Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2012

Fair Value of Financial Instruments [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

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

• Current assets and current liabilities: The carrying value approximates fair value due to the short maturity of these items (Level 1 inputs).

• Long-term debt: The fair value of the Company’s senior secured notes is based on secondary market indicators (Level 2 inputs). The carrying amount of the Company’s other long term debt approximates its fair value.

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

	March 31, 2012
	Carrying Amount		Fair Value
Cash and cash equivalents	$	98,480	$	98,480
9.25% Senior secured notes	$	71,778	$	80,105