The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, and with the consolidated financial statements, related notes and other financial information included in our 2008 Annual Report on Form 10-K.

Forward-Looking Statements

This report and other documents referred to in this report may contain forward-looking statements based on current expectations, estimates and projections about our industry, management's beliefs, and assumptions made by management. Words such as "anticipates," "intends," "plans," "believes," "seeks," "expects," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions, including the following risks applicable to all of our operations: risks related to the acquisition and integration of railroads; difficulties associated with customers, competition, connecting carriers, employees and partners; derailments; adverse weather conditions; unpredictability of fuel costs; changes in environmental and other laws and regulations to which we are subject; general economic and business conditions; and additional risks associated with our foreign operations. Therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include, in addition to those set forth in this Item 2 and Part II, Item 1A, those noted in our 2008 Annual Report on Form 10-K under "Risk Factors." Forward-looking statements speak only as of the date of this report or as of the date they are made, and we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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. Our 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.

In June 2009, we announced that our subsidiary, Huron Central Railway Inc. (HCRY), intends to discontinue operations in October 2009. As a result, our operating results in the three months ended June 30, 2009, included a non-cash write-down of HCRY's non-current assets of $6.7 million as well as restructuring and related charges of $2.3 million for aggregate pre-tax charges of $9.0 million, partially offset by tax benefits totaling $3.6 million, resulting in a net after-tax charge of $5.4 million, or $0.15 per diluted share. We do not expect to incur any additional significant restructuring charges related to HCRY.

Net income attributable to Genesee & Wyoming Inc. (GWI) in the three months ended June 30, 2009, was $7.4 million, compared with net income attributable to GWI of $15.4 million in the three months ended June 30, 2008. Our diluted earnings per share (EPS) attributable to our common stockholders in the three months ended June 30, 2009, were $0.20 with 36.9 million weighted average shares outstanding, compared with diluted EPS attributable to our common stockholders of $0.42 with 36.4 million weighted average shares outstanding in the three months ended June 30, 2008. Our Mexican operations are reported as discontinued operations.

Income from continuing operations attributable to our common shareholders in the three months ended June 30, 2009, was $8.1 million, compared with income from continuing operations attributable to our common shareholders of $16.1 million in the three months ended June 30, 2008. Our diluted EPS from continuing operations attributable to our common stockholders in the three months ended June 30, 2009, were $0.22 with 36.9 million weighted average shares outstanding, compared with diluted EPS from continuing operations attributable to our common stockholders of $0.44 with 36.4 million weighted average shares outstanding in the three months ended June 30, 2008.

Operating revenues in the three months ended June 30, 2009, were $130.1 million, compared with $152.7 million in the three months ended June 30, 2008. The decrease in our revenues was due to a decrease of $37.7 million, or 24.7%, in revenues from existing operations, partially offset by $15.1 million in revenues from our acquisitions of CAGY Industries, Inc. (CAGY), Ohio Central Railroad System (OCR) and Georgia Southwestern Railroad, Inc. (Georgia Southwestern). The decrease in revenues from existing operations included a $7.8 million decrease due to a decline in third-party fuel sales and a $6.8 million decrease due to the depreciation of the Australian and Canadian dollars and the Euro relative to the United States dollar.

When we discuss revenues from existing operations, we are referring to the change in our revenues, period-over-period, from operations we managed in both periods (i.e., excluding the impact of acquisitions). Freight revenues from existing operations decreased $24.8 million, or 27.1%, in the three months ended June 30, 2009, compared with the three months ended June 30, 2008. Freight revenues from existing operations were reduced by $3.3 million due to the depreciation of the Australian and Canadian dollars relative to the United States dollar, a decrease in average freight revenues per carload of 5.4% and a 20.0% decrease in carloads. Non-freight revenues from existing operations decreased $13.0 million, or 21.1%, in the three months ended June 30, 2009, compared with the three months ended June 30, 2008, primarily due to a decline in third-party fuel sales and the depreciation of the Australian and Canadian dollars and the Euro relative to the United States dollar.

Operating income in the three months ended June 30, 2009, decreased $15.0 million to $14.6 million, compared with $29.7 million in the three months ended June 30, 2008. Our operating income for the three months ended June 30, 2009, decreased $9.0 million due to the HCRY impairment and related charges and $1.4 million due to legal expenses associated with the resolution of the arbitration associated with the Meridian and Bigbee LLC (M&B) Haulage Agreement, partially offset by $2.3 million in gains on the sale of assets and insurance recovery. Our operating income in the three months ended June 30, 2008, included $2.5 million in gains on the sale of assets and insurance recovery. Operating expenses were $115.4 million in the three months ended June 30, 2009, compared with $123.0 million in the three months ended June 30, 2008, a decrease of $7.6 million, or 6.2%. The decrease in operating expenses was attributable to a decrease of $18.1 million from existing operations, partially offset by $10.5 million from new operations.

Net income attributable to GWI in the six months ended June 30, 2009, was $21.4 million, compared with net income attributable to GWI of $25.8 million in the six months ended June 30, 2008. Our results in the six months ended June 30, 2009, benefited $0.12 per diluted share from the positive impact of the United States railroad track maintenance credit, known as the Short Line Tax Credit, which is in effect through 2009. Primarily as a result of the Short Line Tax Credit and the HCRY-related tax benefit, our effective income tax rate decreased from 38.8% in the six months ended June 30, 2008, to 21.5% in the six months ended June 30, 2009. Our diluted EPS attributable to our common stockholders in the six months ended June 30, 2009, were $0.58 with 36.6 million weighted average shares outstanding, compared with diluted EPS attributable to our common stockholders of $0.71 with 36.2 million weighted average shares outstanding in the six months ended June 30, 2008.

During the six months ended June 30, 2009, we generated $44.1 million in cash from operating activities from continuing operations, which included $6.4 million used for working capital. We purchased $37.7 million of property and equipment, received $3.0 million in cash from outside parties for capital spending completed in 2009 and $5.9 million in cash from grants from outside parties for capital spending completed in prior years. We paid $4.8 million for the final working capital adjustment related to the October 2008 acquisition of OCR and $1.0 million (or €0.8 million) of contingent consideration related to our April 2008 acquisition of RRF. We received $5.6 million in cash from the sale of assets, $2.9 million in insurance proceeds for the replacement of assets and $107.0 million of stock issuance proceeds, partially offset by net payments on long-term borrowing of $102.5 million.

Changes in Operations

Canada

Huron Central Railway Inc: On June 15, 2009, we announced that our subsidiary, Huron Central Railway Inc. (HCRY), intends to discontinue its operations. The recession has caused HCRY's traffic to decline substantially over the last 12 months, to the point that the railroad is not economically viable to operate for the long term. HCRY expects to cease operations between McKerrow and Sault Ste. Marie on August 15, 2009, and plans to continue the operations of the eastern segment of the railroad from Sudbury to McKerrow and Espanola until October 31, 2009. In the second quarter of 2009, we recorded charges of $5.4 million after-tax, or $0.15 per diluted share, reflecting a non-cash write-down of non-current assets of $6.7 million as well as restructuring and related charges of $2.3 million, partially offset by tax benefits of $3.6 million.

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 $4.8 million was paid to the seller in the first quarter of 2009 to reflect adjustments for working capital. In addition, we placed $7.5 million of contingent consideration into escrow for payment to the seller on October 1, 2009, upon satisfaction of certain conditions. Any amounts paid will be recorded as an additional cost of the acquisition. 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 to the seller in the fourth quarter of 2008 to reflect adjustments for final working capital. 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 to the seller contingent consideration of $15.1 million due to the satisfaction of certain conditions. In addition, we agreed to pay contingent consideration of up to $3.5 million upon satisfaction of certain conditions by May 30, 2010, which will be recorded as additional cost of the acquisition in the event the contingency is satisfied. We have included 100% of the value of CAGY's net assets in our consolidated balance sheet since May 30, 2008.

Netherlands

Rotterdam Rail Feeding B.V.: On April 8, 2008, we acquired 100% of Rotterdam Rail Feeding B.V. (RRF) for cash consideration of approximately $22.6 million. In addition, we agreed to pay to the seller contingent consideration of up to €1.8 million (or $2.5 million at the June 30, 2009, exchange rate), of which €0.8 million (or $1.0 million) was accrued and recorded as additional cost of the acquisition at December 31, 2008, and was paid in the first quarter of 2009. In the event the contingencies are satisfied, the remaining €1.0 million (or $1.4 million at the June 30, 2009, exchange rate) will be paid to the seller over the next two years and will be recorded as additional cost of the acquisition. We have included 100% of the value of RRF's net assets in our consolidated balance sheet since April 8, 2008.

Purchase Price Allocation

The allocation of purchase price to the assets acquired and liabilities assumed for CAGY and RRF was finalized during the fourth quarter of 2008. The allocation of purchase price to the assets acquired and liabilities assumed has not been finalized for OCR or Georgia Southwestern. The purchase price allocations for these acquisitions are expected to be finalized in the third quarter of 2009 upon the completion of fair value analyses. During the six months ended June 30, 2009, we made the following adjustments to our initial allocation of purchase price for OCR based on additional fair value analysis and $0.4 million of additional purchase price related to working capital adjustments: $17.1 million decrease in property and equipment, $7.4 million increase in intangible assets, $9.3 million increase in goodwill and a net increase in all other net assets of $0.8 million. During the six months ended June 30, 2009, there were no material adjustments made to the initial allocation of purchase price for Georgia Southwestern.

The following table summarizes selected financial data for the opening balance sheets of the OCR and Georgia Southwestern acquisitions as of June 30, 2009 (dollars in thousands):

                                                                   Georgia
                                                      OCR        Southwestern
       Purchase Price Allocations:
       Cash                                        $    2,757   $          325
       Other current assets                             6,845              771
       Property and equipment                         207,026           23,410
       Intangible assets                               39,906               -
       Goodwill                                        68,476            5,363
       Other assets                                       569               -

       Total assets                                   325,579           29,869

       Current liabilities                             10,010            1,111
       Long-term debt, including current portion       12,793            5,317
       Deferred tax liabilities, net                   82,500            6,377

       Total liabilities                              105,303           12,805

       Net assets                                  $  220,276   $       17,064

       Intangible Assets:
       Track access agreements                     $   39,906   $           -
       Amortization Period                           46 Years               -

The deferred tax liabilities in the purchase price allocations are primarily driven by differences between values assigned to non-current assets and the acquired tax basis in those assets. The amounts assigned to goodwill in the purchase price allocations will not be deductible for tax purposes.

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 economic conditions, competitive forces, one-time freight moves, customer plant expansions and shut-downs, sales of property and equipment, derailments and weather related conditions such as hurricanes, droughts, heavy snowfall, freezing and flooding. In periods when these events occur, results of operations are not easily comparable from one period to another. Also, we have completed and entered into a number of acquisitions and other transactions recently that have changed and will change our results of operations. Finally, 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 relatively 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). As a result of these and other factors, our operating results in any reporting period may not be directly comparable to our operating results in other reporting periods.

Three Months Ended June 30, 2009 Compared with Three Months Ended June 30, 2008

Operating Revenues

Overview

Operating revenues were $130.1 million in the three months ended June 30, 2009, compared with $152.7 million in the three months ended June 30, 2008, a decrease of $22.7 million, or 14.8%. The $22.7 million decrease in operating revenues consisted of a $37.7 million, or 24.7%, decrease in revenues from existing operations, partially offset by $15.1 million in revenues from new operations. The $37.7 million decrease in revenues from existing operations included decreases of $24.8 million in freight revenues and $13.0 million in non-freight revenues. The depreciation of the Australian and Canadian dollars and the Euro relative to the United States dollar resulted in a $6.8 million decrease in operating 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 following table breaks down our operating revenues into new operations and existing operations for the three months ended June 30, 2009 and 2008 (dollars in thousands):

                                                       2009                          2008                  2009-2008 Variance Information
                                       Total           New          Existing        Total         Decrease in Total           Decrease in Existing
                                     Operations     Operations     Operations     Operations         Operations                    Operations
Freight revenues                    $     79,296   $     12,652   $     66,644   $     91,419   $  (12,123 )    (13.3 %)    $    (24,775 )     (27.1 %)
Non-freight revenues                      50,759          2,415         48,344         61,296      (10,537 )    (17.2 %)         (12,952 )     (21.1 %)

Total operating revenues            $    130,055   $     15,067   $    114,988   $    152,715   $  (22,660 )    (14.8 %)    $    (37,727 )     (24.7 %)

Freight Revenues

The following table compares freight revenues, carloads and average freight
revenues per carload for the three months ended June 30, 2009 and 2008 (in
thousands, except average freight revenues per carload):



                                                    Freight Revenues and Carloads Comparison by Commodity Group
                                                             Three Months Ended June 30, 2009 and 2008
                                                                                                                                  Average Freight
                                                                                                                                    Revenues Per
                                                     Freight Revenues                               Carloads                          Carload
                                                     % of                  % of                 % of                 % of
Commodity Group                             2009     Total        2008     Total       2009     Total       2008     Total        2009        2008
Coal, Coke & Ores                         $ 15,729    19.9 %    $ 15,488    16.9 %     42,606    22.6 %     41,474    21.1 %    $    369    $    373
Pulp & Paper                                12,147    15.3 %      18,798    20.6 %     21,877    11.6 %     30,994    15.8 %         555         607
Minerals and Stone                          10,172    12.8 %      11,743    12.8 %     35,321    18.8 %     37,041    18.8 %         288         317
Farm & Food Products                         9,225    11.6 %      10,157    11.1 %     22,316    11.9 %     18,436     9.4 %         413         551
Chemicals-Plastics                           7,878     9.9 %       8,049     8.8 %     12,230     6.5 %     12,147     6.2 %         644         663
Metals                                       7,746     9.8 %      10,675    11.7 %     15,500     8.2 %     21,154    10.8 %         500         505
Lumber & Forest Products                     6,910     8.7 %       8,667     9.5 %     15,199     8.1 %     19,503     9.9 %         455         444
Petroleum Products                           4,599     5.8 %       4,241     4.6 %      6,911     3.7 %      6,336     3.2 %         665         669
Autos & Auto Parts                           1,188     1.5 %       2,148     2.4 %      2,055     1.1 %      3,433     1.7 %         578         626
Other                                        3,702     4.7 %       1,453     1.6 %     14,174     7.5 %      6,038     3.1 %         261         241

Total freight revenues                    $ 79,296   100.0 %    $ 91,419   100.0 %    188,189   100.0 %    196,556   100.0 %         421         465

Total carloads decreased by 8,367 carloads, or 4.3%, in the three months ended June 30, 2009, compared with the same period in 2008. The decrease consisted of a 39,272 carload decrease, or 20.0%, from existing operations, offset by 30,905 carloads from new operations.

The overall average revenues per carload decreased 9.4% to $421, in the three months ended June 30, 2009, compared with the same period in 2008. Average freight revenues per carload from existing operations decreased 8.9% to $424. The decrease in same railroad average revenues per carload of 8.9% was impacted by four factors: lower fuel surcharges, the depreciation of the Canadian and Australian dollars relative to the United States dollar, changes in commodity mix and changes in the rail cost adjustment factor (RCAF) which reduced average revenues per carload by 6.0%, 3.5%, 1.3% and 0.9%, respectively. Excluding these four factors, same railroad average revenues per carload increased 2.8% in total and 4.8% in North America.

The following table sets forth freight revenues by new operations and existing operations for the three months ended June 30, 2009 and 2008 (dollars in thousands):

                                                                      Freight Revenues by Commodity Group From Existing and New Operations
                                                                                    Three Months Ended June 30, 2009 and 2008
                                                                2009                          2008                     2009-2008 Variance Information
                                                Total           New          Existing        Total         Increase (Decrease) in           Increase (Decrease) in
Freight revenues                              Operations     Operations     Operations     Operations         Total Operations               Existing Operations
Coal, Coke & Ores                            $     15,729   $      4,370   $     11,359   $     15,488   $         241          1.6 %     $      (4,129 )      (26.7 %)
Pulp & Paper                                       12,147            574         11,573         18,798          (6,651 )      (35.4 %)           (7,225 )      (38.4 %)
Minerals and Stone                                 10,172          1,337          8,835         11,743          (1,571 )      (13.4 %)           (2,908 )      (24.8 %)
Farm & Food Products                                9,225          1,245          7,980         10,157            (932 )       (9.2 %)           (2,177 )      (21.4 %)
Chemicals-Plastics                                  7,878          1,225          6,653          8,049            (171 )       (2.1 %)           (1,396 )      (17.3 %)
Metals                                              7,746          1,172          6,574         10,675          (2,929 )      (27.4 %)           (4,101 )      (38.4 %)
Lumber & Forest Products                            6,910             69          6,841          8,667          (1,757 )      (20.3 %)           (1,826 )      (21.1 %)
Petroleum Products                                  4,599            166          4,433          4,241             358          8.4 %               192          4.5 %
Autos & Auto Parts                                  1,188              3          1,185          2,148            (960 )      (44.7 %)             (963 )      (44.8 %)
Other                                               3,702          2,491          1,211          1,453           2,249        154.8 %              (242 )      (16.7 %)

Total freight revenues                       $     79,296   $     12,652   $     66,644   $     91,419   $     (12,123 )      (13.3 %)    $     (24,775 )      (27.1 %)

The following information discusses the significant changes in freight revenues by commodity group from existing operations. The decrease in average freight revenues per carload in a commodity group is generally related to lower fuel surcharges, the depreciation of the Canadian and Australian dollars relative to the United States dollar, the impact of lower fuel prices on rates that are indirectly indexed to fuel prices (e.g., RCAF indexed contracts) and changes in mix of business.

Coal, coke and ores revenues decreased by $4.1 million, or 26.7%. The decrease consisted of $2.5 million due to a 7,556, or 18.2%, carload decrease and $1.6 million due to a 10.3% decrease in average revenues per carload. The carload decrease was primarily due to extended maintenance outages at a mine in Utah and at power plants in the United Sates as well as decreased demand.

Pulp and paper revenues decreased $7.2 million, or 38.4%. Excluding a $0.7 million decrease due to the depreciation of the Canadian dollar relative to the United States dollar, pulp and paper revenues decreased $6.5 million. The decrease of $6.5 million consisted of $5.6 million due to a 10,156, or 32.8%, carload decrease and $0.9 million due to a 4.9% decrease in average revenues per carload. The carload decrease was primarily due to a decline in paper exports and temporary shut-downs of several plants served by us as a result of the recession.

Minerals and stone revenues decreased by $2.9 million, or 24.8%. Excluding a $0.7 million decrease due to the depreciation of the Canadian and Australian dollars relative to the United States dollar, minerals and stone revenues decreased $2.2 million. The decrease of $2.2 million consisted of $1.6 million due to a 5,678, or 15.3%, carload decrease and $0.6 million due to a 5.2% decrease in average revenues per carload primarily due to reduced demand as a result of the recession.

Farm and food products revenues decreased by $2.2 million, or 21.4%. Excluding a . . .