The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K. The results of operations for the years ended December 31, 2008, 2007 and 2006, were determined in accordance with accounting principles generally accepted in the United States (United States GAAP). Historical information has been reclassified to conform to the presentation of discontinued operations.

Outlook for 2009

Economic activity in the United States and throughout the world has and could continue to undergo a sharp downturn, which renders expectations inherently uncertain. However, there are certain noteworthy trends that we expect to affect our 2009 results of operations.

We expect same railroad revenues to decline in 2009 due to three factors. First, the Canadian and Australian dollars depreciated significantly in the second half of 2008. The translation impact of the change in exchange rates will consequently reduce our reported revenues in 2009. Second, we expect lower third party fuel sales, primarily due to lower diesel fuel prices. Third, we expect same railroad freight and non-freight revenues to decline due to decreased demand, primarily due to the deterioration in the economy.

In 2009, we expect same railroad carload volumes to be lower than in 2008. The significant deterioration in the United States and global economies that began in the second half of 2008 is expected to continue throughout 2009. As a result, we expect lower carloads in those commodities that are most sensitive to the economic cycle; namely, steel, pulp and paper and lumber and forest products. However, we expect that carloads from acquisitions completed in 2008 will offset the declines in same railroad carloads and that total carloads will therefore increase.

We expect average revenues per carload to decrease due to (i) the depreciation of the Canadian and Australian dollar versus the United States dollar,
(ii) decreases in fuel-indexed freight rates and decreases in fuel surcharges, in each case as a result of lower diesel fuel prices and (iii) the effect of carload changes associated with acquisitions, which carloads collectively have lower average revenues per carload than those of same railroad operations.

We expect the freight pricing environment to moderate in the United States and Canada in 2009 as a result of reduced demand from shippers and a lower fuel price environment. We expect diesel fuel prices in 2009 to be significantly lower than in 2008. Consequently, we expect lower fuel surcharges and lower freight rates from those freight contracts that are indexed directly or indirectly to the price of diesel fuel.

We expect same railroad non-freight revenues to decline primarily due to exiting an industrial switching contract in the United States, lower grain traffic at our United States port terminal railroads and lower equipment and property lease income in Australia.

Same railroad operating expenses are expected to decrease in 2009 primarily due to two factors. First, in combination with lower fuel consumption, we expect that diesel fuel prices will be significantly lower in 2009, resulting in lower diesel fuel expense in 2009. Second, transportation expenses are expected to decline in 2009 primarily due to lower same railroad carloads. However, we expect that higher depreciation expense due to higher levels of capital spending in 2009 will partially offset these expense reductions.

In response to the rapidly changing economic environment we have taken a number of steps to reduce our operating costs including: the furloughing of workers on railroads where volumes have decreased, the storage of cars in excess of current needs and the reduction of the number of locomotives in service.

34-

Overview

We own and operate short line and regional freight railroads and provide railcar switching services in the United States, Canada, Australia and the Netherlands and own a minority interest in a railroad in Bolivia. Operations currently include 63 railroads organized in nine regions, with more than 6,800 miles of owned and leased track and approximately 3,100 additional miles under track access arrangements. In addition, we provide rail service at 16 ports in North America and Europe and perform contract coal loading and railcar switching for industrial customers.

Net income in the year ended December 31, 2008, was $72.2 million, compared with net income of $55.2 million in the year ended December 31, 2007. Our diluted earnings per share (EPS) in the year ended December 31, 2008, were $1.99 with 36.3 million weighted average shares outstanding, compared with diluted EPS of $1.41 with 39.1 million weighted average shares outstanding in the year ended December 31, 2007.

Income from continuing operations in the year ended December 31, 2008, was $72.7 million, compared with income from continuing operations of $69.2 million in the year ended December 31, 2007. Our diluted EPS from continuing operations in the year ended December 31, 2008, were $2.00 with 36.3 million weighted average shares outstanding, compared with diluted EPS from continuing operations of $1.77 with 39.1 million weighted average shares outstanding in the year ended December 31, 2007. Income from continuing operations in the year ended December 31, 2007, included a net tax benefit of $3.7 million (or $0.09 per diluted share) associated with the sale of the Western Australia operations and certain other assets of ARG to Queensland Rail and Babcock & Brown Limited (ARG Sale) in 2006.

Operating revenues in the year ended December 31, 2008, were $602.0 million, compared with $516.2 million in the year ended December 30, 2007. The increase in our revenues was due to $49.4 million from recent acquisitions, the Maryland Midland Railway, Inc. (Maryland Midland), Rotterdam Rail Feeding B.V. (RRF), CAGY Industries, Inc. (CAGY), Ohio Central Railway (OCR) and Georgia Southwestern Railroad, Inc. (Georgia Southwestern), and an increase of $36.4 million, or 7.1%, in same railroad revenues.

When we discuss same railroad revenues, we are referring to the change in our revenues, period-over-period, associated with operations that we managed in both periods (i.e., excluding the impact of acquisitions). Same railroad freight revenues increased $10.0 million, or 3.0%, in the year ended December 31, 2008, compared with the year ended December 31, 2007, primarily due to an increase in average freight revenues per carload of 11.2%. Same railroad non-freight revenues increased $26.4 million, or 14.1%, in the year ended December 31, 2008, compared with the year ended December 31, 2007, primarily due to higher revenues at our industrial switching and United States port railroads, higher third-party fuel sales in Australia, and increased crewing and iron ore services in Australia.

Our operating ratio was 80.7% in the year ended December 31, 2008, compared with an operating ratio of 81.2% in the year ended December 31, 2007. Operating expenses were $486.0 million in the year ended December 31, 2008, compared with $419.3 million in the year ended December 31, 2007, an increase of $66.7 million, or 15.9%. The increase was attributable to $37.0 million from new operations and an increase of $29.7 million from existing operations. Operating income in the year ended December 31, 2008, included gains on the sale of assets of $8.1 million, including an insurance recovery of $0.4 million, compared with gains of $6.7 million, including an insurance recovery of $1.7 million, in the 2007 period.

During the year ended December 31, 2008, we generated $128.7 million in cash from operating activities from continuing operations, which included $7.3 million provided by working capital. We purchased $97.9 million of property and equipment, received $19.3 million from government grants for capital spending completed in 2008 and $9.3 million in cash from government grants for capital spending completed in prior years. We paid $345.5 million for the acquisitions of CAGY, RRF, OCR and Georgia Southwestern and the final working capital adjustment related to the December 2007 acquisition of Maryland Midland. We received $8.5 million in cash from the sale of assets and insurance proceeds.

Discontinued Operations

During the third quarter of 2007, we ceased our Mexican rail operations and initiated formal liquidation proceedings of FCCM. The SCT has contested our resignation of the concession and has seized substantially all of FCCM's operating assets in response to the resignation. We believe the SCT's actions were unlawful and we are pursuing appropriate legal remedies to recover FCCM's operating assets.

Loss from discontinued operations, net of tax, was $0.5 million in the year ended December 31, 2008, compared with a loss from discontinued operations, net of tax, of $14.1 million in the year ended December 31, 2007. The loss from discontinued operations reduced diluted EPS by $0.01 in the year ended December 31, 2008, compared with a $0.36 negative impact on diluted EPS in the year ended December 31, 2007.

In November 2008, we entered into an amended agreement to sell 100% of the share capital of FCCM to Viablis, S.A. de C.V. (Viablis) for a sale price of approximately $2.4 million. At that time, Viablis paid a deposit of $0.5 million on the purchase price of FCCM subject to certain conditions of the sale contract. Completion of the sale transaction is subject to customary closing conditions, as well as the final negotiation with Viablis and the SCT of a mutually acceptable transfer of the concession granted by the Mexican government to Viablis and related undertakings. It is not yet possible to determine when or if these closing conditions will be satisfied.

Changes in Operations

United States

Ohio Central Railroad System: On October 1, 2008, we acquired 100% of the equity interests of Summit View, Inc. (Summit View), the parent company of 10 short line railroads known as OCR for cash consideration of approximately $212.6 million (net of $2.8 million cash acquired). An additional $4.5 million of purchase price was recorded in the fourth quarter of 2008 to reflect adjustments for working capital. In addition, we placed $7.5 million of contingent consideration into escrow that will be paid to the seller upon satisfaction of certain conditions.

Summit View is the parent company of 10 short line railroads: Aliquippa & Ohio River Railroad Company in Pennsylvania; The Columbus and Ohio River Rail Road Company in Ohio; The Mahoning Valley Railway Company in Ohio; Ohio Central Railroad, Inc. in Ohio; Ohio and Pennsylvania Railroad Company in Ohio; Ohio Southern Railroad in Ohio; The Pittsburgh & Ohio Central Railroad Company in Pennsylvania; The Warren & Trumbull Railroad Company in Ohio; Youngstown & Austintown Railroad, Inc. in Ohio; and The Youngstown Belt Railroad Company in Ohio. OCR's 10 railroads employ more than 170 people, own and operate a fleet of 64 locomotives, and own and lease more than 445 miles of track. We have included 100% of the value of OCR's net assets in our consolidated balance sheet since October 1, 2008.

Georgia Southwestern Railroad, Inc.: On October 1, 2008, we acquired 100% of Georgia Southwestern for cash consideration of approximately $16.5 million (net of $0.4 million cash acquired). An additional $0.2 million was paid in the fourth quarter of 2008 to reflect adjustments for final working capital. Headquartered in Dawson, Georgia, the Georgia Southwestern operates over 220 miles of track between White Oak, Alabama, and Smithville, Georgia; between Cuthbert and Bainbridge, Georgia; and in and around Columbus, Georgia. Georgia Southwestern has 20 employees and 10 locomotives and it interchanges with Norfolk Southern (NS), CSX and the Heart of Georgia Railroad. We have included 100% of the value of Georgia Southwestern's net assets in our consolidated balance sheet since October 1, 2008.

CAGY Industries, Inc.: On May 30, 2008, we acquired 100% of CAGY for cash consideration of approximately $71.9 million (net of $17.2 million cash acquired). An additional $2.9 million was recorded in the second quarter of 2008 to reflect adjustments for working capital. During the third quarter of 2008, we paid contingent consideration of $15.1 million due to the satisfaction of certain conditions. In addition, we have

agreed to pay contingent consideration of up to $3.5 million upon satisfaction of certain conditions over the next two years, which will be recorded as additional cost of the acquisition when the contingency is resolved.

CAGY is the parent company of three short line railroads: Columbus & Greenville Railway in Mississippi; Chattooga & Chickamauga Railway in Georgia and Tennessee; and Luxapalila Valley Railroad in Mississippi and Alabama. CAGY's three railroads employ 48 people, own and operate a fleet of 22 locomotives, own and lease more than 280 miles of track and are expected to haul more than 26,000 carloads of freight traffic over the next 12 months. We have included 100% of the value of CAGY's net assets in our consolidated balance sheet since May 30, 2008.

Maryland Midland Railway, Inc.: On December 31, 2007, we acquired 87.4% of Maryland Midland for cash consideration of approximately $19.5 million (net of $7.5 million cash acquired). An additional $3.7 million was paid in 2008 to reflect adjustments for final working capital and direct costs.

Commonwealth Railway, Inc.: On August 25, 2006, we exercised an option to purchase 12.5 miles of previously leased rail line from NS. In July 2007, we completed a $13.2 million improvement project (including $6.6 million in government grants) to meet the projected capacity needs of a customer's new container terminal in Portsmouth, Virginia. On April 21, 2008, the Commonwealth Railway (CWRY) closed on the purchase of 12.5 miles of the rail line from NS for $3.6 million. The rail line runs through Portsmouth, Chesapeake, and Suffolk, Virginia. The $3.6 million purchase price was allocated as follows: land ($1.7 million) and track assets ($1.9 million).

Chattahoochee Bay Railroad, Inc.: On August 25, 2006, our newly formed subsidiary, the Chattahoochee Bay Railroad, Inc. (CHAT), acquired the assets of the Chattahoochee & Gulf Railroad Co., Inc. and the H&S Railroad Company, Inc. for $6.1 million in cash. The purchase price was allocated between property and equipment ($5.1 million) and intangible assets ($1.0 million). The rail assets acquired by CHAT connect our Bay Line Railroad and our Chattahoochee Industrial Railroad.

Netherlands

Rotterdam Rail Feeding B.V.: On April 8, 2008, we acquired 100% of RRF for cash consideration of approximately $22.6 million. In addition, we have agreed to pay contingent consideration of up to €1.8 million (or $2.4 million at the December 31, 2008 exchange rate) payable over the next three years, which will be recorded as additional cost of the acquisition when the contingency is resolved. At December 31, 2008, we accrued €0.8 million (or $1.0 million at the December 31, 2008 exchange rate) of the contingent consideration due to the satisfaction of certain conditions. Headquartered in the Port of Rotterdam in the Netherlands, RRF is an independent provider of short-haul rail and switching services. RRF's principal business is "last mile" rail services within the Port of Rotterdam for long-haul railroads and industrial customers. In addition, RRF provides locomotives, railroad operating personnel and rail-related services throughout the Netherlands to track construction and maintenance companies as well as government-owned operators. RRF's operations include 12 locomotives (leased and owned) and 35 employees. We have included 100% of the value of RRF's net assets in our consolidated balance sheet since April 8, 2008.

Australia

Effective June 1, 2006, we and our former 50% partner in ARG, Wesfarmers Limited (Wesfarmers), completed the ARG Sale generating a net gain of $218.8 million during the year ended December 31, 2006. Simultaneous with the ARG Sale, we purchased Wesfarmers' 50% ownership of the remaining operations of ARG, which are principally located in South Australia, for $15.1 million (GWA Purchase). The GWA Purchase was accounted for under the purchase method of accounting. However, because we previously held a 50% share of these assets through our ownership interest in ARG, we applied a step-method to the allocation of value among the assets and liabilities of GWA. Because the $15.1 million purchase price for Wesfarmers' 50% share

was lower than 50% of the book value ARG had historically recorded on these assets, we recorded a non-cash loss of $16.2 million ($11.3 million, net of tax), representing our 50% share of the impairment loss recorded by ARG, which was included in equity loss of unconsolidated international affiliates in the consolidated statement of operations in the year ended December 31, 2006. GWA commenced operations on June 1, 2006. Accordingly, we have included 100% of the value of GWA's net assets ($30.1 million) in our consolidated balance sheet since June 1, 2006.

South America

As previously disclosed, we indirectly have a 12.52% equity interest in Ferroviaria Oriental, S.A. (Oriental) through our interest in Genesee & Wyoming Chile S.A. (GWC), an unconsolidated affiliate. In addition, we hold a 10.37% indirect equity interest in Oriental through other companies.

During 2006, due to heightened political and economic unrest and uncertainties in Bolivia, GWC advised its creditors that it was ceasing its efforts to restructure its $12.0 million non-recourse debt obligation. Also in 2006, the Bolivian government issued a Presidential decree ordering the nationalization of Bolivia's oil and gas industry. The government further announced in 2006 that it intended to nationalize, take a partial ownership stake in or restructure the operations of other local companies, including Oriental.

Accordingly, we determined that our indirect investment in Oriental had suffered an other-than-temporary decline in value. Based on our assessment of fair value, our $8.9 million investment was written down by $5.9 million with a corresponding charge to earnings in the second quarter of 2006.

As of June 1, 2006, we discontinued equity accounting for the remaining $3.0 million investment in Oriental. Since then, we have accounted for this investment under the cost method. Historically, Oriental's results of operations have not had a material impact on our results of operations.

Purchase Price Allocation

The following table summarizes selected financial data for the opening balance
sheet of acquisitions completed in 2008 and 2007 (dollars in thousands):



                                                             2008                                2007
                                                    Georgia                                    Maryland
                                      OCR         Southwestern        CAGY          RRF         Midland
Purchase Price Allocations:
Cash                               $    2,757    $          362    $   17,242    $       -     $   9,510
Other current assets                    6,972               748         5,075         2,660           -
Property and equipment                224,119            24,471        33,549           799       34,099
Intangible assets                      32,490                -         74,240         5,345           -
Goodwill                               59,201             4,699        25,191        18,188        8,144
Other assets                              560                -            894            -             1

Total assets                          326,099            30,280       156,191        26,992       51,754

Current liabilities                     4,817             1,018         6,919         1,932        5,325
Long-term debt, including
current portion                        12,826             5,401         1,361            -         1,545
Deferred tax liabilities, net          83,503             6,803        40,377         1,483       13,397
Other long-term liabilities             5,043                -            345            -            19
Minority interest                          -                 -             -             -           814

Total liabilities                     106,189            13,222        49,002         3,415       21,100

Net assets                         $  219,910    $       17,058    $  107,189    $   23,577    $  30,654

Intangible Assets:
Customer contracts and
relationships                              -                 -             -          4,874           -
Track access agreements                32,490                -         74,240            -            -
Proprietary software                       -                 -             -            314           -
Non-Amortizable Intangible
Assets:
Operating license                          -                 -             -            157           -
Intangible Asset Amortization
Period:
Customer contracts and
relationships                              -                 -             -       20 Years           -
Track access agreements              46 Years                -       43 Years            -            -
Proprietary software                       -                 -             -        2 Years           -

The allocation of purchase price to the assets acquired and liabilities assumed was finalized during the fourth quarter of 2008 for CAGY, RRF and MMID as a result of the finalization of non-current asset valuations. The following significant adjustments were made subsequent to December 31, 2007 to the Maryland Midland purchase price allocation: a decrease in property and equipment of $12.5 million, an increase in goodwill of $8.1 million and a decrease in deferred tax liabilities of $4.1 million. Allocation of the purchase price to the assets acquired and liabilities assumed has not been finalized for OCR or Georgia Southwestern. The purchase price allocation for these acquisitions will be finalized in 2009 upon the completion of working capital adjustments and fair value analyses. The deferred tax liabilities in the purchase price allocations are primarily driven by temporary differences between values assigned to non-current assets and the acquired tax basis in those assets.

Results from Continuing Operations

When comparing our results from continuing operations from one reporting period to another, consider that we have historically experienced fluctuations in revenues and expenses due to one-time freight moves, hurricanes, droughts, heavy snowfall, freezing and flooding, customer plant expansions and shut-downs, sales of land and equipment and derailments. In periods when these events occur, results of operations are not easily

comparable to other periods. Also, we have completed and entered into a number of transactions recently that have changed and will change our results of operations. Because of variations in the structure, timing and size of these transactions, our operating results in any reporting period may not be directly comparable to our operating results in other reporting periods.

Certain of our railroads have commodity shipments that are sensitive to general economic conditions, including steel products, paper products and lumber and forest products. However, shipments of other commodities are less affected by economic conditions and are more closely affected by other factors, such as inventory levels maintained at a customer power plant (coal), winter weather
(salt) and seasonal rainfall (South Australian grain).

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

Operating Revenues

Overview

Operating revenues were $602.0 million in the year ended December 31, 2008, compared with $516.2 million in the year ended December 31, 2007, an increase of $85.8 million or 16.6%. The $85.8 million increase in operating revenues consisted of $49.4 million in revenues from new operations and an increase of $36.4 million, or 7.1%, in revenues from existing operations. New operations are those that did not exist in our consolidated financial results for a comparable period in the prior year. The $36.4 million increase in revenues from existing operations included $26.4 million in non-freight revenues and $10.0 million in freight revenues. The appreciation of the Australian dollar and Canadian dollar relative to the United States dollar resulted in a $2.6 million increase in operating revenues from existing operations. The following table breaks down our operating revenues into new operations and existing operations for the years ended December 31, 2008 and 2007 (dollars in thousands):

                                               2008                          2007            2008-2007 Variance Information
                                                                                                                   Increase in
                               Total           New          Existing        Total        Increase in Total          Existing
                             Operations     Operations     Operations     Operations         Operations            Operations
Freight revenues            $    369,937   $     30,788   $    339,149   $    329,184   $    40,753     12.4 %   $  9,965    3.0 %
Non-freight revenues             232,047         18,632        213,415        186,983        45,064     24.1 %     26,432   14.1 %

Total operating revenues    $    601,984   $     49,420   $    552,564   $    516,167   $    85,817     16.6 %   $ 36,397    7.1 %

Freight Revenues

The following table compares freight revenues, carloads and average freight revenues per carload for the years ended December 31, 2008 and 2007 (dollars in thousands, except average freight revenues per carload):

          Freight Revenues and Carloads Comparison by Commodity Group

                     Years Ended December 31, 2008 and 2007



                                                                                                                           Average
                                                                                                                           Freight
                                                                                                                          Revenues
                                              Freight Revenues                              Carloads                     Per Carload
                                               % of                  % of                % of                % of
Commodity Group                      2008      Total       2007      Total      2008     Total      2007     Total      2008     2007
Pulp & Paper                       $  72,353    19.6 %   $  69,598    21.1 %   119,613    14.7 %   122,706    15.3 %   $   605   $ 567
. . .