JACKSONVILLE, Fla. -

Third Quarter Highlights

•Revenue increased 11% versus third quarter 2011.

•Operating income down 31%; (up 25% excluding 45G benefit, asset sales, impairments and strategic alternatives expense[1]).

•Net income of $0.12 per share.

•Adjusted net income per share[1] of $0.40.

On October 1, 2012, RailAmerica, Inc. (RailAmerica) was acquired by Genesee & Wyoming Inc. (GWI) (NYSE:GWR) and deregistered its common stock and delisted from the New York Stock Exchange. Immediately following the closing of the acquisition, control of RailAmerica was placed into a voting trust with R. Lawrence McCaffrey appointed as trustee. The trust will remain in effect until the U.S. Surface Transportation Board (STB) issues its decision on GWI's application to control RailAmerica and its railroads, which decision could be as early as the fourth quarter of 2012 or as late as the first quarter of 2013.

For the pendency of the trust, GWI will account for its ownership of RailAmerica under the equity method of accounting. RailAmerica financial results for the third quarter of 2012 are for periods prior to GWI's ownership of RailAmerica and will not be included in GWI's financial results for such periods. This press release and a presentation containing supplemental information for the third quarter and year to date results will be posted on RailAmerica's website www.railamerica.com.

RailAmerica today reported financial results for the quarter ended September 30, 2012. Third quarter 2012 revenue increased 11% to $155.4 million from $139.7 million in the third quarter of 2011. Freight revenue increased 8% to $113.0 million with carloads up 4% and average revenue per car up 4%. Non-freight revenue increased 21% to $42.4 million.

The Company reported third quarter 2012 net income of $5.9 million, or $0.12 per diluted share. This compares to net income of $9.1 million, or $0.17 per diluted share in the third quarter of 2011. Noteworthy items impacting the third quarters of 2012 and 2011 include:

•Acquisition / Transaction costs: In the third quarter of 2012 the Company incurred $17.0 million of transaction related expenses. $16.6 million was due to the Company's previously announced exploration of strategic alternatives, which resulted in the sale of RailAmerica to Genesee & Wyoming Inc. The remainder of the expenses were due to acquisition and industrial development related activity.

•Restricted stock amortization: Third quarter 2012 restricted stock amortization (included in labor and benefits) included $2.4 million related to retirement eligibility vesting for certain participants. The vesting was associated with grants made during the third quarter of 2012 under terms of the agreement to sell the Company. Otherwise these expenses would have been incurred in the first quarter of 2013.

•Amortization of swap termination costs: Non-cash charges of $1.3 million and $2.7 million were recorded in interest expense during the third quarters of 2012 and 2011, respectively, due to the June 2009 termination of an interest rate swap agreement.

•45G tax credits: A $3.9 million income statement benefit was recorded in the third quarter of 2011, but no benefit was recognized in the third quarter of 2012 since the credit is currently not in effect for 2012.

•Asset impairment: Third quarter of 2011 includes a $1.9 million non-cash impairment charge resulting from an evaluation of our locomotive fleet.

•Credit facility replacement: Third quarter of 2011 includes a $0.7 million non-cash charge related to the replacement of our asset backed loan facility with a new revolving credit facility.

Summary of Noteworthy Items Impacting Third Quarter 2011 and 2012

For the Three Months Ended September 30,

($ in thousands except EPS)

2011

2012

Pre Tax

EPS

Pre Tax

EPS

Strategic alternatives

$0

$0.00

($16,587)

($0.26)

Acquisition / Transaction costs

(203)

(0.00)

(393)

(0.00)

Restricted stock amortization increase

-

-

(2,366)

(0.03)

Amortization of swap termination costs

(2,747)

(0.03)

(1,283)

(0.02)

45G credits

3,879

0.05

-

-

Impairment of assets

(1,949)

(0.02)

-

-

Loss on extinguishment of credit agreement

(719)

(0.01)

-

-

Gain / (loss) on sale of assets

(8)

(0.00)

1,337

0.02

Note: Effective tax rate of 39% for 2011 and 37% for all 2012 items other than strategic alternatives, which are tax effected at 21%.

The Company reported operating income of $21.7 million in the third quarter of 2012 compared to $31.5 million in the third quarter of 2011. In addition to the items mentioned above impacting operating income, third quarter 2012 expenses were up primarily due to the inclusion of operating expenses from acquisitions (Marquette Railroad, Wellsboro & Corning Railroad and TransRail North America (TNA)). Also, incentive compensation increased $4.5 million. Operating income excluding the impact of 45G credits, asset sales, impairments and strategic alternatives expense is shown below.

For the Three Months Ended

September 30,

2011

2012

($ in thousands)

Operating revenue

$139,665

$155,418

Operating expense

108,177

133,670

Operating income, reported

31,488

21,748

Less: Benefit from 45G credits

(3,879)

-

Operating income excluding 45G Benefit1

27,609

21,748

Net (gain) loss on sale of assets

8

(1,337)

Impairment of assets

1,949

-

Strategic alternatives expense

-

16,587

Operating income excluding 45G Benefit, Asset Sales, Impairments and Strategic Alternatives expense1

29,566

36,998

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

A more detailed discussion of financial results for the third quarter of 2012 compared to the third quarter of 2011 follows.

Operating Revenue

Operating revenue increased by $15.8 million, or 11%, to $155.4 million in the three months ended September 30, 2012 from $139.7 million in the three months ended September 30, 2011. The net increase in operating revenue was due to higher non-freight revenue, rate increases, change in commodity mix, and increased carloads.

Total carloads during the three months ended September 30, 2012 increased 4% to 214,357 from 206,975 in the three months ended September 30, 2011. The increase in the average revenue per carload to $527 in the three months ended September 30, 2012, from $506 in the comparable period in 2011 was primarily due to rate increases, commodity mix, and fuel surcharge.

Freight revenue was $113.0 million in the three months ended September 30, 2012 compared to $104.7 million in the three months ended September 30, 2011, an increase of $8.3 million or 8%. This increase was primarily due to the net effect of the following:

•Industrial products (includes chemicals, pulp, paper & allied products, metallic ores and metals, waste and scrap materials, other, petroleum, and motor vehicles) revenue increased $5.9 million, or 11%, primarily due to motor vehicle carload growth of 84%, which was driven by increased production at multiple automobile manufacturing plants we serve in Indiana, Michigan, California and Washington, chemicals and other which were driven by rates and commodity mix. The increase in the motor vehicles category was partially offset by an 11% decrease in metallic ores and metals carloads and an 8% decrease in pulp, paper and allied products traffic;

•Agricultural Products (includes agricultural products and food or kindred products) revenue increased $0.5 million, or 2%, primarily due to agricultural products carload increases of 4% as a result of increased shipments in export traffic destined for Asia. This increase in agricultural products was partially offset by a 9% decrease in carloads for food and kindred products driven by soft demand for dried grain products;

•Construction Products (includes non-metallic minerals and products and forest products) revenue increased $2.0 million, or 11%, primarily due to increased forest products carloads of 12% which was driven by an increase in lumber traffic in the Northeast and Northwest; and

•Coal revenue decreased $0.1 million, or 1%, although coal volumes increased by 6%. The volume increase was primarily due to several lower rated Class I detour trains routed over one of our lines due to maintenance on the Class I mainline.

Operating Expenses

Operating expenses increased to $133.7 million in the three months ended September 30, 2012 from $108.2 million in the three months ended September 30, 2011. The operating ratio was 86.0% in 2012 compared to 77.5% in 2011. The increase in the operating ratio was primarily due to professional service fees related to the sale of the Company and the absence of track maintenance credits in the third quarter of 2012.

 

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

•Labor and benefits expense increased $6.2 million, or 15%, primarily due to higher profit sharing ($4.5 million), restricted stock amortization ($1.9 million) and increased wages as a result of acquisitions ($1.2 million), partially offset by lower health insurance costs ($0.7 million);

•Equipment rents expense increased $0.3 million, or 3%, primarily due to higher railcar lease expense ($0.5 million) and acquisitions ($0.5 million), partially offset by lower locomotive lease expense ($0.3 million) and car hire ($0.3 million);

•Purchased services expense increased $18.0 million, or 164%, primarily due to professional services in connection with our sale of the Company ($16.6 million), increased transport services related to the acquisition of TNA ($1.0 million) and write off of project costs ($0.3 million);

•Diesel fuel expense approximated prior year expense;

•Casualties and insurance expense decreased $0.4 million, or 9%, primarily due to a decrease in derailment costs ($1.1 million), partially offset by increased reserves related to crossing accidents ($0.5 million);

•Materials expense increased $1.4 million, or 17%, primarily due to an increase in car repair material purchases resulting from increased car repair activities;

•Joint facilities expense decreased $0.3 million, or 13% due to a reduction in maintenance charges;

•Other expenses increased $0.5 million, or less than 5%, primarily due to an increase in railroad lease expense ($0.4 million) and other fees associated with the sale of the Company ($0.2 million), partially offset by lower taxes ($0.2 million);

•The execution of the track maintenance agreement in 2011 resulted in a shipper paying for $4.0 million of maintenance expenditures, partially offset by $0.1 million of related consulting fees;

•Asset sales resulted in a net gain of $1.3 million in the three months ended September 30, 2012, related to the sale of land;

•Impairment of assets was $1.9 million in the three months ended September 30, 2011, related to a tentative sale agreement for various locomotives and further evaluation of the market value of the remaining units identified for potential fleet reductions; and

•Depreciation and amortization expense decreased $0.7 million, or 6%, including $1.7 million in lower depreciation expense resulting from a road and track asset life study completed during the first quarter of 2012, offset by increased depreciation and amortization associated with acquisitions.

Other Income (Expense) Items

Interest Expense. Interest expense, including amortization of deferred financing costs, decreased $9.0 million to $8.8 million for the three months ended September 30, 2012, from $17.8 million in the three months ended September 30, 2011. This decrease is primarily due to the redemption of $74.0 million of our 9.25% senior notes each in January and June 2012 and $444 million in March 2012 which were replaced with lower cost debt. Interest expense includes $1.9 million and $4.0 million of amortization costs for the three months ended September 30, 2012 and 2011, respectively.

Swap termination cost amortization decreased to $1.3 million during the three months ended September 30, 2012 from $2.7 million during the three months ended September 30, 2011.

Other (Loss) Income. Other loss decreased $0.7 million during the three months ended September 30, 2012 as a result of the write-off of deferred loan costs of $0.6 million during the three months ended September 30, 2011. These costs were partially offset by management fee income that is recorded in connection with transactions where employees receive restricted stock awards from related parties. As part of the restricted stock transactions, the Company recorded an offsetting expense in labor and benefits.

Income Taxes. The effective tax rate for the three months ended September 30, 2012 and 2011 from continuing operations was a provision of 57.8% and 32.7%, respectively. The effective tax rate is affected by recurring items such as tax rates in foreign jurisdictions and the relative amount of income earned in jurisdictions. It is also affected by discrete items that may occur in any given quarter, but are not consistent from quarter to quarter. The effective tax rate for the three months ended September 30, 2012 was adversely impacted by non-deductible professional fees related to the sale of the Company ($2.9 million), partially offset by the reduction of tax reserves due to the lapse of the statute of limitations ($0.5 million). The effective tax rate for the three months ended September 30, 2011 was favorably impacted by the reduction of tax reserves due to the lapse of the statute of limitations ($0.3 million).

The Company will post a presentation containing supplemental information for the third quarter and year to date results on RailAmerica's website (www.railamerica.com).

RailAmerica, Inc. owns and operates short-line and regional freight railroads in North America, operating a portfolio of 45 individual railroads with approximately 7,500 miles of track in 28 U.S. states and three Canadian provinces.

 Source: RailAmerica Inc.

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