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, if any, 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. Our operations currently include 62 railroads organized in nine regions, with more than 6,000 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 attributable to Genesee & Wyoming Inc. (GWI) in the three months ended September 30, 2009, was $21.7 million, compared with net income attributable to GWI of $21.2 million in the three months ended September 30, 2008. Our diluted earnings per share (EPS) attributable to our common stockholders in the three months ended September 30, 2009, were $0.53 with 41.2 million weighted average shares outstanding, compared with diluted EPS attributable to our common stockholders of $0.58 with 36.6 million weighted average shares outstanding in the three months ended September 30, 2008.

Income from continuing operations attributable to our common stockholders in the three months ended September 30, 2009, was $19.6 million, compared with income from continuing operations attributable to our common stockholders of $20.1 million in the three months ended September 30, 2008. Our diluted EPS from continuing operations attributable to our common stockholders in the three months ended September 30, 2009, were $0.48 with 41.2 million weighted average shares outstanding, compared with diluted EPS from continuing operations attributable to our common stockholders of $0.55 with 36.6 million weighted average shares outstanding in the three months ended September 30, 2008.

In the third quarter of 2009, we completed the sale of our Mexican operations and Bolivian investment. We recorded a gain of $2.2 million ($2.4 million after-tax) in discontinued operations as a result of the sale of our Mexican operations and received total cash proceeds of $2.2 million. The sale of our Bolivian investment resulted in a gain of $0.4 million ($0.4 million after-tax) in income from continuing operations and net cash proceeds of $3.8 million.

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). Operating revenues decreased $23.0 million, or 14.4%, to $136.4 million in the three months ended September 30, 2009, compared with $159.4 million in the three months ended September 30, 2008. The decrease in our revenues was due to a decrease of $35.9 million, or 22.5%, in revenues from existing operations, partially offset by $12.9 million in revenues from our acquisitions of Ohio

Central Railroad System (OCR) and Georgia Southwestern Railroad, Inc. (Georgia Southwestern). The decrease in revenues from existing operations included a $23.8 million decline in freight revenues and a $12.1 million decline in non-freight revenues.

Freight revenues decreased $12.4 million, or 13.0%, to $83.2 million in the three months ended September 30, 2009, compared with $95.6 million in the three months ended September 30, 2008. Freight revenues from existing operations decreased $23.8 million, or 24.9%, partially offset by $11.3 million in freight revenues from new operations. Freight revenues from existing operations decreased, $15.4 million due to a 17.7% decrease in carloads, $6.8 million due to a decline in fuel surcharges and $1.0 million due to the depreciation of the Australian and Canadian dollars relative to the United States dollar.

Non-freight revenues decreased $10.5 million, or 16.5%, to $53.3 million in the three months ended September 30, 2009, compared with $63.8 million in the three months ended September 30, 2008. Non-freight revenues from existing operations decreased $12.1 million, or 19.0%, partially offset by $1.6 million in non-freight revenues from new operations. The decrease in non-freight revenues from existing operations included a $6.7 million decline in third-party fuel sales, a $2.5 million decline in car hire and rental income and a $2.3 million decline in railcar switching revenues. The depreciation of the Australian and Canadian dollars and the Euro relative to the United States dollar further decreased non-freight revenues by $1.2 million.

Operating income in the three months ended September 30, 2009, decreased $3.5 million, or 10.0%, to $31.1 million, compared with $34.6 million in the three months ended September 30, 2008. Our operating ratio was 77.2% in the three months ended September 20, 2009, compared with 78.3% in the three months ended September 30, 2008. Our operating income for the three months ended September 30, 2009, included $2.6 million of gains on insurance recoveries related to prior year events. Our operating income in the three months ended September 30, 2008, included $1.2 million in gains on the sale of assets.

Net income attributable to GWI in the nine months ended September 30, 2009, was $43.0 million, compared with net income attributable to GWI of $46.9 million in the nine months ended September 30, 2008. Our diluted EPS attributable to our common stockholders in the nine months ended September 30, 2009, were $1.13 with 38.2 million weighted average shares outstanding, compared with diluted EPS attributable to our common stockholders of $1.29 with 36.3 million weighted average shares outstanding in the nine months ended September 30, 2008.

During the nine months ended September 30, 2009, we generated $88.4 million in cash from operating activities from continuing operations, which included $3.8 million provided by working capital. We purchased $60.0 million of property and equipment, received $10.2 million in cash from outside parties for capital spending completed in 2009 and $6.3 million in cash 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 $4.0 million in insurance proceeds for the replacement of assets, $3.8 million in net proceeds for the sale of our investment in Bolivia, $6.2 million in cash from the sale of assets and $106.6 million of net stock issuance proceeds, partially offset by net payments on long-term borrowings of $109.2 million.

Changes in Operations

Canada

Huron Central Railway Inc: In the second quarter of 2009, we recorded charges of $5.4 million after-tax associated with our subsidiary, Huron Central Railway Inc. (HCRY), 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 totaling $3.6 million. The recession had caused HCRY's traffic to decline substantially over the previous 12 months, to the point that the railroad was not economically viable to operate for the long term. Effective August 15, 2009, HCRY entered into an agreement to continue to operate through August 14, 2010. This agreement resulted in no material changes to the previous accounting charges related to HCRY. However, we do not expect to make any significant cash payments related to these restructuring and related charges until the third quarter of 2010. We did not incur any additional significant restructuring charges related to HCRY in the third quarter of 2009.

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 final working capital. In addition, we placed $7.5 million of contingent consideration into escrow at the acquisition date. This amount was accrued and recorded as an additional cost of the acquisition at September 30, 2009, and was paid to the seller on October 1, 2009, due to the satisfaction of certain conditions. 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 Industries, Inc. (CAGY) for cash consideration of approximately $71.9 million (net of $17.2 million cash acquired). An additional $2.9 million of purchase price was recorded in the second quarter of 2008 to reflect adjustments for final 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 to the seller 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. As a result of the unanticipated non-renewal of an acquired lease, we recorded a $0.7 million non-cash write-down of non-current assets in the three months ended September 30, 2009.

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 approximately $2.5 million), 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 $1.5 million at the September 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.

South America

On September 29, 2009, in conjunction with our partner UniRail LLC (UniRail), we sold substantially all of our interests in Ferroviaria Oriental S.A. (Oriental), which is located in Eastern Bolivia. We recorded a net gain on the sale of our investment in Bolivia of $0.4 million in the three months ended September 30, 2009. Our portion of the sale proceeds totaled $3.9 million, against which we applied the remaining net book value of $3.4 million and direct costs of the sale of $0.1 million.

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 for OCR and Georgia Southwestern was finalized during the third quarter of 2009. During the nine months ended September 30, 2009, we made the following adjustments to our allocation of purchase price for OCR based on the completion of our fair value analysis and $7.9 million of additional purchase price recorded in 2009 related to contingent consideration and working capital adjustments: $33.2 million decrease in property and equipment, $27.8 million increase in intangible assets, $7.8 million increase in goodwill, a decrease in other long-term liabilities of $4.7 million and a net decrease in all other net assets of $0.8 million. During the nine months ended September 30, 2009, there were no material adjustments made to the initial allocation of purchase price for Georgia Southwestern.

The following table summarizes the final purchase price allocations for the OCR and Georgia Southwestern acquisitions as of September 30, 2009 (dollars in thousands):

                                                                   Georgia
                                                      OCR        Southwestern
       Purchase Price Allocations:
       Cash                                        $    2,757   $          325
       Other current assets                             6,906              835
       Property and equipment                         190,963           23,410
       Intangible assets                               60,329               -
       Goodwill                                        67,026            5,415
       Other assets                                       569               -

       Total assets                                   328,550           29,985

       Current liabilities                              4,377              970
       Long-term debt, including current portion       12,793            5,317
       Deferred tax liabilities, net                   83,247            6,643
       Other long-term liabilities                        300               -

       Total liabilities                              100,717           12,930

       Net assets                                  $  227,833   $       17,055

       Intangible Assets:
       Track access agreements                     $   60,329   $           -
       Amortization period                           44 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.

Discontinued Operations

In August of 2009, we completed the sale of 100% of the share capital of Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM) to Viablis, S.A. de C.V. (Viablis) for a net sale price of $2.2 million, including the deposit of $0.5 million received in November 2008. As a result, we recorded a net gain of $2.2 million on the sale within discontinued operations. We do not expect any material adverse financial impact from our remaining Mexican subsidiary, GW Servicios S.A. (Servicios).

Results of Continuing Operations

When comparing our results of continuing operations from one reporting period to another, consider that we have historically experienced fluctuations in revenues and expenses due to economic conditions, acquisitions, 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. 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 September 30, 2009 Compared with Three Months Ended September 30, 2008

Operating Revenues

Overview

Operating revenues were $136.4 million in the three months ended September 30, 2009, compared with $159.4 million in the three months ended September 30, 2008, a decrease of $23.0 million, or 14.4%. The $23.0 million decrease in operating revenues consisted of a $35.9 million, or 22.5%, decrease in revenues from existing operations, partially offset by $12.9 million in revenues from new operations. The $35.9 million decrease in revenues from existing operations included decreases of $23.8 million in freight revenues and $12.1 million in non-freight revenues. A 17.7% decrease in carloads from existing operations resulted in a $15.4 million decline in operating revenues from existing operations. Lower fuel prices resulted in a $6.8 million decline in fuel surcharge revenues from existing operations. The depreciation of the Australian and Canadian dollars and the Euro relative to the United States dollar resulted in a $2.2 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 September 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                    $     83,160   $     11,342   $     71,818   $     95,602   $  (12,442 )    (13.0 %)    $    (23,784 )     (24.9 %)
Non-freight revenues                      53,286          1,567         51,719         63,830      (10,544 )    (16.5 %)         (12,111 )     (19.0 %)

Total operating revenues            $    136,446   $     12,909   $    123,537   $    159,432   $  (22,986 )    (14.4 %)    $    (35,895 )     (22.5 %)

Freight Revenues

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

          Freight Revenues and Carloads Comparison by Commodity Group

                 Three Months Ended September 30, 2009 and 2008



                                                                                                                                  Average Freight
                                                                                                                                    Revenues Per
                                                     Freight Revenues                               Carloads                          Carload
                                                2009                  2008                 2009                 2008
                                                     % of                  % of                 % of                 % of
Commodity Group                            Amount    Total       Amount    Total      Amount    Total      Amount    Total        2009        2008
Coal, Coke & Ores                         $ 17,116    20.7 %    $ 17,223    18.0 %     49,720    25.2 %     48,259    23.7 %    $    344    $    357
Pulp & Paper                                12,794    15.4 %      19,180    20.1 %     22,385    11.4 %     30,705    15.0 %         572         625
Minerals and Stone                          10,867    13.1 %      12,952    13.5 %     36,459    18.5 %     37,797    18.5 %         298         343
Farm & Food Products                         8,575    10.3 %       8,247     8.6 %     16,963     8.6 %     15,161     7.4 %         506         544
Metals                                       8,432    10.1 %      12,529    13.1 %     18,148     9.2 %     25,330    12.4 %         465         495
Chemicals-Plastics                           8,251     9.9 %       8,650     9.0 %     11,891     6.0 %     12,649     6.2 %         694         684
Lumber & Forest Products                     7,485     9.0 %       9,319     9.7 %     16,813     8.5 %     20,539    10.1 %         445         454
Petroleum Products                           4,357     5.2 %       4,382     4.6 %      6,522     3.3 %      6,434     3.2 %         668         681
Autos & Auto Parts                           1,191     1.4 %       1,719     1.9 %      1,921     1.0 %      2,422     1.2 %         620         710
Other                                        4,092     4.9 %       1,401     1.5 %     16,265     8.3 %      4,757     2.3 %         252         295

Total freight revenues                    $ 83,160   100.0 %    $ 95,602   100.0 %    197,087   100.0 %    204,053   100.0 %         422         469

Total carloads decreased by 6,966 carloads, or 3.4%, in the three months ended September 30, 2009, compared with the same period in 2008. The decrease consisted of a 36,084 carload decrease, or 17.7%, from existing operations, offset by 29,118 carloads from new operations.

The overall average freight revenues per carload decreased 10.0% to $422, in the three months ended September 30, 2009, compared with the same period in 2008. Average freight revenues per carload from existing operations decreased 8.7% to $428, primarily due to lower fuel surcharges that reduced same railroad average freight revenues per carload by 8.7%. In addition, changes in commodity mix and the depreciation of the Canadian and Australian dollars relative to the United States dollar reduced average revenues per carload by 1.4% and 1.0%, respectively. Excluding these three factors, same railroad average revenues per carload increased 2.4%. In North America, excluding currency effects, changes in commodity mix and changes in fuel surcharges, same railroad average revenues per carload increased 2.8%. Decreases in the rail cost adjustment factor (RCAF), a measure of railroad inflation published by the Association of American Railroads to which certain contract freight rates are indexed, had the impact of reducing North America same railroad average revenues per carload by approximately 1%.

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

      Freight Revenues by Commodity Group From Existing and New Operations

                 Three Months Ended September 30, 2009 and 2008



                                                               2009                          2008                    2009-2008 Variance Information
                                               Total           New          Existing        Total         Increase (Decrease)           Increase (Decrease) in
Freight revenues                             Operations     Operations     Operations     Operations      in Total Operations            Existing Operations
Coal, Coke & Ores                           $     17,116   $      3,433   $     13,683   $     17,223   $       (107 )     (0.6 %)    $      (3,540 )      (20.6 %)
Pulp & Paper                                      12,794            526         12,268         19,180         (6,386 )    (33.3 %)           (6,912 )      (36.0 %)
Minerals and Stone                                10,867          1,220          9,647         12,952         (2,085 )    (16.1 %)           (3,305 )      (25.5 %)
Farm & Food Products                               8,575          1,217          7,358          8,247            328        4.0 %              (889 )      (10.8 %)
Metals                                             8,432            949          7,483         12,529         (4,097 )    (32.7 %)           (5,046 )      (40.3 %)
Chemicals-Plastics                                 8,251          1,168          7,083          8,650           (399 )     (4.6 %)           (1,567 )      (18.1 %)
Lumber & Forest Products                           7,485             22          7,463          9,319         (1,834 )    (19.7 %)           (1,856 )      (19.9 %)
Petroleum Products                                 4,357            174          4,183          4,382            (25 )     (0.6 %)             (199 )       (4.5 %)
Autos & Auto Parts                                 1,191              4          1,187          1,719           (528 )    (30.7 %)             (532 )      (30.9 %)
Other                                              4,092          2,629          1,463          1,401          2,691      192.1 %                62          4.4 %

Total freight revenues                      $     83,160   $     11,342   $     71,818   $     95,602   $    (12,442 )    (13.0 %)    $     (23,784 )      (24.9 %)

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 $3.5 million, or 20.6%. The decrease . . .