UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

þ		Annual 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)

Registrant’s telephone number, including area code: (800) 342-1131

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

TITLE OF EACH CLASS		NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.01 Par Value		New York Stock Exchange

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant at the close of business on June 30, 2009 was $228,803,600 based on the closing sale price as reported on the New York Stock Exchange.

The number of shares outstanding of the registrant’s Common Stock, $.01 par value per share, as of March 3, 2011 was 55,258,060.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III (Items 10, 11, 12, 13 and 14) will be incorporated by reference from the registrant’s Definitive Proxy Statement for its 2011 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.

 

 

TABLE OF CONTENTS

		PAGE
PART I
Item 1. Business			3
Item 1A. Risk Factors			11
Item 1B. Unresolved Staff Comments			21
Item 2. Properties			21
Item 3. Legal Proceedings			23
Item 4. Removed and Reserved			23
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			24
Item 6. Selected Financial Data			26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			43
Item 8. Financial Statements and Supplementary Data			43
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			43
Item 9A. Controls and Procedures			44
Item 9B. Other Information			44
PART III
Item 10. Directors, Executive Officers and Corporate Governance			45
Item 11. Executive Compensation			45
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			45
Item 13. Certain Relationships and Related Transactions, and Director Independence			45
Item 14. Principal Accountant Fees and Services			45
PART IV
Item 15. Exhibits and Financial Statement Schedules			46
Signatures			48
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

     Certain statements in this Annual Report on Form 10-K 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,” “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. We 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 report. Factors that could have a material adverse effect on our operations and future prospects or that could cause actual results to differ materially from our 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 our filings with the Securities and Exchange Commission (“SEC”). In addition, new risks and uncertainties emerge from time to time, and it is not possible for us to predict or assess the impact of every factor that may cause our actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based. Except where the context otherwise requires, the terms “RailAmerica,” “we,” “us,” or “our” refer to the business of RailAmerica, Inc. and its consolidated subsidiaries.

PART I

ITEM 1. BUSINESS

OVERVIEW

     We are 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 U.S. states and three Canadian provinces. Our railroad portfolio represents an important component of North America’s transportation infrastructure, carrying large quantities of freight for a highly diverse customer base. In 2010, our railroads transported over 860,000 carloads of freight for approximately 1,500 customers, hauling a wide range of products such as farm and food products, lumber and forest products, paper and paper products, metals, chemicals and coal.

     We were incorporated in Delaware on March 31, 1992 as a holding company for two pre-existing railroad companies. On February 14, 2007, we were acquired by RR Acquisition Holding LLC, an entity wholly-owned by certain private equity funds managed by an affiliate of Fortress Investment Group LLC (“Fortress”). On October 16, 2009, we completed an initial public offering. During the period from our formation until today, we have grown both through the expansion of the traffic base on our existing railroads and through acquisitions of additional North American railroads.

     Our Internet website address is www.railamerica.com. We make available free of charge, on or through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. We also make available on our website other registration statements, prospectuses, and reports filed with the SEC under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act. These filings may be found by selecting the option entitled “SEC FILINGS” in the “INVESTOR RELATIONS” section on our website. Additionally, our corporate governance guidelines, board committee charters, code of business conduct and ethics and code of ethics for principal executive and senior financial officers are available on our website and in print to any stockholder who requests them. Information contained in or connected to our website is not part of this report.

BUSINESS STRATEGY

     We plan to grow our revenue, cash flow and earnings by employing the following growth strategies:

     Growing freight revenue: We are focused on growing our freight revenue by seeking new business opportunities at our individual railroads and by centralizing key commercial and pricing decisions. We believe that shippers often seek to locate their operations on short lines because of possible access to multiple Class I railroads and the resulting negotiating leverage it affords them. To this end, our commercial team actively solicits customers to locate their manufacturing and warehousing facilities on our railroads. We also seek to generate new business by converting customers located on or near our railroads from other modes of transportation to rail. Members of our senior management team have significant prior experience in the marketing departments of both Class I and short line railroads. Additionally, by centralizing and carefully analyzing pricing decisions based on prevailing market conditions and competitive analysis, we leverage our expertise in setting rates for freight services.

     Expanding our non-freight services and revenue: We intend to continue to expand and grow the non-freight services we offer to both our rail customers and other parties. Non-freight services offered to our rail customers include switching (or managing and positioning railcars within a customer’s facility), storing customers’ excess or idle railcars on inactive portions of our rail lines, third party railcar repair, engineering infrastructure services and demurrage. These services leverage our existing customer relationships and generate additional revenue at attractive margins with minimal capital investment. We also seek to grow our revenue from non-transportation uses of our land holdings such as land leases, crossing or access rights, subsurface rights, signboards and cellular communication towers, among others. These sources of revenue are an important area of focus by our management as such revenue has minimal associated operating costs or capital expenditures and represents a recurring, high margin cash flow stream.

     Pursuing opportunistic acquisitions: The North American short line and regional railroad industry is highly fragmented, with approximately 556 short line and regional railroads operating approximately 45,200 miles of track. We believe that opportunistically acquiring additional short line and regional railroads, or other railroad-related or transportation-related businesses, will enable us to grow our revenue and achieve a number of additional benefits including, among others, expanding and enhancing our services, further diversifying our portfolio and achieving economies of scale by leveraging senior management experience and corporate costs over a broader revenue base.

     Continuing to improve operating efficiency and lowering costs: We continue to focus on driving financial improvement through a variety of cost savings initiatives. To identify and implement cost savings, we have organized our 40 railroads into five regional groups which, in turn, report to senior management where many functions such as pricing, purchasing, capital spending, finance, insurance, real estate and other administrative functions are centralized. We believe that this strategy enables us to achieve cost and pricing efficiencies and leverage the experience of senior management in commercial, operational and strategic decisions. To date, we have implemented a number of cost savings initiatives broadly at all of our railroads targeting safer operations, lower fuel consumption, more efficient equipment utilization and lower costs for third party services, among others, and continue to be extremely focused on ongoing opportunities to further reduce our costs.

INDUSTRY OVERVIEW

     The North American economy is dependent on the movement of freight ranging from raw materials such as coal, ores, aggregates, lumber and grain to finished goods, such as food products, paper products, automobiles and machinery. Railroads represent the largest component of North America’s freight transportation industry, carrying more freight than any other mode of transportation on a ton-mile basis. With a network of over 139,000 miles of track in the U.S., railroads link businesses with each other domestically and with international markets through connections with ports and other international terminals.

Industry Structure

     According to the Association of American Railroads (“AAR”), there are 563 railroads in the United States operating over 139,000 miles of track. The AAR classifies railroads operating in the United States into one of three categories based on the amount of revenues and track-miles. Class I railroads, which are individual railroads with over $378.8 million in revenues in 2009, represent approximately 93% of total rail revenues. Regional and local/short line railroads operate approximately 45,200 miles of track in the United States. The primary function of these smaller railroads is to provide feeder traffic to the Class I carriers. Regional and local/short line railroads combined account for approximately 7% of total industry rail revenues.

								Aggregate
								Miles				% of
Classification of Railroads				Number				Operated				Revenue				Revenues and Miles Operated in 2009
Class I (1)					7				93,921				93	%		Over $378.8 million
Regional					23				12,804				3	%		$30.3 to $378.8 million and/or 350 or more miles operated with a minimum revenue of $20 million
Local/Short line					533				32,393				4	%		Less than $30.3 million and/or less than 350 miles or more than 350 miles and less than $20 million in revenue
Total					563				139,118				100	%

Source: Association of American Railroads, Railroad Facts, 2010 Edition.

     Class I railroads operate across many different states and concentrate largely, though not exclusively, on long-haul, high density intercity traffic lanes. The six largest railroads in North America are BNSF Railway, Union Pacific, Norfolk Southern, CSX Transportation, Canadian National Railway, and Canadian Pacific Railroad Company. Regional railroads typically operate 400-650 miles of track and provide service to selected areas of the country, mainly connecting neighboring states and/or economic centers. Typically short line railroads serve as branch lines connecting customers with Class I railroads. Short line railroads have more predictable and straightforward operations as they generally perform point-to-point service over short distances, without the complex networks associated with the large Class I railroads.

     Use of regional and short line railroads is largely driven by interchange traffic between carriers. In many cases, a short line will originate the freight transport and hand off to a Class I railroad which will transport the freight the majority of the distance, usually hundreds or thousands of miles. The Class I will then drop the freight off with a short line, which provides the final step of service directly to the customer. Most short line railroads depend on Class I traffic for a substantial portion of their revenue. Our portfolio of 40 railroads is a mix of regional and short line railroads.

Regional and Short line Railroads

     Short lines and regional railways have always been a part of the rail industry in North America. In the 1800’s, most North American railroads were constructed to serve a local or regional interest. Today’s Class I railroads are descended from hundreds of short lines and regionals that came together in successive waves of consolidation.

     During the 1980’s the number of regional and short line railroads increased dramatically. Deregulation of U.S. railroads simplified abandonment and sales regulations, allowing the major carriers to gain many of the savings of abandonment while preserving the traffic on the rail lines. Carriers created through this divestiture process now account for the majority of regional and short line railroads. Short line and regional railroads today serve important roles in moving freight within their service areas and function as a critical traffic “feeder” network for the Class I railroads.

     Over the past decade, the number of regional and short line railroads has remained relatively constant. While some new entrants were formed through spin-offs or divestitures of Class I railroads, they have generally been offset by other existing regional and short lines either exiting the business or being merged with or acquired by other railroads. With the growth of multi-carrier holding companies, the number of operators of regional and short line railroads has decreased. The consolidation brought on by multi-carrier holding companies has induced a number of shippers with private railroads to sell those railroads to the major short line operators. Similarly, Class I railroads sell and lease rail lines to smaller rail entities in order to address a range of issues impacting costs and productivity.

RAIL TRAFFIC

Revenue Model

     We generate freight revenue under three different types of service, which are summarized below.

						% of Freight
Service Type				Description		Revenue
Interchange				Freight transport between a customer’s facility and a connection point with a Class I railroad			87	%
Local				Freight that both originates and terminates on the same line			4	%
Bridge				Freight transport from one connecting Class I railroad to another			9	%

     For the majority of our customers, our railroads transport freight between a customer’s facility or plant and a connection point (“interchange”) with a national Class I railroad. Each of our 40 railroads connects with at least one Class I railroad, and in many cases connects with multiple Class I railroads. Interchange circumstances vary by customer shipping needs with freight either (i) originating at the customer’s facility (such as a coal mine, an ethanol production plant or a lumber yard) for transport by the Class I railroad via the interchange to other North American destinations or ports or (ii) received from the Class I interchange and hauled to a customer’s plant where the freight is subsequently consumed or stored (such as a coal-burning power generation plant). In other cases, a RailAmerica rail line transports freight that both originates and terminates on the same line, which is referred to as “local” traffic, or provides a pass-through connection between one Class I railroad and another railroad without the freight originating or terminating on the line, which is known as “bridge” traffic.

     Typically, we provide our freight services under a contract or similar arrangement with either the customer located on our rail line or the connecting Class I railroad. Contracts and arrangements vary in terms of duration, pricing and volume requirements. Because we normally provide transportation for only a segment of a shipment’s total distance, with the Class I railroad carrying the freight the majority of the distance, as a convenience, customers are generally billed once for the movement of their freight, typically by the Class I carrier, for the total cost of rail transport. The Class I railroad is obligated to pay us in a timely manner upon delivery of service regardless of whether or when the Class I railroad actually receives the total payment from the customer.

     Our railroads are often integrated into a customer’s facility and serve as an important component of that customer’s distribution or input. In many circumstances, our customers have made significant capital investments in facilities on or near our railroads (as in the case of electric utilities, industrial plants or major warehouses) or are geographically unable to relocate (as in the case of coal mines and rock quarries). The quality of our customers and our level of integration with their facilities provide a stable and predictable revenue base.

Freight Revenue

Commodities

     Products hauled over our network include a dozen major commodity groups, such as coal, forest products, chemicals, agricultural products, food products, metallic ores and metals, and petroleum products. Agricultural products traffic represented the largest contributor to freight revenue at 16% in 2010. The top ten commodities represented approximately 95% of total freight revenue earned in 2010.

		Year ended December 31, 2010												Year ended December 31, 2009
										Average Freight												Average Freight
		Freight								Revenue per				Freight								Revenue per
		Revenue				Carloads				Carload				Revenue				Carloads				Carload
						(Dollars in thousands, except average freight revenue per carload)
Agricultural Products		$	63,999				132,952			$	481			$	56,458				126,683			$	446
Chemicals			59,038				96,105				614				47,475				82,083				578
Coal			39,880				178,735				223				36,914				178,028				207
Metallic Ores and Metals			37,825				66,626				568				23,819				41,602				573
Pulp, Paper and Allied Products			37,379				65,308				572				32,339				62,816				515
Non-Metallic Minerals and Products			34,646				80,376				431				31,622				75,766				417
Food or Kindred Products			28,027				56,812				493				25,386				52,298				485
Forest Products			27,017				47,048				574				26,698				46,999				568
Waste and Scrap Materials			23,765				57,121				416				20,232				53,706				377
Petroleum			19,542				41,952				466				19,433				41,960				463
Other			10,937				29,883				366				17,737				49,613				358
Motor Vehicles			6,694				11,553				579				6,454				17,458				370
Total		$	388,749				864,471			$	450			$	344,567				829,012			$	416

Customers

     In 2010, we served approximately 1,500 customers in North America. Although most of our North American railroads have a well-diversified customer base, several smaller rail lines have one or two dominant customers. In 2010 and 2009, our 10 largest customers accounted for approximately 18% and 20% of our freight revenue, respectively, with no individual customer accounting for more than approximately 5% of freight revenue.

Pricing

     Our contracts typically stipulate either inflation-based or market-based pricing. Market-based pricing is based on negotiated rates. Pricing and escalation terms for these contracts are negotiated prior to the signing or renewal of a contract. This type of pricing provides us the ability to price contracts at prevailing market rates. Inflation-based pricing is based on a fixed revenue per carload with inflation-based escalators. This type of pricing is common for “handling line” railroads where the contract is with an interchanging Class I railroad. These contracts are typically long-term and were often entered into at the time the short line was purchased from the Class I.

     We operate fuel surcharge programs that vary by railroad and by customer. The goal of these programs is to offset the majority of fuel price increases by charging customers a fuel surcharge on top of their regular contracted rates. Fuel surcharge programs are typically either revenue-based or mileage-based. Revenue-based programs charge a surcharge based on additional revenue per carload while mileage-based programs charge a surcharge based on miles hauled. Both programs charge their surcharge based on fuel price per gallon above a threshold price. Approximately 75% of fuel price increases are offset directly by fuel surcharges, while additional cost recovery is obtained through increases in revenue per carload upon contract renewal or regular rate updates.

Contracts

     A substantial portion of our freight revenue is generated under contracts and similar arrangements with either the customers we serve or the Class I railroads with which we connect. Approximately 68% of our total freight revenue is generated under contracts. Individual contracts vary in terms of duration, pricing and volume requirements, but can generally be categorized as follows:

     Contracts directly with customers/shippers: In many cases, our individual railroads maintain a contract with the customer that they directly serve. Typically the customer has significant rail infrastructure within its facility and is a major shipper or receiver of industrial freight. Contracts stipulate the term and pricing mechanics and often include minimum customer volume requirements with liquidated damages paid to us to the extent volumes fall below certain levels. In general, these contracts are one to three years in length, although in certain instances the term can be longer.

     Contracts directly with Class I railroads: In these cases, our individual railroads act as an agent for the connecting Class I railroad, with the Class I railroad typically maintaining a contract directly with the customer/shipper for the entire length of haul.

The Class I railroad pays us upon providing the service for its portion of the total haul, and the Class I railroad pays us regardless of whether the customer pays the Class I which results in low credit exposure and timely payment. These contracts are typically long-term in nature with an average duration of approximately 25 years.

     Published rate, no contract: In the remaining cases, our individual railroads generate freight revenue using quoted revenue per carload based on the type of freight service and market environment. In all instances this revenue is generated directly from customers and shippers. Rates can typically be adjusted as market conditions merit although some of our larger customers often request a private rate that provides more price certainty over a longer period of time. While we do not serve customers under signed contracts in these cases, we have longstanding relationships with our customers and in many instances we are the only rail carrier at that customer’s facility. Moreover, the heavy nature of the freight shipped by the customer and/or the long distances carried competitively positions us favorably versus other modes of transportation.

Non-Freight Revenue

     In addition to providing freight services, we also generate non-freight revenue from other sources such as railcar storage, demurrage, engineering infrastructure services, leases of equipment to other users (including Class I railroads), and real estate leases and use fees. Right-of-way income is generated through crossing licenses and leases with fiber optic, telecommunications, advertising, parking and municipal users. These sources of revenue and value are an important area of focus by our management as revenue from real estate and right-of-way has minimal associated operating costs or capital expenditures and represents a recurring, stable cash flow stream.

Competition

     Railroads compete against each other and other forms of freight transportation based on cost, location and service. The cost of transporting goods and services via different forms of freight transportation is a major factor in determining which means of transportation a shipper will utilize. With respect to location, potential customers often experience geographic constraints that significantly impact the relative freight transportation costs of different alternatives. For example, a shipper can be constrained by railroad’s trackage, accessible waterways, access to pipelines and proximity to major highways. As a result, short line and regional railroad operators often evaluate the feasibility of other forms of freight transportation available to a customer when developing their rate and service offerings.

     Some short line and regional railroad customers have multiple forms of freight transportation available. Depending on circumstances, truck, water, or other railroads may be competitive alternatives for a shipment. In such instances, customers will compare both the relative costs, reliability of on-time delivery and quality of service when determining what mode(s) of transport to use.

     The railroad industry has increased its share of freight ton-miles compared to other forms of freight transportation over the past quarter-century. Since deregulation in 1980, the railroad industry has continually improved its cost structure compared to other forms of freight transportation as it consumes less fuel and has lower labor costs per ton transported than other forms of freight transportation. According to the AAR, railroads are estimated to be approximately four times more fuel efficient than truck transportation and a single train can haul the equivalent of up to approximately 280 trucks. In 1980, one gallon of diesel fuel moved one ton of freight by rail an average of 235 miles, versus 2009 where the equivalent gallon of fuel moved one ton of freight an average of 480 miles by rail — representing a 104% increase over 1980. As a result, the railroad industry’s share of U.S. freight ton-miles has steadily increased from 30% in 1980 to 43% in 2009.

EMPLOYEES

     Currently, we have approximately 1,836 employees of which 1,087 are non-unionized and 749 are unionized. Unions representing our employees are highly-fragmented, with representation at the railroad-level rather than system-wide. In total, our railroads are party to 31 labor agreements, which are separately negotiated by the individual railroads.

SAFETY

     We endeavor to conduct safe railroad operations for the benefit and protection of employees, customers and the communities served by our railroads. Our safety program involves all of our employees and is administered by each Regional Vice President. Operating personnel are trained and certified in train operations, hazardous materials handling, personal safety and all other areas subject to federal regulations. Each U.S. employee involved in train operations is subject to pre-employment and random drug testing as required by federal regulation. We believe that each of our North American railroads complies in all material respects with federal, state,

provincial and local regulations. Additionally, each railroad is given flexibility to develop more stringent safety rules based on local requirements or practices. We also participate in committees of the AAR, governmental and industry sponsored safety programs including Operation Lifesaver (the national grade crossing awareness program) and numerous American Short Line and Regional Railroad Association Committees. Our Federal Railroad Administration (“FRA”) reportable injury frequency ratio, measured as reportable injuries per 200,000 man hours worked, was 2.1 in 2010 as compared to 1.8 in 2009. Our total FRA reportable train accidents decreased to 30 in the year ended December 31, 2010 from 34 in the year ended December 31, 2009.

ENVIRONMENTAL

     Our rail operations are subject to various federal, state, provincial and local laws and regulations relating to pollution and the protection of the environment. In the United States, these environmental laws and regulations, which are implemented principally by the federal Environmental Protection Agency (the “U.S. EPA”) and comparable state agencies, govern such matters as the management of wastes, the discharge of pollutants into the air and into surface and underground waters, the manufacture and disposal of regulated substances and remediation of contaminated soil and groundwater. Similarly, in Canada, these functions are administered at the federal level by Environment Canada and the Ministry of Transport and comparable agencies at the provincial level.

     We believe that our railroads operate in material compliance with current environmental laws and regulations. We estimate that any expenses incurred in maintaining compliance with current environmental laws and regulations will not have a material effect on our earnings or capital expenditures. However, there can be no assurance that new, or more stringent enforcement of existing, requirements or discovery of currently unknown conditions will not result in significant expenditures in the future.

     In August 2005 incident on the Indiana & Ohio Railway (“IORY”), Styrene contained in a parked railcar was vented to the atmosphere, 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, by various individuals, businesses and the City of Cincinnati against us and others connected to the tank car. Motions for class action certification were filed. Settlements were achieved in all these matters including all claims of business interruption.

     The IORY/Styrene incident also triggered inquiries from the FRA and certain other federal, state and local authorities. A settlement was reached with the FRA, requiring payment of a $50,000 fine but no admission of liability by IORY. The principal pending matter was a criminal investigation by the U.S. EPA under the federal Clean Air Act (“CAA”). Because of the chemical release, the U.S. EPA investigated whether criminal negligence contributed to the incident, and whether charges should be pressed under the CAA. The U.S. EPA has pursued extensive discovery and engaged our counsel on several occasions. A series of conferences with our attorneys and the U.S. EPA attorneys took place through 2009 and into 2011, at which times legal theories and evidence were discussed in an effort to influence the U.S. EPA’s charging decision. The IORY submitted a proffer addendum in May 2009 analyzing its compliance under the CAA. As of December 31, 2010, we had accrued $1.3 million for this incident.

     The statute of limitations was extended by a tolling agreement as to the IORY only (the Company had been dropped from this violation) through February 27, 2011. The U.S. EPA attorneys decided not to press charges and allowed the statute of limitations to lapse resolving this matter.

     There are no material environmental claims currently pending or, to our knowledge, threatened against any of our railroads.

INSURANCE

     We maintain liability and property insurance coverage. Our primary liability policies have self-insured retentions of up to $2.0 million per occurrence applicable as to all of our railroads, except for Kiamichi Railroad Company L.L.C. and Otter Tail Valley Railroad Company, Inc. where the self-insured retention is $50,000 per occurrence. In addition, we maintain excess liability policies that provide supplemental coverage for losses in excess of our primary policy limits of up to $200 million per occurrence.

     With respect to the transportation of hazardous commodities, our liability policies cover sudden releases of hazardous materials, including expenses related to evacuation, up to the same excess coverage limits and subject to the same self-insured retentions. Personal injuries associated with grade crossing accidents are also covered under liability policies.

     Employees of our United States railroads are covered by the Federal Employers’ Liability Act (the “FELA”), a fault-based system under which claims resulting from injuries and deaths of railroad employees are settled by negotiation or litigation. FELA-related claims are covered under our liability insurance policies. Employees of our industrial switching business are covered under workers’ compensation policies.

     Employees of our Canadian railroads are covered by the applicable provincial workers’ compensation policy, which is a no-fault compensation system outside of our liability insurance coverage.

     Our property damage policies provide coverage for track, infrastructure, business interruption, and all locomotives and rail cars in our care custody and control. This policy provides coverage up to $15.0 million per occurrence, subject to self-insurance retention of $1.0 million per occurrence.

REGULATION

     United States. Our subsidiaries in the United States are subject to various safety and other laws and regulations administered by numerous government agencies, including (1) regulation by the U.S. Department of Transportation (the “USDOT”) and the Surface Transportation Board of the USDOT (the “STB”), successor to the Interstate Commerce Commission, through the FRA, (2) labor related statutes including the Railway Labor Act, the Railroad Retirement Act, the Railroad Unemployment Insurance Act, and the FELA, and (3) some limited regulation by agencies in the states in which we do business.

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

     As a result of the 1980 Staggers Rail Act (the “Staggers Rail Act”), the rail industry is trusted with considerable rate and market flexibility including the ability to obtain wholesale exemptions from numerous provisions of the Interstate Commerce Act. The Staggers Rail Act allowed the deregulation of all containerized and truck trailer traffic handled by railroads. Requirements for the creation of new short line railroads or the expansion of existing short line railroads were substantially expedited and simplified under the exemption process. On regulated traffic, railroads and shippers are permitted to enter into contracts for rates and provision of transportation services without the need to file tariffs. Moreover, on regulated traffic, the Staggers Rail Act allows railroads considerable freedom to raise or lower rates without objection from captive shippers, although certain proposed shipper-backed legislative initiatives threaten to limit some of that pricing freedom. While the ICC Termination Act retained maximum rate regulation on traffic over which railroads have exclusive control, the new law relieved railroads from the requirements of filing tariffs and rate contracts with the STB on all traffic other than agricultural products.

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

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

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

     Acquisition of additional railroad operations in Canada, whether federally or provincially regulated, may be subject to review under the Investment Canada Act (the “ICA”), a federal statute which applies to the acquisition of a Canadian business or establishment of a new Canadian business by a non-Canadian. In the case of an acquisition that is subject to review, the non-Canadian investor must observe a statutory waiting period prior to completion and satisfy the Minister responsible for the administration of the ICA that the investment will be of net benefit to Canada, giving regard to certain evaluative factors set out in the legislation.

     Any contemplated acquisitions may also be subject to the provisions of the Competition Act (Canada) (the “CA”). The CA contains provisions relating to premerger notification as well as substantive merger provisions. An acquisition that exceeds certain financial thresholds set out in the CA may be subject to notification and observance of a statutory waiting period prior to completion, during which time the Commissioner of Competition (the “Commissioner”) will evaluate the impact of the acquisition upon competition. In addition, the Commissioner has the jurisdiction under the CA to review an acquisition that is a “merger” within the meaning of the CA in certain circumstances, even where notification is not filed.

RAILROAD RETIREMENT

     Railroad industry personnel are covered by the Railroad Retirement System instead of Social Security. Our contributions under the Railroad Retirement System have been approximately triple those of employees in industries covered by Social Security. The Railroad Retirement System, funded primarily by payroll taxes on covered employers and employees, includes a benefit roughly equivalent to Social Security (Tier I), an additional benefit similar to that allowed in some private defined-benefit plans (Tier II), and other benefits. For 2010, the Railroad Retirement System required up to a 19.75% contribution by railroad employers on eligible wages, while the Social Security and Medicare Acts only required a 7.65% contribution on similar wage bases.

ITEM 1A. RISK FACTORS

Risks Related to Our Business

Volatile macroeconomic and business conditions have and could continue to impact our business negatively.

     The global financial markets recently have undergone and may continue to experience significant volatility and disruption. The sustainability of an economic recovery is uncertain and additional macroeconomic, business and financial disruptions could have a material adverse effect on our operating results, financial condition and liquidity. Certain of our customers and suppliers have been directly affected by the economic downturn and continue to face credit issues and could experience cash flow problems that have and could continue to give rise to payment delays, increased credit risk, bankruptcies and other financial hardships that could decrease the demand for our rail services. Adverse economic conditions could also affect our costs for insurance and our ability to acquire and maintain adequate insurance coverage for risks associated with the railroad business if insurance companies experience credit downgrades or bankruptcies.

     Given the asset intensive nature of our business, the recent economic downturn increases the risk of significant asset impairment charges since we are required to assess for potential impairment of non-current assets whenever events or changes in circumstances, including economic circumstances, indicate that the respective asset’s carrying amount may not be recoverable. This may limit our ability to sell our assets to the extent we need, or find it desirable, to do so. In addition, our railroads compete directly with other modes of transportation, including motor carriers, and ship, barge and pipeline operators. If these alternative methods of transportation become more cost-effective to our customers due to macroeconomic changes, or if legislation is passed providing materially greater opportunity for motor carriers with respect to size or weight restrictions, our operating results, financial condition and liquidity could be materially adversely affected.

Rising fuel costs could materially adversely affect our business.

     Fuel costs were approximately 9%, 8% and 14% of our total operating revenue for the years ended December 31, 2010, 2009 and 2008, respectively. Fuel prices and supplies are influenced significantly by international, political and economic circumstances. If fuel supply shortages or unusual price volatility were to arise for any reason, the resulting higher fuel prices would significantly increase our operating costs.

As part of our railroad operations, we frequently transport hazardous materials, the accidental release of which could have a material adverse effect on our operating results.

     We are required to transport hazardous materials to the extent of our common carrier obligation. An accidental release of hazardous materials could result in significant loss of life and extensive property damage. The costs associated with an accidental release could have a material adverse effect on our operating results, financial condition or liquidity.

Some of our employees belong to labor unions and strikes or work stoppages could materially adversely affect our operations.

     Many of our employees are union-represented. Our union employees work under collective bargaining agreements with various labor organizations. Our inability to negotiate acceptable contracts with these labor organizations could result in, among other things, strikes, work stoppages or other slowdowns by the affected workers. If our union-represented employees were to engage in a strike, work stoppage or other slowdown, or other employees were to become unionized or the terms and conditions in labor agreements were renegotiated, we could experience significant disruption of our operations and higher ongoing labor costs.

Because we depend on Class I railroads and certain important customers for our operations, our business and financial results may be materially adversely affected if our relationships with Class I carriers and certain important customers deteriorate.

     The railroad industry in the United States and Canada is dominated by a small number of Class I carriers that have substantial market control and negotiating leverage. Approximately 87% of our total freight revenue in 2010 was derived from Class I traffic. In 2010, Union Pacific, CSX Transportation, Canadian National Railway and BNSF Railway represented 23%, 23%, 17% and 13% of our total freight revenue, respectively, and the remaining Class I carriers each represented less than 10% of our total freight revenue. Our ability to provide rail service to our customers depends in large part upon our ability to maintain cooperative relationships with Class I carriers with respect to, among other matters, freight rates, car supply, switching, interchange, fuel surcharges and trackage rights (an arrangement where the company that owns the line retains all rights, but allows another company to operate over certain sections of its track). In addition, loss of customers or service interruptions or delays by our Class I interchange partners relating to customers who ship over our track may decrease our revenue. Class I carriers are also sources of potential acquisition candidates as they continue to divest branch lines. Failure to maintain good relationships may materially adversely affect our ability to negotiate acquisitions of branch lines.

     Although our operations served approximately 1,500 customers in 2010, freight revenue from our 10 largest freight revenue customers accounted for approximately 18% of our total freight revenues in 2010. Substantial reduction in business with or loss of important customers could have a material adverse effect on our business and financial results.

If the track maintenance tax credit is not renewed by Congress past December 31, 2011, we will not be able to earn or assign credits for track maintenance, after such date.

     We are eligible to receive tax credits for certain track maintenance expenditures under Section 45G of the Internal Revenue Code (the “Code”), as amended, through December 31, 2011. Pursuant to Section 45G, these credits are assignable under limited circumstances. In 2010 and 2009, we received approximately $22.3 and $22.4 million from the assignment of these credits, respectively. Section 45G is set to expire on December 31, 2011, and unless Section 45G is renewed, we will no longer be able to earn or assign credits for track maintenance expenditures. There can be no assurance that legislation extending the availability of the Section 45G tax credit will be enacted.

We are subject to the risks of doing business in Canada, including changes in Canadian economic conditions, exchange rate fluctuations and other economic uncertainties.

     We currently have railroad operations in Canada. The risks of doing business in Canada include:

• adverse changes in the economy of Canada;

• exchange rate fluctuations; and

• economic uncertainties including, among others, risk of renegotiation or modification of existing agreements or arrangements with governmental authorities, exportation and transportation tariffs, foreign exchange restrictions and changes in taxation structure.

     Unfavorable developments related to these risks could have a material adverse effect on our business and financial results.

We are subject to environmental and other governmental regulation of our railroad operations which could impose significant costs.

     The failure to comply with environmental and other governmental regulations could have a material adverse effect on us. Our railroad and real estate ownership is subject to foreign, federal, state and local environmental laws and regulations. We could incur significant costs, fines and penalties as a result of any allegations, even if such allegations are unsubstantiated, or findings to the effect that we have violated or are strictly liable under these laws or regulations. We may be required to incur significant expenses to investigate and remediate environmental contamination.

     We are also subject to governmental regulation by a significant number of foreign, federal, state and local regulatory authorities with respect to our railroad operations and a variety of health, safety, labor, maintenance and other matters. Our failure to comply with applicable laws and regulations could have a material adverse effect on us.

     Additionally, future changes in foreign, federal, state and local laws and regulations governing railroad rates, operations and practices could likewise have a material adverse effect on us.

Severe weather and natural disasters could disrupt normal business operations, which could result in increased costs and liabilities and decreases in revenues.

     Severe weather conditions and other natural phenomena, including earthquakes, hurricanes, fires and floods, may cause significant business interruptions and result in increased costs, increased liabilities and decreased revenue.

We face possible catastrophic loss and liability and our insurance may not be sufficient to cover our damages or damages to others.

     The operation of any railroad carries with it an inherent risk of catastrophe, mechanical failure, collision, and property loss. In the course of our operations, spills or other environmental mishaps, cargo loss or damage, business interruption due to political developments, as well as labor disputes, strikes and adverse weather conditions, could result in a loss of revenues or increased liabilities and costs. Collisions, cargo leaks or explosions, environmental mishaps, or other accidents can cause serious bodily injury, death, and extensive property damage, particularly when such accidents occur in heavily populated areas. Additionally, our operations may be affected from time to time by natural disasters such as earthquakes, volcanoes, floods, hurricanes or other storms. The occurrence of a major natural disaster could have a material adverse effect on our operations and financial condition. We maintain insurance that is consistent with industry practice against the accident-related risks involved in the conduct of our business and business interruption due to natural disaster. However, this insurance is subject to a number of limitations on coverage, depending on the nature of the risk insured against. This insurance may not be sufficient to cover our damages or damages to others and this insurance may not continue to be available at commercially reasonable rates. In addition, we are subject to the risk that one or more of our insurers may become insolvent and would be unable to pay a claim that may be made in the future. Even with insurance, if any catastrophic interruption of service occurs, we may not be able to restore service without a significant interruption to operations which could have a material adverse effect on our financial condition.

We may face liability for casualty losses which are not covered by insurance.

     We have obtained insurance coverage for losses sustained by our railroads arising from personal injury and for property damage in the event of derailments or other incidents. Personal injury claims made by our railroad employees are subject to the FELA rather than state workers’ compensation laws. Currently, we are responsible for the first $2 million of expenditures per each incident under our general liability insurance policy and $1 million of expenditures per each incident under our property insurance policy. Severe accidents or personal injuries could cause our liability to exceed our insurance limits which might have a material adverse effect on our business and financial condition. Our annual insurance limits are $200 million and $15 million on liability and property, respectively. In addition, adverse events directly and indirectly attributable to us, including such things as derailments, accidents, discharge of toxic or hazardous materials, or other like occurrences in the industry, can be expected to result in increases in our insurance premiums and/or our self insured retentions and could result in limitations to the coverage under our existing policies.

We depend on our management and key personnel, and we may not be able to operate or grow our business effectively if we lose the services of our management or key personnel or are unable to attract qualified personnel in the future.

     The success of our business is heavily dependent on the continued services and performance of our current management and other key personnel and our ability to attract and retain qualified personnel in the future. The loss of key personnel could affect our ability to run our business effectively. Competition for qualified personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such personnel. Although we have entered into employment agreements with certain of our key personnel, these agreements do not ensure that our key personnel will continue in their present capacity with us for any particular period of time. The loss of any key personnel requires the remaining key personnel to divert immediate and substantial attention to seeking a replacement. An inability to find a suitable replacement for any departing executive officer on a timely basis could materially adversely affect our ability to operate or grow our business.

Future acts of terrorism or war, as well as the threat of acts of terrorism or war, may cause significant disruptions in our business operations.

     Terrorist attacks, such as those that occurred on September 11, 2001, as well as the more recent attacks on the transportation systems in Madrid and London, any government response to those types of attacks and war or risk of war may materially adversely affect our results of operations, financial condition or liquidity. Our rail lines and facilities could be direct targets or indirect casualties of an act or acts of terror. Such acts could cause significant business interruption and result in increased costs and liabilities and decreased revenues, which could have a material adverse effect on our operating results and financial condition. Such effects could be magnified where releases of hazardous materials are involved. Any act of terror, retaliatory strike, sustained military campaign or war or risk of war may have a material adverse effect on our operating results and financial condition by causing or resulting in unpredictable operating or financial conditions, including disruptions of rail lines, volatility or sustained increase of fuel prices, fuel shortages, general economic decline and instability or weakness of financial markets which could restrict our ability to raise capital. In addition, insurance premiums charged for some or all of our coverage could increase dramatically or certain coverage may not be available to us in the future.

The availability of qualified personnel and an aging workforce may materially adversely affect our operations.

     Changes in demographics, training requirements and the availability of qualified personnel, particularly train crew members, could negatively affect our service levels. Unpredictable increases in demand for rail services may exacerbate these risks and may have a material adverse effect on our operating results, financial condition or liquidity.

We have a substantial amount of indebtedness, which may materially adversely affect our cash flow and our ability to operate our business, including our ability to incur additional indebtedness.

     As of December 31, 2010, our total indebtedness was approximately $573.7 million, which represented approximately 44.9% of our total capitalization. Our substantial amount of indebtedness increases the possibility that we may be unable to generate sufficient cash to pay, when due, the principal of, interest on or other amounts due with respect to our indebtedness.

     Our substantial indebtedness could have important consequences for you, including:

• increasing our vulnerability to adverse economic, industry or competitive developments;

• requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

• restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

• limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; and

• limiting our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate, placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who, therefore, may be able to take advantage of opportunities that our leverage prevents us from exploiting.

     The indenture governing the senior secured notes contains a number of restrictions and covenants that, among other things, limit our ability to incur additional indebtedness, make investments, pay dividends or make distributions to our stockholders, grant liens on our assets, sell assets, enter into new or different line of business, enter into transactions with our affiliates, merge or consolidate with other entities or transfer all or substantially all of our assets, and enter into sale and leaseback transactions. Credit market conditions could negatively impact our ability to obtain future financing or to refinance our outstanding indebtedness.

     Our ability to comply with these restrictions and covenants in the future is uncertain and will be affected by the levels of cash flow from our operations and events or circumstances beyond our control. Our failure to comply with any of the restrictions and covenants under the indenture governing our senior secured notes could result in a default under the indenture, which could cause all of our existing indebtedness to be immediately due and payable. If our indebtedness is accelerated, we may not be able to repay our indebtedness or borrow sufficient funds to refinance it. In addition, in the event of an acceleration, holders of our senior secured notes could proceed against the collateral securing the notes which includes nearly all of our assets. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. If our indebtedness is in default for any reason, our business, financial condition and results of operations could be materially adversely affected. In addition, complying with these restrictions and covenants may also cause us to take actions that are not favorable to our stockholders and may make it more difficult for us to successfully execute our business plan and compete against companies that are not subject to such restrictions and covenants.

Our inability to acquire or integrate acquired businesses successfully or to realize the anticipated cost savings and other benefits of acquisitions could have materially adverse consequences to our business.

     We expect to grow through acquisitions. Evaluating acquisition targets gives rise to additional costs related to legal, financial, operating and industry due diligence. Acquisitions generally result in increased operating and administrative costs and, to the extent financed with debt, additional interest costs. We may not be able to manage or integrate the acquired companies or businesses successfully. The process of acquiring and integrating businesses may be disruptive to our business and may cause an interruption or reduction of our business as a result of the following factors, among others:

• loss of key employees or customers;

• possible inconsistencies in or conflicts between standards, controls, procedures and policies among the combined companies and the need to implement company-wide financial, accounting, information technology and other systems;

• failure to maintain the quality of services that have historically been provided;

• integrating employees of rail lines acquired from other entities into our regional railroad culture;

• failure to coordinate geographically diverse organizations; and

• the diversion of management’s attention from our day-to-day business as a result of the need to manage any disruptions and difficulties and the need to add management resources to do so.

     These disruptions and difficulties, if they occur, may cause us to fail to realize the cost savings, revenue enhancements and other benefits that we expect to result from integrating acquired companies and may cause material adverse short- and long-term effects on our operating results, financial condition and liquidity.

     Even if we are able to integrate the operations of acquired businesses into our operations, we may not realize the full benefits of the cost savings, revenue enhancements or other benefits that we may have expected at the time of acquisition. The expected revenue enhancements and cost savings are based on analyses completed by members of our management. These analyses necessarily involve assumptions as to future events, including general business and industry conditions, the longevity of specific customer plants and factories served, operating costs and competitive factors, most of which are beyond our control and may not materialize. While we believe these analyses and their underlying assumptions to be reasonable, they are estimates that are necessarily speculative in nature. In addition, even if we achieve the expected benefits, we may not be able to achieve them within the anticipated time frame. Also, the cost savings and other synergies from these acquisitions may be offset by costs incurred in integrating the businesses, increases in other expenses or problems in the business unrelated to these acquisitions.

An impairment in the carrying value of goodwill could negatively impact our consolidated results of operations and net worth.

     Goodwill is recorded at fair value, at the time of an acquisition and is not amortized, but is reviewed for impairment at least annually or more frequently if impairment indicators arise. In evaluating the potential for impairment of goodwill, we make assumptions regarding future operating performance, business trends, and market and economic conditions. Such analyses further require us to make judgmental assumptions about sales, operating margins, growth rates, and discount rates. There are inherent uncertainties related to these factors and to management’s judgment in applying these factors to the assessment of goodwill recoverability. We could be required to evaluate the recoverability of goodwill prior to the annual assessment if we experience disruptions to the business, unexpected significant declines in operating results, divestiture of a significant component of our business and sustained market capitalization declines.

     A sustained decline in our market capitalization relative to our book value may result in, or be indicative of, a goodwill impairment charge in the future. We utilize market capitalization in corroborating our assessment of the fair value of our reporting units.

     Impairment charges could substantially affect our reported earnings in the periods of such charges. In addition, impairment charges could negatively impact our financial ratios and could limit our ability to obtain financing in the future. As of December 31, 2010, we had $212.5 million of goodwill, which represented approximately 13.3% of total assets.

Future compensation expense may materially adversely affect our net income.

     The compensation that we pay to attract and retain our employees and key personnel reduces our net income. The compensation paid to our employees for 2010 is not necessarily indicative of how we will compensate our employees in the future. Any increase in compensation will further reduce our net income. For example, we have adopted an equity incentive plan that permits the issuance of share options, share appreciation rights, restricted shares, deferred shares, performance shares, unrestricted shares and other share-based awards to our employees. We may grant restricted shares and other share-based awards to our employees in the future as a recruiting and retention tool based on specific criteria determined by our board of directors (or the compensation committee of the board of directors).

The table below compares our net income to our total executive compensation costs (each in thousands).

		Year Ended				Year Ended
		December 31, 2010				December 31, 2009
Net Income		$	19,117			$	15,842
Executive Compensation Cost(1)		$	6,003			$	5,441

Risks Related to Our Organization and Structure

If the ownership of our common stock continues to be highly concentrated, it may prevent minority stockholders from influencing significant corporate decisions and may result in conflicts of interest.

     As of December 31, 2010, an entity wholly-owned by certain private equity funds managed by an affiliate of Fortress (the “Initial Fortress Stockholder”), owns approximately 55.3% of our outstanding common stock. The Initial Fortress Stockholder owns shares sufficient for the majority vote over all matters requiring a stockholder vote, including: the election of directors; mergers, consolidations or acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; the amendment of our amended and restated certificate of incorporation and our amended and restated bylaws; and our winding up and dissolution. This concentration of ownership may delay, deter or prevent acts that would be favored by our other stockholders. The interests of the Initial Fortress Stockholder may not always coincide with our interests or the interests of our other stockholders. This concentration of ownership may also have the effect of delaying, preventing or deterring a change in control of RailAmerica. Also, the Initial Fortress Stockholder may seek to cause us to take courses of action that, in its judgment, could enhance its investment in us, but which might involve risks to our other stockholders or materially adversely affect us or our other stockholders. As a result, the market price of our common stock could decline or stockholders might not receive a premium over the then-current market price of our common stock upon a change in control. In addition, this concentration of share ownership may materially adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in a company with significant stockholders.

We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations and to pay dividends.

     We are a holding company with no material direct operations. Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries, which own our operating assets. As a result, we are dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations and to pay dividends on our common stock. Our subsidiaries are legally distinct from us and may be prohibited or restricted from paying dividends or otherwise making funds available to us under certain conditions. If we are unable to obtain funds from our subsidiaries, we may be unable to, or our board may exercise its discretion not to, pay dividends.

We do not anticipate paying any dividends on our common stock in the foreseeable future.

     We do not expect to declare or pay any cash or other dividends in the foreseeable future on our common stock, as we intend to use cash flow generated by operations to grow our business. Our Asset Backed Loan (“ABL”) Facility and our senior secured notes indenture restrict our ability to pay cash dividends on our common stock, and we may also enter into credit agreements or other borrowing arrangements in the future that restrict or limit our ability to pay cash dividends on our common stock.

Certain provisions of our stockholders agreement, our amended and restated certificate of incorporation and our amended and restated bylaws could hinder, delay or prevent a change in control of RailAmerica, which could materially adversely affect the price of our common stock.

     Certain provisions of our stockholders agreement, our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors or the Initial Fortress Stockholder. These provisions provide for:

• a classified board of directors with staggered three-year terms;

• removal of directors only for cause and only with the affirmative vote of at least 80% of the voting interest of stockholders entitled to vote (provided, however, that for so long as the Fortress Stockholders (as defined below) own at least 40% of our issued and outstanding common stock, directors may be removed with or without cause with the affirmative vote of a majority of the voting interest of stockholders entitled to vote);

• provisions in our amended and restated certificate of incorporation and amended and restated bylaws preventing stockholders from calling special meetings of our stockholders (provided, however, that for so long as the Fortress Stockholders beneficially own at least 25% of our issued and outstanding common stock, any stockholders that collectively beneficially own at least 25% of our issued and outstanding common stock may call special meetings of our stockholders);

• advance notice requirements by stockholders with respect to director nominations and actions to be taken at annual meetings;

• our stockholders agreement provides certain rights to the Fortress Stockholders with respect to the designation of directors for nomination and election to our board of directors, including the ability to appoint a majority of the members of our board of directors for so long as the Fortress Stockholders continue to hold at least 40% of the outstanding shares of our common stock;

• no provision in our amended and restated certificate of incorporation for cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of our common stock can elect all the directors standing for election;

• our amended and restated certificate of incorporation and amended and restated bylaws only permit action by our stockholders outside a meeting by unanimous written consent, provided, however, that for so long as the Fortress Stockholders beneficially own at least 25% of our issued and outstanding common stock, our stockholders may act without a meeting by written consent of a majority of our stockholders; and

• under our amended and restated certificate of incorporation, our board of directors has authority to cause the issuance of preferred stock from time to time in one or more series and to establish the terms, preferences and rights of any such series of preferred stock, all without approval of our stockholders. Nothing in our amended and restated certificate of incorporation precludes future issuances without stockholder approval of the authorized but unissued shares of our common stock.

     In addition, these provisions may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by the Initial Fortress Stockholder, our management and/or our board of directors. Public stockholders who might desire to participate in these types of transactions may not have an opportunity to do so, even if the transaction is favorable to stockholders. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or change our management and board of directors and, as a result, may materially adversely affect the market price of our common stock and your ability to realize any potential change of control premium.

Certain of our stockholders have the right to engage or invest in the same or similar businesses as us.

     The Initial Fortress Stockholder and certain other affiliates of Fortress and permitted transferees, (collectively, the “Fortress Stockholders”) have other investments and business activities in addition to their ownership of us. Under our amended and restated certificate of incorporation, the Fortress Stockholders have the right, and have no duty to abstain from exercising such right, to engage or invest in the same or similar businesses as us, do business with any of our clients, customers or vendors or employ or otherwise engage any of our officers, directors or employees. If the Fortress Stockholders or any of their officers, directors or employees acquire knowledge of a potential transaction that could be a corporate opportunity, they have no duty, to the fullest extent permitted by law, to offer such corporate opportunity to us, our stockholders or our affiliates.

     In the event that any of our directors and officers who is also a director, officer or employee of any of the Fortress Stockholders acquires knowledge of a corporate opportunity or is offered a corporate opportunity, provided that this knowledge was not acquired solely in such person’s capacity as a director or officer of RailAmerica and such person acts in good faith, then to the fullest extent permitted by law such person is deemed to have fully satisfied such person’s fiduciary duties owed to us and is not liable to us, if the Fortress Stockholder pursues or acquires the corporate opportunity or if the Fortress Stockholder does not present the corporate opportunity to us.

Risks Related to our Common Stock

The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders.

     The market price of our common stock may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines significantly, you may be unable to resell your shares at or above your purchase price, if at all. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:

	•		variations in our quarterly or annual operating results;
	•		changes in our earnings estimates (if provided) or differences between our actual financial and operating results and those expected by investors and analysts;
	•		the contents of published research reports about us or our industry or the failure of securities analysts to cover our common stock;
	•		litigation and governmental investigations;
	•		changes in market valuations of similar companies;
	•		speculation or reports by the press or investment community with respect to us or our industry in general;
	•		increases in market interest rates that may lead purchasers of our shares to seek higher returns;
	•		announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments;
	•		changes or proposed changes in laws or regulations affecting the railroad industry or enforcement of these laws and regulations, or announcements relating to these matters; and
	•		general market, political and economic conditions, including any such conditions and local conditions in the markets in which our customers are located.

     These broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. The stock market in general has from time to time experienced extreme price and volume fluctuations. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

Future offerings of debt or equity securities by us may materially adversely affect the market price of our common stock.

     In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of our common stock or offering debt or additional equity securities, including commercial paper, medium-term notes, senior or subordinated notes or shares of preferred stock. Issuing additional shares of our common stock or other additional equity offerings may dilute the economic and voting rights of our existing stockholders or reduce the market price of our common stock, or both. Upon liquidation, holders of such debt securities and preferred shares, if issued, and lenders with respect to other borrowings, would receive a distribution of our available assets prior to the holders of our common stock. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock bear the risk of our future offerings reducing the market price of our common stock and diluting their share holdings in us.

The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets.

     As of December 31, 2010, there are 54,859,261 shares of common stock outstanding. All issued and outstanding shares of our common stock are freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. Approximately 55.3% of our outstanding common stock is held by the Initial Fortress Stockholder and can be resold into the public markets in the future in accordance with the requirements of Rule 144.

     Pursuant to our stockholders agreement, the Initial Fortress Stockholder and certain of its affiliates and permitted third-party transferees have the right to require us, in certain instances, at our expense, to file registration statements under the Securities Act of 1933, as amended, covering public resales of their approximately 30,350,000 shares of our common stock. Upon the effectiveness of such a registration statement, all shares covered by the registration statement will be freely transferable and the resulting resale of a substantial number of shares of our common stock into the market could cause the market price of our common stock to decline.

The future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise will dilute all other shareholdings.

     As of December 31, 2010, we have an aggregate of 345,140,739 shares of common stock authorized but unissued with approximately 3.7 million shares reserved for issuance under our incentive plans. We may issue all of these shares of common stock without any action or approval by our stockholders, subject to certain exceptions. We also intend to continue to evaluate acquisition opportunities and may issue common stock in connection with these acquisitions. Any common stock issued in connection with our incentive plans, acquisitions, the exercise of outstanding stock options or otherwise would dilute the percentage ownership held by holders of our common stock.

We cannot assure you that our stock repurchase program will enhance long-term stockholder value and stock repurchases, if any, could increase the volatility of the price of our common stock and will diminish our cash reserves.

     On February 23, 2011, we announced that our Board of Directors had approved a stock repurchase program. Under the program, we are authorized to repurchase up to $50.0 million of our outstanding shares of common stock from time to time at prevailing prices in the open market or in privately negotiated transactions. The timing and actual number of shares repurchased, if any, will depend on a variety of factors including the price and availability of the Company’s shares, trading volume and general market conditions. The program may be suspended or discontinued at any time without prior notice. Repurchases pursuant to our stock repurchase program could affect our stock price and increase its volatility. The existence of a stock repurchase program could also cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, repurchases under our stock repurchase program will diminish our cash reserves, which could impact our ability to pursue possible future strategic opportunities and acquisitions and could result in lower overall returns on our cash balances. There can be no assurance that any stock repurchases will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased shares of stock. Although our stock repurchase program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the program’s effectiveness.

Risks Related to Taxation

Our ability to use net operating loss and tax credit carryovers and certain built-in losses to reduce future tax payments is limited by provisions of the Internal Revenue Code.

     Section 382 and 383 of the Code contain rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize its net operating loss and tax credit carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. Generally, if an ownership change occurs, the yearly taxable income limitation on the use of net operating loss and tax credit carryforwards and certain built-in losses is equal to the product of the applicable long-term tax exempt rate and the value of the company’s stock immediately before the ownership change. As a result of transactions that have taken place in the past with respect to our common stock, our use of our $79 million of federal net operating losses, our $95 million of tax credits and certain built-in losses is subject to annual taxable income limitations. As a result,

we may be unable to offset our taxable income with losses, or our tax liability with credits, before such losses and credits expire and therefore would incur larger federal income tax liability.

     In addition, it is possible that future transactions (including issuances of new shares of our common stock and sales of shares of our common stock) will cause us to undergo one or more additional ownership changes. In that event, we generally would not be able to use our pre-change loss or credit carryovers or certain built-in losses prior to such ownership change to offset future taxable income in excess of the annual limitations imposed by Sections 382 and 383, and those attributes already subject to limitations (as a result of our prior ownership changes) may be subject to more stringent limitations.

Gain recognized by Non-U.S. Holders on the sale or other disposition of our common stock may be subject to U.S. federal income tax.

     We expect to be treated as a “United States real property holding corporation” under section 897(c) of the Code (“USRPHC”). Generally, stock issued by a corporation that has been a USRPHC at any time during the preceding five years (or a Non-U.S. Holder’s holding period for such securities, if shorter) is treated as a United States real property interest (“USRPI”), and gain recognized by a Non-U.S. Holder on the sale or other disposition of stock is subject to regular U.S. federal income tax, as if such gain were effectively connected with the conduct by such holder of a U.S. trade or business. Shares of our common stock will not be treated as USRPIs in the hands of a Non-U.S. Holder provided that: (i) our common stock is regularly traded on an established securities market, and (ii) such Non-U.S. Holder has not owned or been deemed to own (directly or under certain constructive ownership rules) more than 5% of our common stock at any time during the 5-year period ending on the date of the sale or other taxable disposition. No assurance can be given that our common stock will continue to be regularly traded on an established securities market in the future. If gain recognized by a Non-U.S. Holder from the sale or other disposition of our common stock is subject to regular federal income tax under these rules and our common stock is not regularly traded on an established securities market at such time, the transferee of such common stock may be required to deduct and withhold a tax equal to 10 percent of the amount realized on the sale or other disposition, unless certain exceptions apply. Any tax withheld may be credited against the U.S. federal income tax owed by the Non-U.S. Holder for the year in which the sale or other disposition occurs.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     None.

ITEM 2. PROPERTIES

     We operate a portfolio of 40 individual railroads with approximately 7,300 miles of track in 27 U.S. states and three Canadian provinces. Of our approximately 7,300 total track-miles, we own approximately 4,300 track-miles and lease approximately 3,000 track-miles.

     The following table provides a brief description of each of the railroads that we owned or leased as of March 3, 2011. Track miles under operating agreements are excluded:

		No. of		Track-
Name		Railroads		Miles				Major Commodities Hauled
Central Region:
Missouri & Northern Arkansas Railroad		1			594			Coal, Agricultural Products
Consolidated Dallas Railroads		2			337			Non-Metallic Minerals and Products
Kyle Railroad Company		1			625			Agricultural Products
Kiamichi Railroad		1			261			Coal, Non-Metallic Minerals and Products
Point Comfort & Northern Railway		1			19			Metallic Ores and Metals
Otter Tail Valley Railroad		1			80			Agricultural Products, Coal
Rockdale, Sandow & Southern Railroad		1			8			Waste and Scrap Materials, Metallic Ores and Metals
Bauxite & Northern Railway		1			6			Metallic & Non-Metallic Ores
Total — Central Region		9			1,930
Northeast Region:
New England Central Railroad		1			396			Forest Products, Non-Metallic Minerals and Products
Ottawa Valley Railway		1			179			Pulp, Paper and Allied Products
Cape Breton & Central Nova Scotia Railway		1			295			Pulp, Paper and Allied Products, Coal
Goderich-Exeter Railway		1			181			Chemicals, Agricultural Products
Southern Ontario Railway		1			46			Petroleum, Chemicals
Connecticut Southern Railroad		1			42			Waste and Scrap Materials, Other
Massena Terminal Railroad		1			4			Metallic Ores and Metals
Total — Northeast Region		7			1,143
Midwest Region:
Indiana & Ohio Railway		1			570			Agricultural Products, Motor Vehicles
Chicago, Ft. Wayne & Eastern Railroad		1			311			Agricultural Products, Chemicals
Huron and Eastern Railway		1			384			Agricultural Products, Chemicals
Toledo, Peoria & Western Railway		1			247			Agricultural Products, Chemicals
Consolidated Michigan Railroads		3			184			Agricultural Products, Non-Metallic Minerals and Products
Central Railroad Company of Indiana		1			96			Motor Vehicles, Non-Metallic Minerals and Products
Central Railroad Company of Indianapolis		1			64			Agricultural Products
Total — Midwest Region		9			1,856
Southeast Region:
Alabama & Gulf Coast Railway		1			348			Pulp, Paper and Allied Products
Consolidated Virginia Railroads		2			140			Metallic Ores and Metals, Waste and Scrap Materials
South Carolina Central Railroad		2			129			Waste and Scrap Materials, Metallic Ores and Metals
Indiana Southern Railroad		1			196			Coal
Eastern Alabama Railway		1			31			Non-Metallic Minerals and Products
Total — Southeast Region		7			844
Western Region:
Central Oregon & Pacific Railroad		1			394			Forest Products
San Joaquin Valley Railroad		1			382			Food or Kindred Products, Petroleum
California Northern Railroad		1			261			Food or Kindred Products
Arizona & California Railroad		1			203			Petroleum, Non-Metallic Minerals and Products
Puget Sound & Pacific Railroad		1			108			Waste and Scrap Materials, Agricultural Products
San Diego and Imperial Valley Railroad (1)		1			—			Petroleum
Cascade & Columbia River Railroad		1			148			Non-Metallic Minerals and Products, Forest Products
Ventura County Railroad		1			17			Motor Vehicles
Total — Western Region		8			1,513
Total Company		40			7,286

Track and Equipment

     Track

     Of our 7,286 total track-miles, we own 4,331 track-miles and lease 2,955 track-miles. In most cases, leases involve little to no annual lease payment (but may have involved a one-time, upfront payment) and have long-term or perpetual durations. In addition, we operate approximately 1,032 track-miles under trackage rights and operating agreements. Generally, trackage rights are rights granted by other railroads to transport freight over their tracks (but not directly serve customers on their rail lines) while operating agreements grant us the right to operate (and typically serve customers) on track owned by third parties. Generally, trackage rights and operating agreements do not convey any other rights (such as real estate rights) to us.

     Locomotives and Railcars

     Our locomotive fleet at December 31, 2010 totaled 461 units comprised of 247 owned units and 214 leased units and 7,672 railcars comprised of 524 owned railcars and 7,148 leased railcars. The average age of our locomotives and railcars is 39 and 42 years, respectively, across our entire portfolio of railroads.

     A summary of the rolling stock owned and leased by us is presented in the table below:

		Railcars
		Owned				Leased				Total
Covered hopper cars			35				3,192				3,227
Open top hopper cars			238				30				268
Box cars			35				2,623				2,658
Flat cars			194				759				953
Tank cars			6				4				10
Gondolas			5				540				545
Other/passenger cars			11				0				11
Total railcars			524				7,148				7,672

		Locomotives
		Owned				Leased				Total
Horsepower/unit:
Over 3,000			101				101				202
2,000 to 2,999			92				81				173
Under 2,000			54				32				86
Total locomotives			247				214				461

ITEM 3. LEGAL PROCEEDINGS

     In the ordinary course of conducting our business, we have become 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 RailAmerica. It is the opinion of management that the ultimate liability, if any, with respect to our current litigation outstanding will not have a material adverse effect on our financial position, results of operations or cash flows.

     Our operations are subject to extensive environmental regulation. There are no material environmental claims currently pending or, to our knowledge, threatened against us or any of our railroads.

     We are subject to claims for employee work-related and third-party injuries. Work-related injuries for employees are primarily subject to the FELA. We retain 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 our historical claims and settlement experience. At December 31, 2010 and 2009, we had $12.9 million and $14.2 million, respectively, accrued for personal injury claims and cases. Actual results may vary from estimates due to the type and severity of the injury, costs of medical treatments and uncertainties in litigation.

ITEM 4. (REMOVED AND RESERVED)

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

     Our common stock began trading on the New York Stock Exchange (NYSE) on October 13, 2009 under the symbol “RA”.

Our Principal Stockholder

     RR Acquisition Holding LLC, an entity wholly-owned by certain private equity funds managed by an affiliate of Fortress, owns approximately 55.3% of our outstanding common stock. RR Acquisition Holding LLC is referred to in this Form 10-K as our Initial Stockholder. The Initial Stockholder owns shares sufficient for the majority vote over fundamental and significant corporate matters and transactions. See “Risk Factors — Risks Related to Our Organization and Structure.”

Description of Common Stock

     A total of 400 million shares of common stock are authorized, of which 54,859,261 shares were outstanding as of December 31, 2010. Each share is entitled to one vote in all matters requiring a vote of shareholders. As of February 22, 2011, there were approximately 58 holders of record and we believe at least 5,858 beneficial owners of our common stock. Weighted average common shares outstanding used in the calculation of diluted earnings per share was approximately 54,793,000 as of December 31, 2010, and is expected to increase in 2011 due to incentive compensation programs.

     In June 2009, we declared and paid a cash dividend in the amount of $20.0 million to our common stockholders. We do not expect to declare or pay any cash or other dividends in the foreseeable future on our common stock, as we intend to use cash flow generated by operations to grow our business, pay down debt or buy back common stock. Our revolving credit facility and our senior secured notes indenture will restrict our ability to pay cash dividends on our common stock, and we may also enter into credit agreements or other borrowing arrangements in the future that restrict or limit our ability to pay cash dividends on our common stock.

Stock Market Results

     Set forth below is the high and low price information for our common stock as reported on the NYSE for each period presented.

2009		High Sales Price				Low Sales Price
Fourth Quarter (October 13 through December 31)		$	14.78			$	10.91

2010		High Sales Price				Low Sales Price
First Quarter		$	14.47			$	10.94
Second Quarter		$	13.61			$	9.73
Third Quarter		$	11.60			$	9.27
Fourth Quarter		$	13.13			$	9.16

2011		High Sales Price				Low Sales Price
First Quarter (January through March 3)		$	15.70			$	12.06

Stock Repurchase Program

     On February 23, 2011, we announced that our Board of Directors had approved a stock repurchase program. Under the program, we are authorized to repurchase up to $50.0 million of our outstanding shares of common stock from time to time at prevailing prices in the open market or in privately negotiated transactions. The timing and actual number of shares repurchased, if any, will depend on a

variety of factors including the price and availability of the Company’s shares, trading volume and general market conditions. The program may be suspended or discontinued at any time without prior notice.

Stock Performance Graph

     The following graph compares the cumulative total return for our common stock (stock price change plus reinvested dividends) with the comparable return of two indices: the Russell 2000 Index and S&P 1500 Composite Railroads. The graph assumes an investment of $100 in the Company’s common stock and in each of the indices on October 13, 2009, when our common stock first traded on the New York Stock Exchange, and that all dividends were reinvested. The past performance of our common stock is not an indication of future performance.

COMPARISON OF 14 MONTH CUMULATIVE TOTAL RETURN*
Among RailAmerica, Inc., the Russell 2000 Index
and S&P 1500 Composite Railroads

ITEM 6. SELECTED FINANCIAL DATA

     The consolidated financial information labeled as “Predecessor” includes financial reporting periods prior to the merger on February 14, 2007, in which we were acquired by certain private equity funds managed by affiliates of Fortress (the “Acquisition”) and the consolidated financial information labeled as “Successor” includes financial reporting periods subsequent to the Acquisition. On October 16, 2009, we completed an initial public offering of 22,000,000 shares of common stock.

     The information in the following tables gives effect to the 90-for-1 stock split of our common stock, which occurred on September 22, 2009.

     In October 2010, we 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.

     The selected consolidated statement of operations data for the Successor years ended December 31, 2010, 2009 and 2008 and the selected Successor consolidated balance sheet data as of December 31, 2010 and 2009 have been derived from our audited financial statements included elsewhere in this report on Form 10-K. The selected consolidated financial data for the Successor period February 15, 2007 through December 31, 2007 the Predecessor period January 1, 2007 through February 14, 2007, and for the Predecessor year ended December 31, 2006 and the selected consolidated balance sheet data as of December 31, 2008, 2007 and 2006 have been derived from our audited financial statements that are not included in this report on Form 10-K.

		Predecessor								Successor
		Year ended				Period from January 1, 2007 to				Period from February 15, 2007 to
		December 31,				February 14,				December 31,				Year ended December 31,
		2006				2007				2007				2008				2009				2010
STATEMENT OF OPERATIONS DATA:
Operating revenue		$	462,580			$	55,766			$	424,154			$	508,466			$	425,774			$	490,291
Operating expenses			412,577				57,157				355,776				422,418				311,569				375,784
Operating income (loss)			50,003				(1,391	)			68,378				86,048				114,205				114,507
Interest expense, including amortization costs			(27,392	)			(3,275	)			(42,996	)			(61,678	)			(86,878	)			(83,775	)
Other income (loss)			—				284				7,129				(9,008	)			(8,117	)			(4,759	)
Income (loss) from continuing operations before income taxes			22,611				(4,382	)			32,511				15,362				19,210				25,973
(Benefit from) provision for income taxes			(4,809	)			935				(1,747	)			1,599				16,299				6,856
Income (loss) from continuing operations			27,420				(5,317	)			34,258				13,763				2,911				19,117
Discontinued operations			9,223				—				(756	)			2,764				12,931				—
Net income (loss)		$	36,643			$	(5,317	)		$	33,502			$	16,527			$	15,842			$	19,117
Dividends declared and paid per common share		$	—			$	—			$	—			$	—			$	0.46			$	—
Income (loss) from continuing operations per share of common stock:
Basic		$	0.71			$	(0.14	)		$	0.80			$	0.32			$	0.07			$	0.35
Diluted		$	0.70			$	(0.14	)		$	0.80			$	0.32			$	0.07			$	0.35
OPERATING DATA:
Freight carloads (continuing operations)			1,238,182				141,006				1,021,657				1,056,710				829,012				864,471

		Predecessor				Successor
		As of December 31,				As of December 31,
		2006				2007				2008				2009				2010
BALANCE SHEET DATA:
Total assets		$	1,125,732			$	1,483,239			$	1,470,447			$	1,598,629			$	1,603,653
Long-term debt, including current maturities			400,638				636,941				629,580				643,778				573,711
Stockholders’ equity			472,249				512,749				471,520				659,331				704,749

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. You should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods.

     In October 2010, we 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.

     General

Our Business

     We are 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. In addition, we provide non-freight services such as engineering services, railcar storage, demurrage, leases of equipment and real estate leases and use fees.

Recent Acquisitions and Business Development

     On July 1, 2010, we 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 our consolidated financial statements since July 1, 2010, the acquisition date.

     In August 2010, our 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 to the project. The project is expected to be completed within two years from the grant date.

Managing Business Performance

     We manage our business performance by (i) growing our freight and non-freight revenue, (ii) driving financial improvements through a variety of cost savings initiatives, and (iii) continuing to focus on safety to lower the costs and risks associated with operating our business.

     Changes in carloads and revenue per carload have a direct impact on freight revenue. Carloads have shown growth in 2010, after declining in 2008 and 2009 due to the global economic slowdown. The diversity in our customer base helps mitigate our exposure to severe downturns in local economies. We continue to implement more effective pricing by centralizing and carefully analyzing pricing decisions to improve our freight revenue per carload.

     Non-freight services offered to our customers include switching (or managing and positioning railcars within a customer’s facility), storing customers’ excess or idle railcars on inactive portions of our rail lines, engineering infrastructure services, third party railcar repair, and car hire and demurrage (allowing our customers and other railroads to use our railcars for storage or transportation in exchange for a daily fee). Each of these services leverages our existing business relationships and generates additional revenue with minimal capital investment. Management also continues to grow non-freight revenue from users of our land holdings for non-transportation purposes.

     Our operating costs include labor, equipment rents (locomotives and railcars), purchased services (contract labor and professional services), diesel fuel, casualties and insurance, materials, joint facilities and other expenses.

     Management is focused on improving operating efficiency and lowering costs. Many functions such as pricing, purchasing, capital spending, finance, insurance, real estate and other administrative functions are centralized, which enables us to achieve cost efficiencies and leverage the experience of senior management in commercial, operational and strategic decisions. A number of cost

savings initiatives have been broadly implemented at all of our railroads targeting lower fuel consumption, safer operations, more efficient equipment utilization and lower costs for third party services, among others.

Commodity Mix

     Each of our 40 railroads operates independently with its own customer base. Our railroads are spread out geographically and carry diverse commodities. For the year ended December 31, 2010, coal, agricultural products and chemicals accounted for 21%, 15% and 11%, respectively, of our carloads. As a percentage of our freight revenue, which is impacted by several factors including the length of the haul, agricultural products, chemicals, coal, and metallic ores and metals generated 16%, 15%, 10% and 10%, respectively, for the year ended December 31, 2010.

     Overview

     Operating revenue in the year ended December 31, 2010, was $490.3 million, compared with $425.8 million in the year ended December 31, 2009. The net increase in our operating revenue was primarily due to changes in commodity mix, negotiated rate increases, increased carloads and an increase in our non-freight revenue.

     Freight revenue increased $44.2 million, or 13%, in the year ended December 31, 2010, compared with the year ended December 31, 2009, primarily due to change in commodity mix, rate increases and a 4% increase in carloads. Non-freight revenue increased $20.3 million, or 25%, in the year ended December 31, 2010, compared with the year ended December 31, 2009, primarily due to increases in engineering services revenue of $15.1 million (partially due to the acquisition of Atlas), and car repair revenue of $5.2 million, partially offset by a decrease in other revenue of $4.5 million related to the termination of the previous OVRR lease during the fourth quarter of 2009.

     Our operating ratio, defined as total operating expenses divided by total operating revenue, was 76.6% in the year ended December 31, 2010, compared with an operating ratio of 73.2% in the year ended December 31, 2009. This increase was primarily due to a gain associated with a lease termination in 2009, an increase in materials and diesel fuel expense in 2010, partially offset by a decrease in equipment rent expense in 2010. Operating expenses were $375.8 million in the year ended December 31, 2010, compared with $311.6 million in the year ended December 31, 2009, an increase of $64.2 million, or 21%.

     In 2010 and 2009, we entered into track maintenance agreements with an unrelated third-party customer (“Shipper”). Under the agreements, the Shipper paid for qualified railroad track maintenance expenditures during 2010 and 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 Code. For the year ended December 31, 2010, the Shipper paid for $18.0 million of maintenance expenditures and $4.3 million of capital expenditures. For the year ended December 31, 2009, the Shipper paid for $17.1 million of maintenance expenditures and $5.3 million of capital expenditures. We incurred $0.4 million for related consulting fees in each of the years ended December 31, 2010 and December 31, 2009.

     Net income in the year ended December 31, 2010, was $19.1 million, compared with $15.8 million in the year ended December 31, 2009. Income from continuing operations in the year ended December 31, 2010, was $19.1 million, compared with $2.9 million in the year ended December 31, 2009. Net income for the year ended December 31, 2009 includes an adjustment to the gain on disposal of discontinued operations of $12.9 million primarily related to the resolution of an Australian tax matter.

     During the year ended December 31, 2010, we generated $117.2 million in cash from operating activities. We purchased $62.7 million of property and equipment and received $4.1 million in cash from the disposition of assets and $4.9 million of grant money for the NECR project.

     Results of Operations

Comparison of Operating Results for the Years ended December 31, 2010 and 2009

     The following table sets forth the results of operations for the years ended December 31, 2010 and 2009:

		Year Ended								Year Ended
		December 31,								December 31,
		2010								2009
Operating revenue		$	490,291				100.0	%		$	425,774				100.0	%
Operating expenses:
Labor and benefits			153,993				31.4	%			143,604				33.7	%
Equipment rents			34,119				7.0	%			35,978				8.5	%
Purchased services			37,971				7.7	%			30,914				7.3	%
Diesel fuel			43,316				8.8	%			33,290				7.8	%
Casualties and insurance			17,574				3.6	%			16,795				3.9	%
Materials			19,607				4.0	%			11,399				2.7	%
Joint facilities			8,667				1.8	%			6,942				1.6	%
Other expenses			35,226				7.2	%			33,037				7.8	%
Track maintenance expense reimbursement			(17,589	)			-3.6	%			(16,656	)			-3.9	%
Net gain on sale of assets			(2,191	)			-0.5	%			(25,839	)			-6.1	%
Depreciation and amortization			45,091				9.2	%			42,105				9.9	%
Total operating expenses			375,784				76.6	%			311,569				73.2	%
Operating income			114,507				23.4	%			114,205				26.8	%
Interest expense, including amortization costs			(83,775	)							(86,878	)
Other income (loss)			(4,759	)							(8,117	)
Income from continuing operations before income taxes			25,973								19,210
Provision for income taxes			6,856								16,299
Income from continuing operations			19,117								2,911
Discontinued operations:
Gain on disposal of discontinued business			—								12,931
Net income		$	19,117							$	15,842

     Operating Revenue

     Operating revenue increased by $64.5 million, or 15%, to $490.3 million in the year ended December 31, 2010, from $425.8 million in the year ended December 31, 2009. Total carloads during the year ended December 31, 2010 increased 4% to 864,471 in 2010, from 829,012 in the year ended December 31, 2009. The increase in operating revenue was primarily due to changes in commodity mix, negotiated rate increases, a 4% increase in carloads and the acquisition of Atlas.

     The increase in the average revenue per carload to $450 in the year ended December 31, 2010, from $416 in the comparable period in 2009 was primarily due to commodity mix and negotiated rate increases.

     Non-freight revenue increased by $20.3 million, or 25%, to $101.5 million in the year ended December 31, 2010 from $81.2 million in the year ended December 31, 2009, primarily due to a $15.1 million increase in engineering services revenue, partially due to the acquisition of Atlas, and increases in car repair revenue of $5.2 million, partially offset by a decrease in other revenue of $4.5 million related to the termination of the OVRR lease during the fourth quarter of 2009.

     The following table compares our freight revenue, carloads and average freight revenue per carload for the years ended December 31, 2010 and 2009:

		Year ended December 31, 2010												Year ended December 31, 2009
										Average Freight												Average Freight
		Freight								Revenue per				Freight								Revenue per
		Revenue				Carloads				Carload				Revenue				Carloads				Carload
		(Dollars in thousands, except average freight revenue per carload)
Industrial Products		$	195,180				368,548			$	530			$	167,489				349,238			$	480
Agricultural Products			92,026				189,764				485				81,844				178,981				457
Construction Products			61,663				127,424				484				58,320				122,765				475
Coal			39,880				178,735				223				36,914				178,028				207
Total		$	388,749				864,471			$	450			$	344,567				829,012			$	416

     Freight revenue was $388.7 million in the year ended December 31, 2010, compared to $344.6 million in the year ended December 31, 2009, an increase of $44.1 million or 13%. This increase was primarily due to the net effect of the following:

• Industrial products revenue increased $27.7 million or 17% primarily due to a 60% increase in shipments of metallic ores and metals as a result of increased demand from automotive manufacturing and energy production facilities, a 17% increase in shipments of chemicals as a result of chemical manufacturing keeping pace with increased demand for both intermediates and final products and increased shipments of waste and scrap material, partially offset by a 38% decrease in other revenues as a result of fewer movements for Class I railroads;

• Agricultural Products revenue increased $10.2 million or 12% primarily due to increased demand for animal feed ingredients for domestic livestock and exports;

• Construction Products revenue increased $3.3 million or 6% primarily due to increased demand for construction aggregates; and

• Coal revenue increased $3.0 million or 8% primarily due to favorable mix changes and pricing activity.

Operating Expenses

     Operating expenses increased to $375.8 million in the year ended December 31, 2010, from $311.6 million in the year ended December 31, 2009. The operating ratio was 76.6% in 2010 compared to 73.2% in 2009. The increase in the operating ratio was primarily due to a gain associated with a lease termination in 2009, increased diesel fuel expenses as a result of increased carloads and higher costs per gallon in 2010, expenses related to Atlas, and increased materials expense related to car repair activity. The year ended December 31, 2009 includes a non-cash charge of $6.3 million in labor and benefits expense related to the initial public offering for the expiration of a repurchase feature under the former stock compensation agreements. During the year ended December 31, 2009, operating expenses also include $1.4 million of costs related to the restructuring and relocation of our corporate headquarters to Jacksonville, Florida. The costs incurred during the year ended December 31, 2009 are included within labor and benefits ($1.2 million) and purchased services ($0.2 million).

     The net increase in operating expenses was due to the following:

• Labor and benefits expense increased $10.4 million, or 7% primarily due to the acquisition of Atlas which contributed $4.7 million, an increase in salaries and wages as a result of the increase in carload volumes of $4.0 million, an increase in healthcare costs of $3.9 million and an increase in amortization expense related to the Company’s stock-based compensation plan of $3.1 million. These increases were partially offset by the non-cash initial public offering charge noted above which was incurred in 2009.

• Equipment rents expense decreased $1.9 million, or 5% primarily due to a reduction in railcar lease expense from the expiration of certain railcar leases;

• Purchased services expense increased $7.1 million, or 23% primarily due to a $1.9 million increase related to Atlas, an increase of $1.5 million in professional fees for special projects and public company related costs and a $1.3 million increase in legal fees;

• Diesel fuel expense increased $10.0 million, or 30% primarily due to higher average fuel costs of $2.44 per gallon in 2010 compared to $1.94 per gallon in 2009, resulting in an $8.6 million increase in fuel expense and an unfavorable consumption variance of $1.3 million due to increased carloads in 2010;

• Casualties and insurance expense increased $0.8 million, or 5% primarily due to an increase in insurance premiums and incident reserves. FRA reportable personal injuries increased slightly to 27 in the year ended December 31, 2010 from 23 in the year ended December 31, 2009. Our FRA personal injury frequency ratio, which is measured as the number of reportable injuries per 200,000 person hours worked, was 2.1 at December 31, 2010, compared to 1.8 at December 31, 2009. FRA reportable train accidents decreased to 30 in the year ended December 31, 2010 from 34 in the year ended December 31, 2009;

• Materials expense increased $8.2 million, or 72% primarily due to an increase of $4.2 million in car repair material purchases as a result of an increase in car repair activity and additional expenses of $3.4 million related to Atlas;

• Joint facilities expense increased $1.7 million, or 25% partially due to the increased carload volume;

• Other expenses increased $2.2 million, or 7% primarily due to an increase of $1.4 million in travel and automotive fuel expense, an increase of $1.0 million for Atlas and an increase in public company costs of $0.7 million;

• The execution of track maintenance agreements in 2010 and 2009 resulted in the Shipper paying $17.6 million and $16.7 million of maintenance expenditures, net of related consulting fees, respectively;

• Asset sales and a lease termination resulted in net gains of $2.2 million and $25.8 million in the years ended December 31, 2010 and 2009, respectively. The gains on sales of assets in 2010 are primarily due to land and easement sales along our corridor of track. In 2009, we terminated the lease of the OVRR line, which resulted in a gain on disposal of $26.8 million and we sold a portion of track owned by the Central Railroad of Indianapolis at a price set by the STB of $0.4 million, which resulted in a loss on disposition of $1.5 million. We also sold a portion of track owned by the Central Oregon and Pacific Railroad, known as the Coos Bay Line, to the Port of Coos Bay for $16.6 million. The carrying value of this line approximated the sale price; and

• Depreciation and amortization expense increased $3.0 million or 7% due to the capitalization and depreciation of 2009 and 2010 capital projects and the acquisition of Atlas.

Other Income (Expense) Items

     Interest Expense. Interest expense, including amortization of deferred financing costs, decreased $3.1 million to $83.8 million for the year ended December 31, 2010, from $86.9 million in the year ended December 31, 2009. This decrease is primarily due to the redemption of $74 million of senior secured notes in June 2010 and in November 2009. Interest expense also includes $20.9 million and $16.6 million of swap amortization costs for the years ended December 31, 2010 and 2009, respectively. In connection with the repayment of the bridge credit facility in 2009, we terminated our existing interest rate swap. Per Derivatives and Hedging Topic, ASC 815, since the hedged cash flow transactions, future interest payments, did not terminate, but continued with the senior secured notes, the fair value of the hedge on the termination date in accumulated comprehensive loss is amortized into interest expense over the shorter of the remaining life of the swap or the maturity of the notes.

     Other Loss. Other loss of $4.8 million and $8.1 million during the years ended December 31, 2010 and 2009, respectively, primarily relate to costs incurred in connection with the repurchase of senior secured notes during the second quarter of 2010 and fourth quarter of 2009 and the write-off of unamortized deferred loan costs associated with our former bridge credit facility in the second quarter of 2009. Other loss also includes $1.8 million and $0.2 million of management fee income that is recorded in connection with the transactions where our employees receive restricted stock awards from related parties in the years ended December 31, 2010 and 2009, respectively. As part of the restricted stock transactions, we recorded an offsetting expense in labor and benefits. Other loss during the year ended December 31, 2010 was partially offset by a $2.0 million transaction break-up fee, or $1.8 million net of expenses, in the third quarter of 2010.

     Income Taxes. The effective income tax rate for the years ended December 31, 2010 and 2009 for continuing operations were a provision of 26.4% and 84.8%, respectively. The overall tax rate for the year ended December 31, 2010 was favorably impacted by a decrease in the valuation allowance ($2.9 million) and a reduction of tax reserves due to the lapse of the statute of limitations ($1.1 million). These favorable tax adjustments were partially offset by an expense relating to change in estimates of apportioned state tax rates and other adjustments ($1.2 million) and by an expense relating to stock-based compensation plans ($0.7 million). The overall effective tax rate for continuing operations for the year ended December 31, 2009 was unfavorably impacted by the repatriation of OVRR’s Canadian earnings ($15.0 million) and by an increase in the valuation allowance ($4.0 million). These unfavorable adjustments were partially offset by the resolution of the Australian tax audit ($2.5 million), the conversion of certain operating subsidiaries to single member limited liability companies ($1.0 million) and the adjustment of deferred tax balances resulting from change in tax laws and change in estimates of the apportioned state rates ($2.3 million). For the year ended December 31, 2010 and 2009 we paid cash taxes of $7.4 million and $3.4 million, respectively.

     Discontinued Operations. In January 2006, we completed the sale of our Alberta Railroad Properties for $22.1 million in cash. In the year ended December 31, 2009, we 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.

     In August 2004, we completed the sale of our Australian railroad, Freight Australia, to Pacific National for AUD $285 million (U.S. $204 million). On May 14, 2009, we 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. As a result, during the second quarter of 2009, we removed the previously recorded tax reserves resulting in a benefit to the continuing operations tax provision of $2.5 million, an adjustment to the gain on disposal of discontinued operations of $12.3 million and reduced our accrual for consulting fees resulting in a gain on disposal of discontinued operations of $0.7 million, or $0.5 million after tax.

Comparison of Operating Results for the Years Ended December 31, 2009 and 2008

     The following table sets forth the results of operations for the years ended December 31, 2009 and 2008:

		Year Ended December 31,
		2009								2008
Operating revenue		$	425,774				100.0	%		$	508,466				100.0	%
Operating expenses:
Labor and benefits			143,604				33.7	%			148,789				29.3	%
Equipment rents			35,978				8.5	%			45,020				8.9	%
Purchased services			30,914				7.3	%			38,792				7.6	%
Diesel fuel			33,290				7.8	%			69,974				13.8	%
Casualties and insurance			16,795				3.9	%			22,041				4.3	%
Materials			11,399				2.7	%			10,663				2.1	%
Joint facilities			6,942				1.6	%			12,573				2.5	%
Other expenses			33,037				7.8	%			33,265				6.5	%
Track maintenance expense reimbursement			(16,656	)			-3.9	%			—				—
Net gain on sale of assets			(25,839	)			-6.1	%			(1,697	)			-0.3	%
Impairment of assets			—				—				3,420				0.6	%
Depreciation and amortization			42,105				9.9	%			39,578				7.8	%
Total operating expenses			311,569				73.2	%			422,418				83.1	%
Operating income			114,205				26.8	%			86,048				16.9	%
Interest expense, including amortization costs			(86,878	)							(61,678	)
Other loss			(8,117	)							(9,008	)
Income from continuing operations before income taxes			19,210								15,362
Provision for income taxes			16,299								1,599
Income from continuing operations			2,911								13,763
Discontinued operations:
Gain on disposal of discontinued business			12,931								2,764
Net income		$	15,842							$	16,527

Operating Revenue

     Operating revenue decreased by $82.7 million, or 16%, to $425.8 million in the year ended December 31, 2009, from $508.5 million in the year ended December 31, 2008. Total carloads during the year ending December 31, 2009 decreased 22% to 829,012 in 2009, from 1,056,710 in the year ended December 31, 2008. The decrease in operating revenue was primarily due to the decrease in carloads and lower fuel surcharges, which declined $17.4 million from the prior period.

     The average revenue per carload remained relatively constant at $416 for both years ended December 31, 2009 and 2008. Lower fuel surcharges and negative commodity mix changes, were partially offset by rate growth.

     Non-freight revenue increased by $12.8 million, or 19%, to $81.2 million in the year ended December 31, 2009 from $68.4 million in the year ended December 31, 2008, primarily due to increases in car storage fees of $6.3 million and car repair income of $3.0 million, partially offset by a decrease in car hire income of $3.7 million. In addition, during the year ended December 31, 2009, we restructured a Class I contract on one of our Canadian railroads which resulted in $6.4 million in revenue shifting from freight to non-freight.

     The following table compares our freight revenue, carloads and average freight revenue per carload for the years ended December 31, 2009 and 2008:

		Year Ended December 31, 2009												Year Ended December 31, 2008
										Average Freight												Average Freight
		Freight								Revenue per				Freight								Revenue per
		Revenue				Carloads				Carload				Revenue				Carloads				Carload
						(Dollars in thousands, except average freight revenue per carload)
Industrial Products		$	167,489				349,238			$	480			$	236,375				515,348			$	459
Agricultural Products			81,844				178,981				457				87,480				198,406				441
Construction Products			58,320				122,765				475				78,822				165,109				477
Coal			36,914				178,028				207				37,364				177,847				210
Total		$	344,567				829,012			$	416			$	440,041				1,056,710			$	416

     Freight revenue was $344.6 million in the year ended December 31, 2009, compared to $440.0 million in the year ended December 31, 2008, a decrease of $95.5 million or 22%. This decrease was primarily due to the net effect of the following:

• Industrial products revenue decreased $68.9 million, or 29%, primarily due to a 55% decrease in shipments of metallic ores and metals as a result of the temporary closure of a customer facility and a production curtailment at facilities in Texas, a 31% decrease in waste and scrap materials carloads as a result of declines in municipal solid waste moves for landfills in the Southeast and reduced movements of construction debris in the Northeast, a 22% decrease in chemical carloads as a result of the weakening manufacturing market, and a 49% decrease in bridge traffic in Canada from the restructuring of a Class I contract in 2009, which resulted in freight revenue shifting to non-freight revenue;

• Agricultural products revenue decreased $5.6 million, or 6%, primarily due to a 12% decrease in agricultural products carloads as a result of reduced shipments of corn and soybeans in the Midwest and a 4% decrease in food and kindred products carloads as a result of reduced movements of spent grain mash from ethanol plants to animal feed facilities and a decrease in production of beet sugar in the Midwest;

• Construction products revenue decreased $20.5 million, or 26%, primarily due to a 34% decrease in forest products carloads as a result of declines in the Pacific Northwest stemming from the continued decline in the housing and construction markets and a 19% decrease in non-metallic mineral and products carloads as a result of decreases in construction activity in Texas and reduced demand for minerals used in the paper industry; and

• Coal revenue was relatively flat for the year ended December 31, 2009 as compared to the year ended December 31, 2008.

Operating Expenses

     Operating expenses decreased to $311.6 million in the year ended December 31, 2009, from $422.4 million in the year ended December 31, 2008. The operating ratio was 73.2% in 2009 compared to 83.1% in 2008. The improvement in the operating ratio was primarily due to gains of $25.8 million primarily due to a lease termination, our continuing cost reduction initiatives, which include reductions in labor and purchased services expenses, a decrease in maintenance expenditures for right of way improvements as a result of the track maintenance agreement, a reduction in car hire expense and a decrease in fuel prices in the year ended December 31, 2009 as compared to the same period in 2008. The year ended December 31, 2009 includes a non-cash charge of $6.3 million in labor and benefits expense related to the initial public offering for the expiration of a repurchase feature under the former stock compensation agreements. The 2009 and 2008 operating expenses also include $1.4 million and $6.1 million, respectively, of costs related to the restructuring and relocation of our corporate headquarters to Jacksonville, Florida. The costs incurred during the year ended December 31, 2009 and 2008 are included within labor and benefits ($1.2 million and $4.2 million, respectively), purchased services ($0.2 million and $1.4 million, respectively) and other expenses ($0 and $0.5 million, respectively).

     The net decrease in operating expenses is due to the following:

• Labor and benefits expense decreased $5.2 million, or 4% primarily due to a reduction in labor force as a result of the decline in carload volumes and additional cost savings initiatives implemented by management. This decrease was partially offset by the non-

cash initial public offering charge mentioned above which was incurred in 2009. Other benefits expense also included restructuring costs during the years ended 2009 and 2008 as mentioned above;

• Equipment rents expense decreased $9.0 million, or 20% primarily due to a reduction in car hire expense as a result of the decline in carload volume;

• Purchased services expense decreased $7.9 million, or 21% primarily due to cost reduction initiatives implemented by management during 2009 and costs incurred in connection with the restructuring and relocation of corporate headquarters in 2008;

• Diesel fuel expense decreased $36.7 million, or 52% primarily due to lower average fuel costs of $1.94 per gallon in 2009 compared to $3.23 per gallon in 2008, resulting in a $21.1 million decrease in fuel expense and a favorable consumption variance of $15.1 million;

• Casualties and insurance expense decreased $5.2 million, or 24% primarily due to management initiatives to decrease safety related incidents. FRA reportable train accidents decreased to 34 in the year ended December 31, 2009 from 44 in the year ended December 31, 2008 while FRA personal injuries decreased to 23 in the year ended December 31, 2009 from 26 in the year ended December 31, 2008. Our FRA personal injury frequency ratio, which is measured as the number of reportable injuries per 200,000 person hours worked, was 1.8 at December 31, 2009, compared to 1.6 at December 31, 2008;

• Materials expense increased $0.7 million, or 7% primarily due to an increase in car repair material purchases, partially offset by a decrease of $1.2 million in locomotive and track materials as a result of fewer repairs;

• Joint facilities expense decreased $5.6 million, or 45% partially due to the decline in carload volume;

• Other expenses remained relatively flat for the year ended December 31, 2009 as compared to the year ended December 31, 2008;

• The execution of the track maintenance agreement in 2009 resulted in the Shipper paying for $17.1 million of maintenance expenditures and we incurred $0.4 million for related consulting fees;

• Asset sales and a lease termination resulted in net gains of $25.8 million and $1.7 million in the years ended December 31, 2009 and 2008, respectively. In 2009, we terminated the lease of the OVRR line which resulted in a gain on disposal of $26.8 million. In 2009, we sold of a portion of track owned by the Central Railroad of Indianapolis at a price set by the STB of $0.4 million, which resulted in a loss on disposition of $1.5 million. We also sold a portion of track owned by the Central Oregon and Pacific Railroad, known as the Coos Bay Line, to the Port of Coos Bay for $16.6 million. The carrying value of this line approximated the sale price. The gain on sale of assets of $1.7 million in 2008 was primarily due to land and easement sales along our corridor of track;

• Impairment of assets of $3.4 million for the year ended December 31, 2008 related to the former corporate headquarters building located in Boca Raton, Florida and disposed surplus locomotives; and

• Depreciation and amortization expense increased as a percentage of operating revenue to 9.9% in the year ended December 31, 2009, from 7.8% in the year ended December 31, 2008 due to the capitalization and depreciation of 2008 and 2009 capital projects and the overall decrease in operating revenue.

Other Income (Expense) Items

     Interest Expense. Interest expense, including amortization of deferred financing costs, increased $25.2 million to $86.9 million for the year ended December 31, 2009, from $61.7 million in the year ended December 31, 2008. This increase is primarily due to an increase in the effective interest rate on our debt beginning in the third quarter of 2008, which includes interest expense on our interest rate swaps and the amortization of deferred financing costs. The interest rate on the bridge credit facility increased to LIBOR plus 4.00% from LIBOR plus 2.25%, effective July 1, 2008 as part of the amendment to extend the maturity of the loan. The amortization of deferred financing costs increased from the prior year as a result of incurring deferred financing costs associated with the 2008 amendment and extension of the bridge credit facility. Interest expense includes $26.9 million and $10.1 million of amortization costs for the years ended December 31, 2009 and 2008, respectively. Amortization costs in the year ended December 31, 2009 include $16.6 million of swap termination cost amortization. In connection with the repayment of the bridge credit facility, we terminated our

existing interest rate swap. Per Derivatives and Hedging Topic, ASC 815, since the hedged cash flow transactions, future interest payments, did not terminate, but continued with the senior secured notes, the fair value of the hedge on the termination date in accumulated comprehensive loss is amortized into interest expense over the shorter of the remaining life of the swap or the maturity of the notes.

     Other Income (Loss). Other loss of $8.1 million during the year ended December 31, 2009 primarily relates to costs incurred in connection with the repurchase of senior secured notes during the fourth quarter of 2009 and the write-off of unamortized deferred loan costs associated with our former bridge credit facility. Other loss of $9.0 million during the year ended December 31, 2008 primarily relates to foreign exchange losses associated with the U.S. dollar term borrowing held by one of our Canadian subsidiaries. For the year ended December 31, 2008 the exchange rates decreased, resulting in a foreign exchange loss of $8.3 million.

     Income Taxes. Our effective income tax rates for the years ended December 31, 2009 and 2008 for continuing operations were a provision of 84.8% and 10.4%, respectively. The overall effective tax rate for continuing operations for the year ended December 31, 2009 was unfavorably impacted by the repatriation of OVRR’s Canadian earnings ($15.0 million) and by an increase in the valuation allowance ($4.0 million). These unfavorable adjustments were partially offset by the resolution of the Australian tax audit ($2.5 million), the conversion of certain operating subsidiaries to single member limited liability companies ($1.0 million) and the adjustment of deferred tax balances resulting from change in tax laws and change in estimates of the apportioned state rates ($2.3 million). The effective tax rate for continuing operations for the year ended December 31, 2008 was adversely impacted by the tax effects for repatriation of Canadian earnings ($3.3 million), an increase in the valuation allowance ($3.1 million), an accrual for uncertain tax positions ($1.7 million) and the revaluation of deferred taxes for change in tax laws and change in estimated state apportionment factors ($1.4 million). The rate for the year ended December 31, 2008 included a federal tax benefit of approximately $16 million related to the track maintenance credit provisions enacted by the American Jobs Creation Act of 2004 and extended by the Tax Extenders and AMT Relief Act of 2008. The rate for the year ended December 31, 2009, did not include a similar federal tax benefit due to the execution of the Track Maintenance Agreement in 2009 as discussed above. For the year ended December 31, 2009 and 2008 we paid cash taxes of $3.4 million and $6.7 million, respectively.

     Discontinued Operations. In January 2006, we completed the sale of our Alberta Railroad Properties for $22.1 million in cash. In 2008, we settled working capital claims with the buyer and as a result recorded an adjustment of $1.3 million, or $1.2 million, after tax, through the gain on disposal of discontinued operations. In the year ended December 31, 2009, we 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.

     In August 2004, we completed the sale of our Australian railroad, Freight Australia, to Pacific National for AUD $285 million (U.S. $204 million). During the years ended December 31, 2008 and 2007, we incurred additional consulting costs associated with the sale of Freight Australia of $1.9 million or $1.3 million, after tax, and $1.1 million or $0.8 million, after tax, related to the ATO audit of the reorganization transactions undertaken by our Australian subsidiaries prior to the sale. In addition, we recognized foreign exchange gains of $4.0 million or $2.8 million, after tax, on tax reserves established in conjunction with the ATO audit during the period ended December 31, 2008. On May 14, 2009, we 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. As a result, during the second quarter of 2009, we removed the previously recorded tax reserves resulting in a benefit to the continuing operations tax provision of $2.5 million, an adjustment to the gain on disposal of discontinued operations of $12.3 million and reduced our accrual for consulting fees resulting in a gain on disposal of discontinued operations of $0.7 million, or $0.5 million after tax.

Liquidity and Capital Resources

     The discussion of liquidity and capital resources that follows reflects our consolidated results and includes all subsidiaries. We have historically met our liquidity requirements primarily from cash generated from operations and borrowings under our credit agreements which are used to fund capital expenditures and debt service requirements. For the year ended December 31, 2010, there was a net cash inflow from operations of $117.2 million primarily due to cash flow generated by operations. We believe that we will be able to generate sufficient cash flow from operations to meet our capital expenditure and debt service requirements through our continued focus on revenue growth and operating efficiency.

Operating Activities

     Cash provided by operating activities was $117.2 million for the year ended December 31, 2010, compared to $9.5 million for the year ended December 31, 2009. The increase in cash provided by operating activities was primarily due to cash payments made for the termination of the interest rate swap in connection with the repayment of the bridge credit facility in June 2009 of $55.8 million.

     Cash provided by operating activities was $9.5 million and $83.6 million for the years ended December 31, 2009 and 2008, respectively. The decrease in cash provided by operating activities was primarily due to the termination of the interest rate swap in connection with the repayment of the bridge credit facility in June 2009, the gain on the disposal of OVRR in 2009, and timing of interest payments.

Investing Activities

     Cash (used in) provided by investing activities was $(77.6) million for the year ended December 31, 2010, compared to $42.2 million for the year ended December 31, 2009. The 2010 results include $23.9 million in cash used for the acquisition of Atlas. Capital expenditures were $62.7 million in the year ended December 31, 2010, compared to $47.8 million in the year ended December 31, 2009. Asset sale/disposition proceeds were $4.1 million for the year ended December 31, 2010 compared to $90.3 million for the year ended December 31, 2009, primarily due to the termination of the OVRR lease agreement for $68.6 million and the sale of the Coos Bay Line for $16.6 million in 2009.

     Cash provided by (used in) investing activities was $42.2 million for the year ended December 31, 2009, compared to $(45.7) million for the year ended December 31, 2008. Capital expenditures were $47.8 million in the year ended December 31, 2009, compared to $61.3 million in the year ended December 31, 2008. Asset sale/disposition proceeds were $90.3 million for the year ended December 31, 2009 compared to $17.4 million for the year ended December 31, 2008, primarily due to the termination of the OVRR lease agreement and the sale of the Coos Bay Line.

Financing Activities

     Cash (used in) provided by financing activities was $(77.2) million for the year ended December 31, 2010, compared to $111.2 million in the year ended December 31, 2009. The decrease in cash provided by financing activities from December 31, 2009 to December 31, 2010 was due to the common stock proceeds generated from the initial public offering in October 2009 and the issuance of the 9.25% senior secured notes, partially offset by the cash used to repay the existing bridge credit facility and financing costs associated with the issuance of the notes. On November 16, 2009, we 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, we 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.

     Cash provided by (used in) financing activities was $111.2 million for the year ended December 31, 2009, compared to $(24.8) million in the year ended December 31, 2008. The cash provided by financing activities in the year ended December 31, 2009 was due to the common stock proceeds generated from the initial public offering in October 2009 and the issuance of the 9.25% senior secured notes, partially offset by the cash used to repay the existing bridge credit facility and financing costs associated with the issuance of the notes. The cash used in financing activities during the year ended December 31, 2008 was primarily due to the amendment fee paid in conjunction with the extension of the bridge credit facility and the repayment of the mortgage on the corporate headquarters building sold during the third quarter of 2008.

Working Capital

     As of December 31, 2010, we had working capital of $152.0 million, including cash on hand of $153.0 million, and approximately $21.4 million of availability under the ABL Facility (as defined below), compared to working capital of $202.2 million, including cash on hand of $190.2 million, and $17.1 million of availability under the ABL Facility at December 31, 2009. The working capital decrease at December 31, 2010, compared to December 31, 2009, is primarily due to the use of cash for the paydown of the senior secured notes in June 2010 and the acquisition of Atlas in July 2010. In June 2009, we declared and paid a cash dividend in the amount of $20.0 million to our common stockholders.

     Our cash flows from operations and borrowings under our credit agreements historically have been sufficient to meet our ongoing operating requirements, to fund capital expenditures for property, plant and equipment, and to satisfy our debt service requirements. We expect to continue to sufficiently meet our ongoing operating requirements with our cash flows from operations and borrowings under the ABL Facility.

Capital Expenditures

     The following table sets forth our track and related assets capital expenditures by major type for the years ended December 31, 2010, 2009, and 2008.

		Year Ended December 31,
		2010				2009				2008
		(amounts in thousands)
Ties		$	19,594			$	19,472			$	21,822
Bridges			8,309				7,328				7,127
Surfacing			5,817				5,358				5,424
Rail			12,173				3,521				3,909
Crossings			3,379				3,086				2,746
Turnouts			896				1,306				734
Signals			1,858				1,258				1,194
Other			—				632				647
Casualty related			1,800				92				5,217
NECR grant reimbursements			(4,884	)			—				—
Capital reimbursements			(4,686	)			(5,478	)			—
Total		$	44,256			$	36,575			$	48,820

     The increase in track and related assets capital expenditures in 2010 compared to 2009 was primarily due to the NECR track upgrade grant project. The decrease in track and related assets expenditures in 2009 from 2008 was primarily due to capital reimbursements from the track maintenance agreement and unplanned casualty related capital expenditures in 2008.

     The following table sets forth the approximate number of ties installed and replaced, miles of rail installed and replaced and track miles resurfaced during the years ended December 31, 2010, 2009 and 2008.

		Year Ended December 31,
		2010				2009				2008
Ties (each, in thousands)
Installed			—				3				—
Replaced			346				346				362
Rail (miles)
Installed			—				1				—
Replaced			22				16				14
Surfaced (miles)			768				873				942

Long-term Debt

$740 million 9.25% Senior Secured Notes

     On June 23, 2009, we 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 and the original issue discount. The notes are secured by first-priority liens on substantially all of our and the guarantors’ assets. The guarantors are defined essentially as our 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 and pay fees and expenses related to the offering and for general corporate purposes.

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

     We may issue from time to time additional debt, without notice to or consent of the existing senior secured notes holders, having identical terms and conditions to the existing senior secured notes. Any additional notes issued shall be treated as a single class along with the existing senior secured notes.

$40 million ABL Facility

     In connection with the issuance of the senior secured notes on June 23, 2009, we also entered into a $40 million Asset Backed Loan (“ABL”) Facility. The ABL Facility matures on June 23, 2013 and bears interest at LIBOR plus 4.00%. Obligations under the ABL Facility are secured by a first-priority lien in the ABL collateral. ABL collateral includes accounts receivable, deposit accounts, securities accounts and cash. As of December 31, 2010, we had no outstanding balance under the ABL Facility and approximately $21.4 million of undrawn availability, taking into account borrowing base limitations.

     On June 10, 2010, we entered into Amendment No. 1 to the ABL Facility improving certain terms of the ABL Facility. Among other things, Amendment No. 1 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.

     On February 23, 2011, we entered into Amendment No. 2 to the Asset Backed Loan Facility. Amendment No. 2 adjusts certain terms of the ABL Facility and increases the threshold for Restricted Payments, as defined in the ABL Facility, to allow share repurchases of our common stock in an amount not exceed $75 million without affecting other Restricted Payment baskets.

Covenants to Senior Secured Notes and ABL Facility

     The indenture governing the senior secured notes contains certain limitations and restrictions on us and our restricted subsidiaries’ (as of the date of this report, all of our subsidiaries were restricted subsidiaries) ability to, among other things, incur additional indebtedness; issue preferred and disqualified stock; purchase or redeem capital stock; make certain investments; pay dividends or make other payments or loans or transfer property; sell assets; enter into certain types of transactions with affiliates involving consideration in excess of $5.0 million; create liens on certain assets; and sell all or substantially all of our assets or our guarantor’s assets or merge with or into another company.

     The covenants are subject to important exceptions and qualifications described below.

     We and our restricted subsidiaries are prohibited from incurring or issuing additional indebtedness and disqualified stock and its restricted subsidiaries are prohibited from issuing preferred stock unless our fixed charge coverage ratio, defined as Adjusted EBITDA less capital expenditures divided by fixed charges, for the most recently ended four full fiscal quarters would have been at least 2.00 to 1.00 on a pro forma basis. In addition, we may, among other things, incur certain credit facilities debt not to exceed the greater of (i) $60 million and (ii) the borrowing base; purchase money indebtedness or capital lease obligations not to exceed the greater of (i) $80 million and (ii) 5.0% of total assets; indebtedness of foreign subsidiaries not to exceed the greater of (i) $25 million and (ii) 15% of total assets of foreign subsidiaries; acquired debt so long as we would be permitted to incur at least an additional $1 of indebtedness under its fixed charge ratio or such ratio is greater following the transaction; and up to $100 million (limited to

$50 million for restricted subsidiaries) indebtedness, disqualified stock or preferred stock, subject to increase from the proceeds of certain equity sales and capital contributions.

     Furthermore, we and our restricted subsidiaries are prohibited from purchasing or redeeming capital stock; making certain investments, paying dividends or making other payments or loans or transfers of property, unless we could incur an additional dollar of indebtedness under our fixed charge ratio and such payment is less than 50% of our consolidated net income plus certain other items that increase the size of the payment basket. In addition, we may, among other things, make any payment from the proceeds of a capital contribution or concurrent offering of equity interests of us; make stock buy-backs from current and former employees/directors in an amount to not exceed $5 million per year, subject to carryover of unused amounts into subsequent years (capped at $10 million in any year) and subject to increase for cash proceeds from certain equity issuances to employees/directors and cash proceeds from key man life insurance; make investments in unrestricted subsidiaries in an amount not to exceed (i) $10 million and (ii) 0.75% of total assets; pay dividends following a public offering up to 6% per annum of the net proceeds received by the us; make any payments up to $25 million. Moreover, we may make investments in an amount not to exceed the greater of (i) $25 million and (ii) 2.0% of total assets, investments in a similar business not to exceed the greater of (i) $50 million and (ii) 3% of total assets and advances to employees not in excess of $5 million.

     Adjusted EBITDA, as defined in the indenture governing the senior secured notes, is the key financial covenant measure that monitors our ability to undertake key investing and financing functions, such as making investments, transferring property, paying dividends, and incurring additional indebtedness.

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

		Year Ended				Year Ended				Year Ended
		December 31,				December 31,				December 31,
		2010				2009				2008
Cash flows from operating activities to Adjusted EBITDA Reconciliation:
Net cash provided by operating activities		$	117,169			$	9,540			$	83,572
Changes in working capital accounts			(10,849	)			32,850				(11,524	)
Depreciation and amortization, including amortization of debt issuance costs classified in interest expense			(49,847	)			(52,340	)			(49,118	)
Amortization of swap termination costs			(20,891	)			(16,616	)			—
Net gain on sale or disposal of properties			2,191				26,766				1,738
Foreign exchange gain (loss) on debt			—				1,160				(8,260	)
Swap termination costs			—				55,750				—
Loss on extinguishment of debt			(8,357	)			(9,499	)			—
Equity compensation costs			(7,534	)			(10,712	)			(3,042	)
Deferred income taxes			(2,765	)			(21,057	)			3,161
Net income			19,117				15,842				16,527
Add: Discontinued operations gain			—				(12,931	)			(2,764	)
Income from continuing operations			19,117				2,911				13,763
Add:
Provision for income taxes			6,856				16,299				1,599
Interest expense, including amortization costs			83,775				86,878				61,678
Depreciation and amortization			45,091				42,105				39,578
EBITDA			154,839				148,193				116,618
Add:
Impairment of assets			—				—				3,420
Equity compensation costs			7,534				10,712				3,042
Foreign exchange (gain) loss on debt			—				(1,160	)			8,260
Loss on extinguishment of debt			8,357				9,499				—
Acquisition income, net of expense			(1,300	)			—				—
Gain on OVRR lease termination			—				(26,811	)			—
Non-recurring headquarter relocation costs			—				1,403				6,089
Adjusted EBITDA		$	169,430			$	141,836			$	137,429

     Based on current levels of Adjusted EBITDA, we are not restricted in undertaking key investing and financing functions as discussed above.

     Adjusted EBITDA, as presented herein, is a supplemental measure of liquidity that is not required by, or presented in accordance with, 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.

     The ABL Facility includes customary affirmative and negative covenants, including, among other things, restrictions on (i) the incurrence of indebtedness and liens, (ii) investments and loans, (iii) dividends and other payments with respect to capital stock, (iv) redemption and repurchase of capital stock, (v) mergers, acquisitions and asset sales, (vi) payments and modifications of other debt (including the notes), (vii) affiliate transactions, (viii) altering our business, (ix) engaging in sale-leaseback transactions and (x) entering into agreements that restrict our ability to create liens or repay loans or issue capital stock. In addition, if total liquidity under the ABL Facility is below $20.0 million, we will be subject to a minimum fixed charge coverage ratio of 1.1 to 1.0.

$650 million Bridge Credit Facility

     As part of the merger transaction in which we were acquired by certain private equity funds managed by affiliates of Fortress we terminated the commitments under our 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, we entered into a $650 million bridge credit facility agreement. The facility consists 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. We 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 our option. Under the amended bridge credit facility agreement, the term loans and revolving loans paid interest at LIBOR plus 4.00%. Prior to amendment, the bridge credit facility agreement, including the revolving loans, paid interest at LIBOR plus 2.25%.

     In November 2008, we entered into Amendment No. 1 to the amended bridge credit facility agreement which permitted us 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 us and most of our 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.

Interest Rate Swaps

     On February 14, 2007, we 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 commencing February 14, 2007 through November 14, 2007, increasing to a total notional amount of $525 million for the period commencing November 15, 2007 through November 14, 2008, and ultimately increased to $625 million for the period commencing November 15, 2008 through February 15, 2014. Under the terms of the interest rate swap, we were required to pay a fixed interest rate of 4.95% 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 year ended December 31, 2009 for the portion of the hedge deemed ineffective. Interest expense of $0.5 million was recognized during the year ended December 31, 2008 for the portion of the hedge deemed ineffective. Pursuant to ASC 815, the fair value balance of the swap at the termination date remains in accumulated other comprehensive loss, net of tax, and is amortized into interest expense over the remaining life of the original swap (through February 14, 2014). 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 year ended December 31, 2010. This was the result of reducing the face value of the outstanding senior secured notes below the notional amount of the swap. As of December 31, 2010, accumulated other comprehensive loss included $12.7 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 $11.9 million, or $7.2 million, net of tax.

     On June 3, 2005, we entered into two interest rate swaps for a total notional amount of $100 million for the period commencing November 25, 2005 through November 24, 2008. Under the terms of the interest rate swaps, we were required to pay a fixed interest rate of 4.04% on $100 million while receiving a variable interest rate equal to the 90 day LIBOR. These swaps qualified, were designated and were accounted for as cash flow hedges under ASC 815. One of the interest rate swaps with a total notional amount of $50 million was terminated on February 12, 2007 while the remaining amount terminated as planned on November 24, 2008, and thus had no fair value at December 31, 2009. Interest expense of $0.5 million was recognized during the year ended December 31, 2008, for the portion of the hedge deemed ineffective.

     For derivative instruments in an asset position, we analyze the credit standing of the counterparty and factor 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 our credit worthiness has also been factored into the fair value measurement of the derivative instruments in a liability position.

Off-Balance Sheet Arrangements

     We currently have no off-balance sheet arrangements.

Contractual Obligations

     Two primary uses of the cash provided by our operations are capital expenditures and debt service. The following table represents the minimum future payments on our long-term debt, and our existing lease obligations as of December 31, 2010 (in thousands):

																		After
		Total				2011				2012-2013				2014-2015				2015
Senior secured notes		$	592,000			$	—			$	—			$	—			$	592,000
Other long term debt			2,527				380				605				678				864
Interest payments on senior secured notes			355,940				54,760				109,520				109,520				82,140
Interest payments on long term debt			768				157				254				274				83
Capital lease obligations			25				25				—				—				—
Operating lease obligations			57,466				17,318				16,801				5,021				18,326
Total contractual cash obligations(1)		$	1,008,726			$	72,640			$	127,180			$	115,493			$	693,413

Critical Accounting Policies and Use of Estimates

     The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) 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 revenue and expenses during the reporting periods. These estimates are based on management’s current expectations and beliefs and are subject to a number of factors that could lead to actual results materially differing from the estimates. The factors impacting management’s estimates are set forth below.

     The critical financial statement accounts that are subject to significant estimation are reserves for litigation, casualty and environmental matters, allowance for doubtful accounts, deferred income taxes, property, plant and equipment depreciation methods and goodwill and intangible assets.

     In accordance with Contingencies Topic, ASC 450, an accrual for a loss contingency is established if information available prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred or an asset has been impaired and can be reasonably estimated. These estimates have been developed in consultation with outside counsel handling our defense in these

matters and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. Subsequent changes to those estimates are reflected in our statements of operations in the period of the change.

     Deferred tax assets and liabilities are recognized based on differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. If we are unable to generate sufficient future taxable income, or if there is a material change in the statutory tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to establish an additional valuation allowance against a portion of our deferred tax asset, resulting in an increase in our effective tax rate and an adverse effect on earnings. Additionally, changes in our estimates regarding the statutory tax rates to be applied to the reversal of deferred tax assets and liabilities could materially affect our effective tax rate.

     Property, plant and equipment comprised 61% of our total assets as of December 31, 2010. These assets are stated at cost, less accumulated depreciation. For track and related assets, we use the group method of depreciation under which a single depreciation rate is applied to the gross investment. Service lives and salvage values for each group of assets are determined by completing periodic life studies and applying our assumptions regarding service lives of our property. A life study is the periodic review of asset lives for groups of assets conducted and analyzed by us with the assistance of a third-party expert. Upon normal sale or retirement of track assets, cost less net salvage value is charged to accumulated depreciation and no gain or loss is recognized. As part of the life studies, we make an assessment of the recorded amount of accumulated depreciation. Any deficiency (excess), including any deferred gains or losses, will be amortized as a component of depreciation expense over the remaining useful life of the asset group until the next life study. In the event that large groups of assets are removed from service as a result of unusual acts or sale, gains or losses are recognized immediately. Building, equipment and other fixed assets are specifically identified and we utilize straight line depreciation methods on a per asset basis.

     Expenditures that increase asset values or extend useful lives are capitalized. Repair and maintenance expenditures are charged to operating expense when the work is performed. For the years ended December 31, 2010, 2009 and 2008 repairs and maintenance expenditures charged to operating expense represented approximately 50% of our total spend (including capitalized expenditures) for track and related assets. We self-construct portions of our track structure and rebuild certain rolling stock. In addition to direct labor and material we capitalize certain indirect costs. We periodically review the carrying value of our long-lived assets for impairment. This review is based upon our projections of anticipated future cash flows. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect our evaluations.

     We review the carrying values of goodwill and identifiable intangible assets with indefinite lives at least annually to assess impairment since these assets are not amortized. Additionally, we review the carrying value of goodwill or any intangible asset whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Management assesses impairment by comparing the fair value of an intangible asset or goodwill with its carrying value. Specifically, we test for impairment in accordance with Intangibles- Goodwill and Other Topic, ASC 350. For goodwill, a two-step impairment model is used. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. The determination of fair value involves significant management judgment. If the fair value of the reporting unit is less than the carrying amount, goodwill would be considered impaired. The second step measures the goodwill impairment as the excess of recorded goodwill over the asset’s implied fair value. Impairments are recognized when incurred.

     For the indefinite-lived intangible assets the impairment test compares the fair value of an intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company has certain railroad leases that are recorded as indefinite-lived intangible assets.

     No circumstances have occurred to indicate an impairment and management believes that goodwill and the indefinite-lived intangible assets are not impaired based on the results of the annual impairment test. However, a change in circumstances in the future that may negatively impact cash flows including, but not limited to, a loss of a key customer, a significant reduction in the forecast of a reporting unit’s carloadings, regulatory or legislative changes or a decrease in our market capitalization could result in an interim impairment test. The result of such an impairment test could result in the write-off of goodwill or indefinite lived intangible assets in a future accounting period.

     For a complete description of our accounting policies, see Note 1 to our consolidated financial statements.

Recently Issued Accounting Pronouncements

     In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. ASU 2010-06 amends Codification Subtopic 820-10 to now require (1) a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; (2) in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements, and (3) a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASU No. 2010-06 did not have a material impact on the Company’s financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to market risks from changing foreign currency exchange rates, interest rates and diesel fuel prices. Changes in these factors could cause fluctuations in earnings and cash flows.

     Foreign Currency. Our foreign currency risk arises from owning and operating railroads in Canada. As of December 31, 2010, we had not entered into any currency hedging transactions to manage this risk. A decrease in the Canadian dollar could negatively impact our reported revenue and earnings for the affected period. During 2010, the Canadian dollar increased 5% in value in comparison to the U.S. dollar, while the average rate for the year ended 2010 was 10% higher than it was for 2009. The increase in the average Canadian dollar exchange rate led to an increase of $5.7 million in reported revenue and a $2.5 million increase in reported operating income in 2010, compared to 2009. A 10% unfavorable change in the 2010 average exchange rate would have negatively impacted 2010 revenue by $5.7 million and operating income by $2.5 million.

     Interest Rates. Our senior secured notes issued in June 2009 are fixed rate instruments, and therefore, would not be impacted by changes in interest rates. Our potential interest rate risk results from our ABL Facility as an increase in interest rates would result in lower earnings and increased cash outflows. We do not currently have any outstanding balances under this facility, but if we were to draw upon it, we would be subject to changes in interest rates.

     Diesel Fuel. We are exposed to fluctuations in diesel fuel prices, as an increase in the price of diesel fuel would result in lower earnings and increased cash outflows. Fuel costs represented 8.8% of total operating revenues during the year ended December 31, 2010. Due to the significance of fuel costs to our operations and the historical volatility of fuel prices, we participate in fuel surcharge programs which provide additional revenue to help offset the increase in fuel expense. These fuel surcharge programs fluctuate with the price of diesel fuel with a lag of three to nine months. Each one-cent change in the price of fuel would result in approximately a $0.2 million change in fuel expense on an annual basis.

     Counterparty Risk. We monitor our hedging positions and the credit ratings of our counterparties and do not anticipate losses due to counterparty non-performance.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Consolidated Financial Statements of RailAmerica, the accompanying notes thereto and the report of the independent registered certified public accounting firm are included as part of this Form 10-K and immediately follow the signature page of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

     None.

ITEM 9A. CONTROLS AND PROCEDURES

     DISCLOSURE CONTROLS AND PROCEDURES. Based on an evaluation by our management, with the participation of our chief executive officer and chief financial officer, as of the end of the period covered by this report, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure.

     MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework included in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation under the COSO framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2010. Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2010. The report on the Company’s internal control over financial reporting as of December 31, 2010, is on page F-3.

     CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

     None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

     Information concerning directors, executive officers and nominees and our code of ethics is incorporated by reference from our definitive proxy statement relating to our 2011 Annual Meeting of Stockholders to be filed with the SEC on or before April 30, 2011.

ITEM 11. EXECUTIVE COMPENSATION

     Information concerning executive compensation is incorporated by reference from our definitive proxy statement relating to our 2011 Annual Meeting of Stockholders to be filed with the SEC on or before April 30, 2011.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     Information concerning security ownership and securities issuable under equity compensation plans is incorporated by reference from our definitive proxy statement relating to our 2011 Annual Meeting of Stockholders to be filed with the SEC on or before April 30, 2011.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

     Information concerning certain relationships and related transactions, and director independence, is incorporated by reference from our definitive proxy statement relating to our 2011 Annual Meeting of Stockholders to be filed with the SEC on or before April 30, 2011.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Information concerning principal accountant fees and services is incorporated by reference from our definitive proxy statement relating to our 2011 Annual Meeting of Stockholders to be filed with the SEC on or before April 30, 2011.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

	(a)		The financial statements filed as part of this report are listed separately in the Index of Financial Statements on page F-1 of this report.
			The information required by Schedule II, Valuation and Qualifying Accounts, is included in Note 1 to the Consolidated Financial Statements. All other Financial Statement schedules are not applicable.
	(b)		Exhibits

Exhibit
No.				Description
	3.1			Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to RailAmerica, Inc.’s Form S-4 (File No. 333-162575) filed on October 20, 2009).
	3.2			Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to RailAmerica, Inc.’s Form S-4 (File No. 333-162575) filed on October 20, 2009).
	4.1			Stockholders Agreement by and between RailAmerica, Inc. and RR Acquisition Holding, LLC (incorporated by reference to Exhibit 4.1 to RailAmerica, Inc.’s Form S-4 (File No. 333-162575) filed on October 20, 2009).
	4.2			Indenture, dated as of June 23, 2009, by and between RailAmerica, Inc., the guarantors named therein, as Guarantors, and U.S. Bank National Association, as Trustee and Notes Collateral Agent (incorporated by reference to Exhibit 4.3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on July 27, 2009).
	4.3			Form of 9.25% Notes due 2017 (included in Exhibit 4.2).
	10.1			Credit Agreement, dated as of June 23, 2009, among RailAmerica, Inc., RailAmerica Transportation Corp., the several lenders from time to time parties thereto, Citicorp North America, Inc. and Citigroup Global Markets Inc. (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to RailAmerica, Inc.’s Form S-1(File No. 333-160835) filed on September 1, 2009).
	10.2			RailAmerica, Inc. 2008 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Amendment No. 2 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 22, 2009).+
	10.3			RailAmerica, Inc. 2009 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 99.1 to RailAmerica, Inc.’s Form S-8 (File No. 333-162428) filed on October 13, 2009).+
	10.4			Form of Indemnification Agreement with directors and officers (incorporated by reference to Exhibit 10.4 to Amendment No. 2 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 22, 2009).
	10.5			Form of Management Shareholder Award Agreement (incorporated by reference to Exhibit 10.5 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+
	10.6			Form of Amended and Restated Restricted Share Agreement for Bonus Restricted Shares under the RailAmerica, Inc. Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+
	10.7			Form of Director Restricted Share Agreement (incorporated by reference to Exhibit 10.7 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+
	10.8			Employment Agreement, dated as of September 28, 2009, by and between RailAmerica, Inc. and John Giles (incorporated by reference to Exhibit 10.8 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+
	10.9			Employment Agreement, dated as of September 28, 2009, by and between RailAmerica, Inc. and Clyde Preslar (incorporated by reference to Exhibit 10.9 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+
	10.10			Employment Agreement, dated as of September 28, 2009, by and between RailAmerica, Inc. and David Rohal (incorporated by reference to Exhibit 10.10 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+

Exhibit
No.				Description
	10.11			Employment Agreement, dated as of September 28, 2009, by and between RailAmerica, Inc. and Paul Lundberg (incorporated by reference to Exhibit 10.11 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+
	10.12			Employment Agreement, dated as of September 28, 2009, by and between RailAmerica, Inc. and Charles Patterson (incorporated by reference to Exhibit 10.12 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+
	10.13			Employment Agreement, dated as of September 28, 2009, by and between RailAmerica, Inc. and Scott Williams (incorporated by reference to Exhibit 10.13 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+
	10.14			Form of FECR Rail Corp. Consulting Agreement (incorporated by reference to Exhibit 10.14 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+
	10.15			Form of FECR Rail Corp. Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.15 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+
	10.16			Form of Florida East Coast Industries, Inc. Consulting Agreement (incorporated by reference to Exhibit 10.16 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+
	10.17			Form of Florida East Coast Industries, Inc. Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.17 to Amendment No. 3 to RailAmerica, Inc.’s Form S-1 (File No. 333-160835) filed on September 29, 2009).+
	10.18			Amendment No. 1 to the Asset Backed Loan Facility entered into on June 10, 2010 (incorporated by reference to Exhibit 10.1 to RailAmerica, Inc.’s Form 8-K (File No. 1-32579) filed on June 15, 2010).
	10.19			Amendment No. 2 to the Asset Backed Loan Facility entered into on February 23, 2011 (incorporated by reference to Exhibit 10.1 to RailAmerica, Inc.’s Form 8-K (File No. 1-32579) filed on February 23, 2011).
	21.1			Subsidiaries of the Registrant.
	23.1			Consent of Ernst & Young LLP.
	31.1			Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer
	31.2			Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer
	32.1			Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
	32.2			Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002