

Operating Income Before 45G Benefit and Operating Ratio Before 45G Benefit assists us in measuring our performance and profitability of our operations without the impact of monetizing the 45G Tax Benefit. The following table sets forth the reconciliation of Operating Income Before 45G Benefit from our Operating Income and Operating Ratio Before 45G Benefit from our Operating Ratio.

    
    
                                        Quarter Ended September 30,
                                  ------------------------------------------
    ($ in thousands)                     2010                    2009
                                  ------------------       -----------------
    
    Operating revenue             $128,257                 $110,137
    Operating expense              (99,766)                 (84,529)
                                  --------                 --------
    Operating income, reported     $28,491                  $25,608
    
      Operating ratio, reported                77.8%                   76.7%
    
    Less:  Benefit from 45G tax
     credit monetization                 -      0.0%         (4,539)  (4.1%)
                                  ------------------       -----------------
    Operating income, before 45G
     benefit                       $28,491                  $21,069
    
      Operating ratio, before 45G
       benefit                                 77.8%                   80.9%

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES

Adjusted EBITDA, is a supplemental measure of liquidity that is not calculated or presented in accordance with U.S. generally accepted accounting principles ("GAAP"). We use non-GAAP financial measures as a supplement to our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business. However, Adjusted EBITDA has limitations as an analytical tool. It is not a measurement of our cash flows from operating activities under GAAP and should not be considered as an alternative to cash flow from operating activities as a measure of liquidity.

Adjusted EBITDA assists us in monitoring our ability to undertake key investing and financing functions such as making investments, transferring property, paying dividends, and incurring additional indebtedness, which are generally prohibited by the covenants under our senior secured notes unless we met certain financial ratios and tests.  Adjusted EBITDA represents EBITDA before impairment of assets, equity compensation costs, gain (loss) on foreign currency exchange, acquisition costs and non-recurring headquarter relocation costs.  EBITDA, also a non-GAAP financial measure, is defined as net income (loss) before interest expense, provision for (benefit from) income taxes and depreciation and amortization.

The following tables set forth the reconciliation of Adjusted EBITDA from our cash flow from operating activities (in thousands):

    
    
                                  Q1 2010    Q2 2010    Q3 2010   YTD 2010
                                  -------    -------    -------   --------
    Cash flows from operating
     activities to Adjusted
     EBITDA Reconciliation:
    Net cash provided by
      operating activities        $25,440    $33,290     $9,142    $67,872
     Changes in working
      capital accounts            (10,191)   (13,583)    18,975     (4,799)
     Depreciation and
      amortization, including
      amortization of debt
      issuance costs  classified
      in interest expense         (12,151)   (11,988)   (12,724)   (36,863)
     Amortization of swap
      termination costs            (6,073)    (5,635)    (4,874)   (16,582)
     Net gain (loss) on sale
      or disposal of
      properties                       34        (25)     1,708      1,717
     Loss on debt
      extinguishment                    -     (8,357)         -     (8,357)
     Equity compensation costs     (1,525)    (1,965)    (2,035)    (5,525)
     Deferred income taxes          1,952      4,042     (2,224)     3,770
                                  -------    -------    -------   --------
    Net income (loss)              (2,514)    (4,221)     7,968      1,233
                                  -------    -------    -------   --------
    Add: Discontinued
     operations (gain)/loss             -          -          -          -
                                  -------    -------    -------   --------
    Income (loss) from
     continuing operations         (2,514)    (4,221)     7,968      1,233
    Add:
     Benefit from income taxes       (530)    (2,772)     3,052       (250)
     Interest expense, Including
      amortization costs           22,704     22,153     19,735     64,592
     Depreciation and
      amortization                 10,923     10,755     11,581     33,259
                                  -------    -------    -------   --------
    EBITDA                         30,583     25,915     42,336     98,834
    Add:
     Equity compensation costs      1,525      1,965      2,035      5,525
     Loss on debt
      extinguishment                    -      8,357          -      8,357
     Acquisition income, net
      of expense                        -        261     (1,710)    (1,449)
                                  -------    -------    -------   --------
    Adjusted EBITDA               $32,108    $36,498    $42,661   $111,267
                                  =======    =======    =======   ========
    
    
                                  Q1 2009    Q2 2009    Q3 2009   YTD 2009
                                  -------    -------    -------   --------
    Cash flows from
     operating activities
     to Adjusted EBITDA
     Reconciliation:
    Net cash provided by
      (used in) operating
      activities                  $(6,335)  $(37,023)   $48,486     $5,128
     Changes in working
      capital accounts             25,308     23,423    (29,170)    19,561
     Depreciation and
      amortization, including 
      amortization of debt
      issuance costs
      classified in
      interest expense            (15,432)   (12,718)   (11,708)   (39,858)
     Amortization of swap
      termination costs                --       (972)    (9,054)   (10,026)
     Net gain (loss) on
      sale or disposal of
      properties                      728       (787)       129         70
     Foreign exchange gain
      (loss) on debt               (1,164)     2,324         --      1,160
     Swap termination costs            --     55,750         --     55,750
     Loss on debt extinguishment       --     (2,593)        --     (2,593)
     Equity compensation costs       (790)    (1,152)    (1,204)    (3,146)
     Deferred income taxes         (1,322)    (8,018)     6,004     (3,336)
                                  -------    -------    -------   --------
    Net income                        993     18,234      3,483     22,710
                                  -------    -------    -------   --------
    Add: Discontinued
     operations (income/
     gain) loss                     (184)   (12,767)        20    (12,931)
                                  -------    -------    -------   --------
    Income from continuing
     operations                       809      5,467      3,503      9,779
    Add:
     Provision for (benefit
      from) income taxes            1,232      1,118     (5,378)    (3,028)
     Interest expense,
      including
      amortization costs           18,590     16,673     27,507     62,770
     Depreciation and
      amortization                 10,319     10,247     10,365     30,931
                                  -------    -------    -------   --------
    EBITDA                         30,950     33,505     35,997    100,452
    Add:
     Equity compensation costs        790      1,152      1,204      3,146
     Foreign exchange
      (gain) loss on debt           1,164     (2,324)         -     (1,160)
     Loss on debt
      extinguishment                   --      2,593          -      2,593
     Non-recurring headquarter
      relocation costs                509        127        408      1,044
                                  -------    -------    -------   --------
    Adjusted EBITDA               $33,413    $35,053    $37,609   $106,075
                                  =======    =======    =======   ========

SOURCE RailAmerica



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