TABLE OF CONTENTS

Exhibit 10.1 Amend #3 to the G&W Stk Option Plan

Exhibit 10.2 Amend #4 to the G&W Stk Option Plan

Exhibit 11.1 Statement re Comp of Per Shr Earngs

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

for the quarter ended June 30, 2001 Commission File No. 0-20847

GENESEE & WYOMING INC.
(Exact name of registrant as specified in its charter)

Delaware	06-0984624
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

66 Field Point Road, Greenwich, Connecticut	06830
(Address of principal executive offices)	(Zip Code)

(203) 629-3722

(Telephone No.)

Shares of common stock outstanding as of the close of business on August 8, 2001:

Class	Number of Shares Outstanding
Class A Common Stock	5,738,407
Class B Common Stock	1,268,169

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] YES [   ] NO

INDEX

Part I - Financial Information
Item 1. Financial Statements:	Page
Consolidated Statements of Income — For the           Three Month and Six Month Periods Ended           June 30, 2001 and 2000	3
Consolidated Balance Sheets — As of June 30,           2001 and December 31, 2000	4
Consolidated Statements of Cash Flows — For the           Six Month Periods Ended June 30, 2001 and 2000	5
Notes to Consolidated Financial Statements	6 - 13
Item 2. Management’s Discussion and Analysis of           Financial Condition and Results of Operations	14 - 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	28
Part II - Other Information	29
Index to Exhibits	30 - 32
Signatures	33

2

GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)

		Three Months						Six Months
		Ended June 30,						Ended June 30,
		2001			2000			2001			2000
OPERATING REVENUES		$	44,243		$	52,354		$	87,114		$	107,765
OPERATING EXPENSES:
	Transportation		13,921			17,148			28,068			35,869
	Maintenance of ways and structures		5,143			5,663			10,138			11,619
	Maintenance of equipment		7,978			10,329			16,101			21,270
	General and administrative		8,118			7,952			15,429			16,260
	Depreciation and amortization		3,123			3,455			6,348			6,642
Total operating expenses			38,283			44,547			76,084			91,660
INCOME FROM OPERATIONS			5,960			7,807			11,030			16,105
Interest expense			(2,314	)		(2,520	)		(5,133	)		(5,272	)
Gain on sale of 50% equity in Australian operations			—			—			3,713			—
Valuation adjustment of U.S. dollar denominated foreign loans			(26	)		(2,358	)		(69	)		(1,486	)
Other income, net			223			691			604			1,248
Income before income taxes and equity earnings			3,843			3,620			10,145			10,595
Provision for income taxes			1,376			1,342			3,540			3,905
Income before equity earnings			2,467			2,278			6,605			6,690
Equity in net income of international affiliates:
	Australian Railroad Group		2,480			—			4,743			—
	South America		140			—			206			—
Net income			5,087			2,278			11,554			6,690
Impact of preferred stock outstanding			236			—			472			—
Net income available to common shareholders		$	4,851		$	2,278		$	11,082		$	6,690
Basic earnings per common share		$	0.70		$	0.35		$	1.62		$	1.03
Weighted average shares			6,905			6,495			6,835			6,494
Diluted earnings per common share		$	0.60		$	0.34		$	1.38		$	1.00
Weighted average shares and equivalents			8,432			6,735			8,364			6,686

3

GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(Unaudited)

			As of			As of
			June 30,			Dec. 31,
ASSETS			2001			2000
CURRENTS ASSETS:
		Cash and cash equivalents	$	10,947		$	3,373
		Accounts receivable, net		43,037			45,209
		Materials and supplies		5,658			5,023
		Prepaid expenses and other		8,584			7,249
		Deferred income tax assets, net		2,027			2,202
Total current assets				70,253			63,056
PROPERTY AND EQUIPMENT, net				178,956			180,946
INVESTMENT IN UNCONSOLIDATED AFFILIATES				64,916			64,091
SERVICE ASSURANCE AGREEMENT, net				10,941			11,315
OTHER ASSETS, net				22,215			22,604
Total assets			$	347,281		$	342,012
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
		Current portion of long-term debt	$	4,239		$	3,996
		Accounts payable		41,892			43,045
		Accrued expenses		12,553			10,860
Total current liabilities				58,684			57,901
LONG-TERM DEBT, less current portion				87,915			100,805
DEFERRED INCOME TAX LIABILITIES, net				22,916			22,179
DEFERRED ITEMS—grants from government agencies and third parties				36,392			36,526
DEFERRED GAIN—sale-leaseback				4,996			3,558
OTHER LONG-TERM LIABILITIES				4,684			4,737
MINORITY INTEREST				2,922			2,725
REDEEMABLE CONVERTIBLE PREFERRED STOCK				18,921			18,849
STOCKHOLDERS’ EQUITY:
	Class A common stock, $0.01 par value, one vote per share;      12,000,000 shares authorized; 7,254,700 and 6,913,751 issued      (5,731,293 and 5,411,222 outstanding net of 1,523,407 and 1,502,529      in treasury) on June 30, 2001 and December 31, 2000, respectively			73			46
	Class B common stock, $0.01 par value, 10 votes per share;      1,500,000 shares authorized; 1,268,168 and 1,268,171 issued and      outstanding on June 30, 2001 and December 31, 2000, respectively			13			8
	Additional paid-in capital			54,094			49,711
	Retained earnings			71,985			60,903
	Accumulated other comprehensive loss			(4,851	)		(4,883	)
	Less treasury stock, at cost			(11,463	)		(11,053	)
Total stockholders’ equity				109,851			94,732
Total liabilities and stockholders’ equity			$	347,281		$	342,012

4

GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

				Six Months Ended
				June 30,
				2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	11,554		$	6,690
	Adjustments to reconcile net income to net cash provided by operating activities-
		Depreciation and amortization			6,348			6,642
		Deferred income taxes			1,068			2,485
		Gain on disposition of property and equipment			(28	)		(70	)
		Gain on sale of 50% equity in Australian operations			(3,713	)		—
		Equity earnings of unconsolidated international affiliates			(4,949	)
		Minority interest expense			197			30
		Valuation adjustment of U.S. dollar denominated loans			69			1,486
		Changes in assets and liabilities -
			Accounts receivable		1,311			938
			Materials and supplies		(552	)		(486	)
			Prepaid expenses and other		403			2,160
			Accounts payable and accrued expenses		189			(9,070	)
			Other assets and liabilities, net		(380	)		(14	)
	Net cash provided by operating activities				11,517			10,791
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of property and equipment				(6,212	)		(16,588	)
	Cash received from unconsolidated international affiliates				4,329			—
	Proceeds from disposition of property, including sale-leaseback				6,893			157
	Net cash provided by (used in) investing activities				5,010			(16,431	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Principal payments on long-term borrowings, including capital leases				(67,945	)		(23,585	)
	Proceeds from issuance of long-term debt				55,500			25,297
	Proceeds on government and third party grants				227			5,768
	Proceeds from employee stock purchases				3,531			30
	Dividend paid on Redeemable Convertible Peferred Stock				(444	)		—
	Net cash (used in) provided by financing activities				(9,131	)		7,510
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS					178			(454	)
INCREASE IN CASH AND CASH EQUIVALENTS					7,574			1,416
CASH AND CASH EQUIVALENTS, beginning of period					3,373			7,791
CASH AND CASH EQUIVALENTS, end of period				$	10,947		$	9,207
CASH PAID DURING PERIOD FOR:
	Interest			$	4,662		$	3,782
	Income taxes				639			1,205

5

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:

      The interim consolidated financial statements presented herein include the accounts of Genesee & Wyoming Inc. and its subsidiaries. References to “GWI” or the “Company” mean Genesee & Wyoming Inc. and, unless the context indicates otherwise, its consolidated subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. These interim consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). In the opinion of management, the unaudited financial statements for the three-month and six-month periods ended June 30, 2001 and 2000, are presented on a basis consistent with audited financial statements and contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The results of operations for interim periods are not necessarily indicative of results of operations for the full year. The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2000 included in the Company’s 2000 Form 10-K.

      On May 22, 2001, the Company authorized a three-for-two common stock split in the form of a 50% stock dividend distributed on June 15, 2001 to shareholders of record as of May 31, 2001. As a result of the stock split, the accompanying financial statements reflect an increase in the number of outstanding shares of common stock and the transfer of the par value of these additional shares from paid-in capital. All share and per share amounts have been restated to reflect the retroactive effect of the stock split.

2. EXPANSION OF OPERATIONS:

      Australia

      On December 16, 2000, the Company, through its newly-formed joint venture, Australian Railroad Group Pty. Ltd. (ARG), completed the acquisition of Westrail Freight from the government of Western Australia for approximately $334.4 million including working capital. ARG is a joint venture owned 50% by the Company and 50% by Wesfarmers Limited, a public corporation based in Perth, Western Australia. Westrail Freight is composed of the freight operations of the formerly state-owned railroad of Western Australia.

      To complete the acquisition, the Company contributed its formerly wholly-owned subsidiary, Australia Southern Railroad (ASR), to ARG along with the Company’s 2.6% interest in the Asia Pacific Transport Consortium (APTC) — a consortium selected to construct and operate the Alice Springs to Darwin railway line in the Northern Territory of Australia. Additionally, the Company contributed $21.4 million of cash to ARG while Wesfarmers contributed $64.2 million in cash, including $8.2 million which represents a long-term non-interest bearing note to match a similar note due to the Company from ASR at the date of the transaction. ARG funded the remaining purchase price with proceeds from a new bank credit facility.

      To fund its cash investment in ARG, the Company also completed a private placement of Redeemable Convertible Preferred Stock (the Convertible Preferred) with the 1818 Fund III, L.P. (the Fund) managed by Brown Brothers Harriman & Co. Dividends on the Convertible Preferred are cumulative and payable quarterly in arrears in an amount equal to 4% of the issue price. Each share of the Convertible Preferred is convertible by the Fund at any time into shares of Class A Common Stock of the

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      Company at a conversion price of $15.33 per share of Class A Common Stock (if converted, 1,304,348 shares of Common Stock). The Convertible Preferred is callable by the Company after four years from date of issuance, December 12, 2000, and is mandatorily redeemable in eight years from date of issuance. At June 30, 2001, no shares of Convertible Preferred have been converted into shares of Class A common Stock. Issuance costs are being amortized as additional dividends over the Convertible Preferred’s eight year life.

      In the fourth quarter of 2000, the Company recognized a $10.1 million gain upon the issuance of ASR stock to Wesfarmers upon the formation of ARG as a result of such issuance being at a per share price in excess of the Company’s book value per share investment in ASR. Additionally, due to the deconsolidation of ASR, the Company recognized a $6.5 million deferred tax expense resulting from the financial reporting versus tax basis difference in the Company’s equity investment in ARG. The Company accounts for its 50% ownership in ARG under the equity method of accounting and therefore deconsolidated ASR from its consolidated financial statements as of December 17, 2000.

      On April 20, 2001, APTC completed the arrangement of debt and equity capital to finance a project to build, own and operate the Alice Springs to Darwin railway line in the Northern Territory of Australia. As previously arranged, upon APTC reaching financial closure, Wesfarmers contributed an additional $7.4 million into ARG and accordingly, the Company recorded an additional first quarter gain of $3.7 million related to the December, 2000 issuance of ARG stock to Wesfarmers. The $3.7 million purchase price adjustment was recorded as a one-time gain for the Company in the quarter ended March 31, 2001. A related deferred income tax expense of $1.1 million was also recorded. In the second quarter of 2001, ARG paid the $7.4 million to its two shareholders, in equal amounts of $3.7 million each, as partial payment of each shareholder’s non-interest bearing note.

      South America

      On November 5, 2000, the Company acquired an indirect 21.87% equity interest in Empresa Ferroviaria Oriental, S.A. (Oriental) increasing its stake in Oriental to 22.55%. Oriental is a railroad serving eastern Bolivia and connecting to railroads in Argentina and Brazil. The Company’s new ownership interest is largely through a 90% owned holding company in Bolivia which also received $740,000 from the minority partner for investment into Oriental. The Company’s portion of the Oriental investment is composed of $6.7 million in cash, the assumption (via an unconsolidated subsidiary) of non-recourse debt of $10.8 million at an interest rate of 7.67%, and a non-interest bearing contingent payment of $450,000 due in 2003 if certain financial results are achieved. The cash used by the Company to fund such investment was obtained from its existing revolving credit facility. Additionally, the Company received the right to collect dividends from the Oriental related to its full year 2000 earnings. Such dividends of $617,000 were received in March 2001. The Company accounts for its indirect interest in the Oriental under the equity method of accounting.

      Mexico

      On December 7, 2000, in conjunction with the refinancing of Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM) (see Note 3.) and its parent company, GW Servicios, S.A. de C.V. (Servicios), the International Finance Corporation (IFC) invested $1.9 million of equity for a 12.7% indirect interest in FCCM, through Servicios. The Company contributed an additional $13.1 million and maintains an 87.3% indirect ownership in FCCM. The Company funded $10.7 million of its new investment with borrowings under its amended credit facility, with the remaining investment funded by the conversion of intercompany advances into permanent capital. Along with its equity investment, IFC received a put option

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exercisable in 2005 to sell its equity stake back to the Company. The put price will be based on a multiple of earnings before interest, taxes, depreciation and amortization. The Company increases its minority interest expense in the event that the value of the put option exceeds the otherwise minority interest liability.

3. VALUATION ADJUSTMENT OF U.S. DOLLAR DENOMINATED FOREIGN LOANS:

      Amounts previously outstanding under the Company’s credit agreement which were borrowed by FCCM represented U.S. dollar denominated foreign debt of the Company’s Mexican subsidiary. As the Mexican peso moved against the U.S. dollar, the revaluation of this outstanding debt to its Mexican peso equivalent resulted in non-cash gains and losses as reflected in the accompanying consolidated statements of income. On June 16, 2000, pursuant to a corporate and financial restructuring of the Company’s Mexican subsidiaries, the income statement impact of the U.S. dollar denominated foreign debt revaluation was significantly reduced.

4. EQUITY INVESTMENT IN ARG:

      ARG is a joint venture which is 50%-owned by the Company and is accounted for under the equity method of accounting. The related equity earnings in this investment are shown within the Equity in Net Income of International Affiliates in the accompanying consolidated statements of income. The following are unaudited U.S. GAAP balance sheets of ARG as of June 30, 2001 and December 31, 2000, and the related consolidated statements of income for the three month and six month periods and cash flows for the six month period ended June 30, 2001 (in thousands of U.S. dollars). Relevant Australian dollar to U.S. dollar exchange rates are:

As of December 31, 2000	$	0.56
As of June 30, 2001	$	0.51
Average for the three months ended June 30, 2001	$	0.51
Average for the six months ended June 30, 2001	$	0.52

The remainder of this page is intentionally left blank.

8

Australian Railroad Group Pty. Ltd.
Consolidated Balance Sheets
(Unaudited)

			June 30,		December 31,
			2001		2000
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	3,641	$	9,071
	Accounts receivable, net			20,044		33,401
	Materials and supplies			9,402		11,306
		Total current assets		33,087		53,778
PROPERTY AND EQUIPMENT, net				336,705		341,306
DEFERRED INCOME TAX ASSETS, net				6,229		11,827
OTHER ASSETS, net				6,876		8,424
		Total assets	$	382,897	$	415,335
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Interest bearing liability		$	2,628		—
	Current debt			—	$	16,342
	Accounts payable			19,244		14,872
	Accrued expenses			4,871		3,506
		Total current liabilities		26,743		34,720
LONG-TERM BANK DEBT				242,421		265,408
OTHER LONG-TERM LIABILITIES				1,495		2,524
TOTAL STOCKHOLDERS’ EQUITY AND ADVANCES				112,238		112,683
		Total liabilities and stockholders’ equity	$	382,897	$	415,335

Australian Railroad Group Pty. Ltd.
Consolidated Statements of Income
(Unaudited)

	Three Months			Six Months
	Ended June 30, 2001			Ended June 30, 2001
Operating revenues	$	45,164		$	89,031
Operating expenses		32,445			64,022
Income from operations		12,719			25,009
Interest expense		(5,446	)		(11,067	)
Other income, net		136			265
Income before income taxes		7,409			14,207
Provision for income taxes		2,449			4,722
Net income	$	4,960		$	9,485

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Australian Railroad Group Pty. Ltd.
Consolidated Statement of Cash Flows
(Unaudited)

				Six Months
				Ended June
				30, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	9,485
	Adjustments to reconcile net income to net cash provided by operating activities-
		Depreciation and amortization			6,478
		Other provisions			240
		Deferred income taxes			4,722
		Gain on disposition of property			(72	)
		Changes in assets and liabilities			20,512
			Net cash provided by operating activities		41,365
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of property and equipment				(30,558	)
	Proceeds from disposition of property and equipment				30
			Net cash used in investing activities		(30,528	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Principal payments on short-term borrowings				(15,269	)
	Proceeds from issuance of shares				7,622
	Repayment of long-term debt due to shareholders				(7,622	)
			Net cash used in financing activities		(15,269	)
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH AND CASH EQUIVALENTS					(998	)
DECREASE IN CASH AND CASH EQUIVALENTS					(5,430	)
CASH AND CASH EQUIVALENTS, beginning of period					9,071
CASH AND CASH EQUIVALENTS, end of period				$	3,641

5. CONTINGENCIES:

      Legal claims and counterclaims between the Company and Commonwealth Edison Company (ComEd) regarding alleged overcharges by the Company for services rendered to ComEd and ComEd’s failure to assign the Company’s service assurance agreement to the purchaser of the Powerton plant remain unresolved. The Company is pursuing its rights vigorously. Revenue for haulage to the Powerton Plant accounted for 3.1% of the consolidated revenues of the Company and its subsidiaries in 2000. Failure to satisfactorily resolve this litigation could have a material adverse effect on the Company.

6. LOCOMOTIVE SALE-LEASEBACK:

      On March 30, 2001, the Company completed the sale of 27 locomotives to a financial institution for a net sale price of $6.5 million. The proceeds were used to reduce borrowings under the Company’s revolving credit facilities. Simultaneously, the Company entered into agreements with the financial institution to lease the 27 locomotives for a period of up to 8 years including automatic renewals. The sale-leaseback transaction resulted in a deferred gain of $1.8 million, which will be amortized over the term of the lease as a non-cash offset to equipment rent expense.

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7. COMPREHENSIVE INCOME:

      Comprehensive income is the total of net income and all other non-owner changes in equity. The following table sets forth the Company’s comprehensive income for the three and six month periods ended June 30, 2001 and 2000 (in thousands):

Statement of Comprehensive Income
(in thousands)

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2001			2000			2001			2000
Net income	$	5,087		$	2,278		$	11,554		$	6,690
Other comprehensive income (loss):
Foreign currency translation adjustments		4,928			(1,093	)		552			(2,796	)
Transition adjustment related to change in      accounting for derivative instruments      and hedging activities		—			—			(255	)		—
Net change in unrealized losses on      qualifying cash flow hedges		(15	)		—			(265	)		—
Comprehensive income	$	10,000		$	1,185		$	11,586		$	3,894

      The following table sets forth the components of accumulated other comprehensive loss, net of tax, included in the consolidated balance sheets as of June 30, 2001, and December 31, 2000 (in thousands):

	June 30,			December 31,
	2001			2000
Net foreign currency translation adjustments	$	(4,331	)	$	(4,883	)
Net unrealized losses on qualifying cash flow hedges		(520	)		—
Accumulated other comprehensive loss	$	(4,851	)	$	(4,883	)

8. BUSINESS SEGMENT INFORMATION:

      The Company historically operated in three business segments in two geographic areas: North American Railroad Operations, which includes operating short line and regional railroads, and buying, selling, leasing and managing railroad transportation equipment within the United States, Canada and Mexico; Australian Railroad Operations, which included operating a regional railroad and providing hook and pull (haulage) services to other railroads within Australia; and Industrial Switching, which includes providing freight car switching and related services to industrial companies with extensive railroad facilities within their complexes in the United States. On December 17, 2000, concurrent with the acquisition of Westrail Freight through ARG, the Company deconsolidated ASR (i.e. Australian Railroad Operations) from its consolidated financial statements and began reporting for its 50% ownership interest in ARG under the equity method of accounting.

      Corporate overhead expenses, including acquisition expense, and equity earnings of unconsolidated affiliates in Australia and South America are primarily reported in North American Railroad Operations.

      The accounting policies of the reportable segments are the same as those of the consolidated Company. The Company evaluates the performance of its operating

11

segments based on operating income. Intersegment sales and transfers are not significant. Summarized financial information for each business segment as of and for the three-month and six-month periods ended June 30, 2001 and 2000 is shown in the following tables:

Business Segments
(amounts in thousands)
Three Months Ended June 30,

	North American		Australian		Industrial
	Railroad		Railroad		Switching
2001	Operations		Operations		Operations		Total
Operating revenues	$	41,320		—	$	2,923	$	44,243
Income from operations		5,787		—		173		5,960
Identifiable assets		339,175		—		8,106		347,281

	North American		Australian		Industrial
	Railroad		Railroad		Switching
2000	Operations		Operations		Operations		Total
Operating revenues	$	39,751	$	10,055	$	2,548	$	52,354
Income from operations		6,245		1,382		180		7,807
Identifiable assets		257,127		39,456		8,158		304,741

Six Months Ended June 30,

	North American		Australian		Industrial
	Railroad		Railroad		Switching
2001	Operations		Operations		Operations		Total
Operating revenues	$	81,299		—	$	5,815	$	87,114
Income from operations		10,733		—		297		11,030
Identifiable assets		339,175		—		8,106		347,281

	North American		Australian		Industrial
	Railroad		Railroad		Switching
2000	Operations		Operations		Operations		Total
Operating revenues	$	81,991	$	20,685	$	5,089	$	107,765
Income from operations		13,689		2,266		150		16,105
Identifiable assets		257,127		39,456		8,158		304,741

9. DERIVATIVE FINANCIAL INSTRUMENTS:

      The Company actively monitors its exposure to foreign currency exchange rate and interest rate risks and uses derivative financial instruments to manage the impact of certain of these risks. The Company uses derivatives only for purposes of managing risk associated with underlying exposures. The Company does not trade or use instruments with the objective of earning financial gains on the exchange rate or interest rate fluctuations alone, nor does it use instruments where there are not underlying exposures. The Company’s use of derivative financial instruments may result in short-term gains or losses and increased earnings volatility. Complex instruments involving leverage or multipliers are not used. Management believes that its use of derivative instruments to manage risk is in the Company’s best interest.

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      On January 1, 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137 and SFAS No. 138. In accordance with the provisions of SFAS No. 133, the Company recorded a transition adjustment upon adoption of the standard to recognize its derivative instruments at then fair value of a liability of $388,000. The effect of this transition adjustment was not material to both reported earnings and accumulated other comprehensive income.

Foreign Currency Exchange Rate Risk

      During 2000, the Company entered into various exchange rate options that established exchange rates for converting Mexican Pesos to U.S. Dollars. The options expire at various times through March 15, 2002, and give the Company the right to sell Mexican Pesos for U.S. Dollars at exchange rates ranging from 10.61 Mexican Pesos to the U.S. Dollar to 11.85 Mexican Pesos to the U.S. Dollar. As part of one of these options, the Company gave to a third party the right to sell to the Company U.S. Dollars for Mexican Pesos at an exchange rate of 9.85 Mexican Pesos to the U.S. Dollar. The notional amount under these options is $2.8 million. At June 30, 2001, the fair value of these currency options is a liability of $86,790.

Interest Rate Risk

      During 2001, 2000 and 1999, the Company entered into various interest rate swaps fixing its base interest rate by exchanging its variable LIBOR interest rates on long-term debt for a fixed interest rate. The swaps expire at various dates through September 2006 and the fixed base rates range from 5.46% to 6.87%. At June 30, 2001, the notional amount under these agreements is $58.6 million. At June 30, 2001, the fair value of these interest rate swaps is a net liability of $702,664.

10. RECENTLY ISSUED ACCOUNTING STANDARDS:

      On June 30, 2001, the Financial Accounting Standards Board issued Statement No. 141, “Business Combinations"(Statement No. 141). Under Statement No. 141, all business combinations initiated after June 30, 2001 must be accounted for using the purchase method of accounting. Use of the pooling-of-interests method will be prohibited. Additionally, Statement No. 141 requires that certain intangible assets that can be identified and named be recognized as assets apart from goodwill. Statement No. 141 is effective for all business combinations initiated after June 30, 2001.

      On June 30, 2001, the Financial Accounting Standards Board issued Statement No. 142, “Goodwill and Other Intangible Assets” (Statement No. 142). Under Statement No. 142, goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives. In accordance with this statement, the Company will adopt Statement 142 as of January 1, 2002 for existing goodwill and intangible assets and upon entering into any new business combinations subsequent to June 30, 2001. As of June 30, 2001, goodwill, net of accumulated amortization, is $8.1 million and amortization expense for the six months ended June 30, 2001 is $256,000. The Company has not yet determined the impact that Statement 142 will have on the Company’s financial condition or results of operations.

13

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The following discussion should be read in conjunction with the Company’s 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 the Company’s 2000 Form 10-K.

General

      The Company is a holding company whose subsidiaries and unconsolidated affiliates own and/or operate short line and regional freight railroads and provide related rail services in North America, South America and Australia. The Company, through its U.S. industrial switching subsidiary, also provides freight car switching and related services to industrial companies located in the United States with extensive railroad facilities within their complexes. The Company generates revenues primarily from the movement of freight over track owned or operated by its railroads. The Company also generates non-freight revenues primarily by providing freight car switching and related rail services such as railcar leasing, railcar repair and storage to the aforementioned industrial companies, to shippers along its lines, and to the Class I railroads that connect with its North American lines.

      The Company’s operating expenses include wages and benefits, equipment rents (including car hire), purchased services, depreciation and amortization, diesel fuel, casualties and insurance, materials and other expenses. Car hire is a charge paid by a railroad to the owners of railcars used by that railroad in moving freight. Other expenses generally include property and other non-income taxes, professional services, communication and data processing costs and general overhead expenses.

      When comparing the Company’s results of operations from one reporting period to another, the following factors should be taken into consideration. The Company has historically experienced fluctuations in revenues and expenses such as one-time freight moves, customer plant expansions and shut-downs, railcar sales, accidents and derailments. In periods when these events occur, results of operations are not easily comparable to other periods. Also, much of the Company’s growth to date has resulted from acquisitions, joint ventures, and investments in unconsolidated affiliates. Most recently, the Company, through a 50% owned joint venture, completed an acquisition in Western Australia in December 2000, and through an indirect investment in an unconsolidated affiliate, began operating a railroad in Bolivia in November 2000. Because of variations in the structure, timing and size of these acquisitions and differences in economics among the Company’s railroads resulting from differences in the rates and other material terms established through negotiation, the Company’s results of operations in any reporting period may not be directly comparable to its results of operations in other reporting periods.

      Australia

      On December 16, 2000, the Company, through its newly-formed joint venture, Australian Railroad Group Pty. Ltd. (ARG), completed the acquisition of Westrail Freight from the government of Western Australia for approximately $334.4 million including working capital. ARG is a joint venture owned 50% by the Company and 50% by Wesfarmers Limited, a public corporation based in Perth, Western Australia. Westrail Freight is composed of the freight operations of the formerly state-owned railroad of Western Australia.

      To complete the acquisition, the Company contributed its formerly wholly-owned subsidiary, Australia Southern Railroad (ASR), to ARG along with the Company’s 2.6%

14

interest in the Asia Pacific Transport Consortium (APTC) — a consortium selected to construct and operate the Alice Springs to Darwin railway line in the Northern Territory of Australia. Additionally, the Company contributed $21.4 million of cash to ARG while Wesfarmers contributed $64.2 million in cash, including $8.2 million which represents a long-term non-interest bearing note to match a similar note due to the Company from ASR at the date of the transaction. ARG funded the remaining purchase price with proceeds from a new bank credit facility.

      To fund its cash investment in ARG, the Company also completed a private placement of Redeemable Convertible Preferred Stock (the Convertible Preferred) with the 1818 Fund III, L.P. (the Fund) managed by Brown Brothers Harriman & Co. Dividends on the Convertible Preferred are cumulative and payable quarterly in arrears in an amount equal to 4% of the issue price. Each share of the Convertible Preferred is convertible by the Fund at any time into shares of Class A Common Stock of the Company at a conversion price of $15.33 per share of Class A Common Stock (if converted, 1,304,348 shares of Common Stock). The Convertible Preferred is callable by the Company after four years from date of issuance, December 12, 2000, and is mandatorily redeemable in eight years from date of issuance.

      In the fourth quarter of 2000, the Company recognized a $10.1 million gain upon the issuance of ASR stock to Wesfarmers upon the formation of ARG as a result of such issuance being at a per share price in excess of the Company’s book value per share investment in ASR. Additionally, due to the deconsolidation of ASR, the Company recognized a $6.5 million deferred tax expense resulting from the financial reporting versus tax basis difference in the Company’s equity investment in ARG. The Company accounts for its 50% ownership in ARG under the equity method of accounting and therefore deconsolidated ASR from its consolidated financial statements as of December 17, 2000.

      On April 20, 2001, APTC completed the arrangement of debt and equity capital to finance a project to build, own and operate the Alice Springs to Darwin railway line in the Northern Territory of Australia. As previously arranged, upon APTC reaching financial closure, Wesfarmers contributed an additional $7.4 million into ARG and accordingly, the Company recorded an additional first quarter gain of $3.7 million related to the December, 2000 issuance of ARG stock to Wesfarmers. The $3.7 million purchase price adjustment was recorded as a one-time gain for the Company in the quarter ended March 31, 2001. A related deferred income tax expense of $1.1 million was also recorded during the quarter ended March 31, 2001. In the second quarter of 2001, ARG paid the $7.4 million to its two shareholders, in equal amounts of $3.7 million each, as partial payment of each shareholder’s non-interest bearing note.

      South America

      On November 5, 2000, the Company acquired an indirect 21.87% equity interest in Empresa Ferroviaria Oriental, S.A. (Oriental) increasing its stake in Oriental to 22.55%. Oriental is a railroad serving eastern Bolivia and connecting to railroads in Argentina and Brazil. The Company’s new ownership interest is largely through a 90% owned holding company subsidiary in Bolivia which also received $740,000 from the minority partner for investment into Oriental. The Company’s portion of the Oriental investment is composed of $6.7 million in cash, the assumption (via an unconsolidated subsidiary) of non-recourse debt of $10.8 million at an interest rate of 7.67%, and a non-interest bearing contingent payment of $450,000 due in 2003 if certain financial results are achieved. The cash used by the Company to fund such investment was obtained from its existing revolving credit facility. Additionally, the Company received the right to collect dividends from the Oriental related to its full year 2000 earnings. Such dividends of $617,000 were received in March 2001. The Company accounts for its indirect interest in the Oriental under the equity method of accounting.

15

      Mexico

      On December 7, 2000, in conjunction with the refinancing of FCCM and its parent company, GW Servicios, S.A. de C.V. (Servicios), the International Finance Corporation (IFC) invested $1.9 million of equity for a 12.7% indirect interest in FCCM, through its parent company Servicios. The Company contributed an additional $13.1 million and maintains an 87.3% indirect ownership in FCCM. The Company funded $10.7 million of its new investment with borrowings under its amended credit facility, with the remaining investment funded by the conversion of intercompany advances into permanent capital. Along with its equity investment, IFC received a put option exercisable in 2005 to sell its equity stake back to the Company. The put price will be based on a multiple of earnings before interest, taxes, depreciation and amortization. The Company increases its minority interest expense in the event that the value of the put option exceeds the otherwise minority interest liability.

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16

Results of Operations

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

      Consolidated Operating Revenues

      Operating revenues were $44.2 million in the quarter ended June 30, 2001 compared to $52.4 million in the quarter ended June 30, 2000, a net decrease of $8.1 million or 15.5%. The net decrease was attributable to a $10.1 million decrease due to the deconsolidation of Australian railroad operations; offset by a $1.6 million increase in North American railroad revenues and a $375,000 increase in industrial switching revenues.

      The following two sections provide information on railroad revenues in North America and industrial switching revenues in the United States.

      North American Railroad Operating Revenues

      North American railroad operating revenues were $41.3 million in the quarter ended June 30, 2001 compared to $39.8 million in the quarter ended June 30, 2000, an increase of $1.6 million or 3.9%. The increase was attributable to a $1.8 million increase in freight revenues; offset by a $277,000 decrease in non-freight revenues.

      The following table compares North American freight revenues, carloads and average freight revenues per carload for the quarters ended June 30, 2001 and 2000:

North American Freight Revenues and Carloads Comparison by Commodity Group
Quarters Ended June 30, 2001 and 2000
(dollars in thousands, except average per carload)

																						Average
																						Freight
																						Revenues
																						Per
		Freight Revenues												Carloads								Carload
				% of					% of					% of					% of
Commodity Group		2001		Total			2000		Total			2001		Total			2000		Total			2001		2000
Coal, Coke &
	Ores	$	7,783		23.1	%	$	6,144		19.3	%		33,265		34.4	%		26,512		29.1	%	$	234	$	232
Minerals & Stone			5,294		15.7	%		4,954		15.6	%		11,318		11.7	%		10,955		12.0	%		468		452
Pulp & Paper			4,843		14.4	%		4,999		15.7	%		12,603		13.0	%		12,939		14.2	%		384		386
Petroleum Products			4,799		14.3	%		4,708		14.8	%		7,615		7.9	%		7,983		8.8	%		630		590
Metals			2,547		7.6	%		2,749		8.6	%		9,281		9.6	%		10,041		11.0	%		274		274
Lumber & Forest Products			2,294		6.8	%		2,194		6.9	%		6,634		6.9	%		7,208		7.9	%		346		304
Chemicals &
	Plastics		2,187		6.5	%		2,373		7.5	%		4,262		4.4	%		4,545		5.0	%		513		522
Farm & Food Products			2,146		6.4	%		1,641		5.2	%		5,477		5.7	%		4,491		4.9	%		392		365
Autos & Auto Parts			322		1.0	%		852		2.7	%		508		0.5	%		1,554		1.8	%		634		548
Other			1,447		4.2	%		1,201		3.7	%		5,822		5.9	%		4,776		5.3	%		249		251
Total		$	33,662		100.0	%	$	31,815		100.0	%		96,785		100.0	%		91,004		100.0	%		348		350

      Total North American carloads were 96,785 in the quarter ended June 30, 2001 compared to 91,004 in the quarter ended June 30, 2000, an increase of 5,781 or 6.4%. The average revenue per carload decreased to $348 in the quarter ended June 30, 2001, compared to $350 per carload in the quarter ended June 30, 2000, a decrease of 0.6%.

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      North American non-freight railroad revenues were $7.7 million in the quarter ended June 30, 2001 compared to $7.9 million in the quarter ended June 30, 2000, a decrease of $277,000 or 3.5%. The following table compares North America non-freight revenues for the quarters ended June 30, 2001 and 2000:

North American Railroad
Non-Freight Operating Revenue Comparison
Quarters Ended June 30, 2001 and 2000
(dollars in thousands)

	2001					2000
	$		% of			$		% of
			Non-Freight					Non-Freight
			Revenue					Revenue
Railroad switching	$	2,027		26.5	%	$	2,733		34.5	%
Car hire and rental income		1,418		18.5	%		2,087		26.3	%
Car repair services		821		10.7	%		810		10.2	%
Other operating income		3,392		44.3	%		2,305		29.0	%
Total non-freight revenues	$	7,658		100.0	%	$	7,935		100.0	%

      Industrial Switching Revenues

      Revenues from U.S. industrial switching activities were $2.9 million in the quarter ended June 30, 2001 compared to $2.5 million in the quarter ended June 30, 2000, an increase of $375,000 or 14.7% due primarily to new switching contracts.

      Consolidated Operating Expenses

      Operating expenses for all operations combined were $38.3 million in the quarter ended June 30, 2001, compared to $44.5 million in the quarter ended June 30, 2000, a decrease of $6.2 million or 14.1%. The net decrease was attributable to a $8.7 million decrease due to the deconsolidation of Australian railroad operations; offset by a $2.0 million increase in North American railroad operating expenses and a $382,000 increase in industrial switching operating expenses.

      The following two sections provide information on railroad expenses in North America and industrial switching expenses in the United States.

      North American Railroad Operating Expenses

      The following table sets forth a comparison of the Company’s North American railroad operating expenses in the quarters ended June 30, 2001 and 2000:

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18

North American Railroad
Operating Expense Comparison
Quarters Ended June 30, 2001 and 2000
(dollars in thousands)

	2001					2000
			% of					% of
			Operating					Operating
	$		Revenue			$		Revenue
Labor and benefits	$	14,524		35.2	%	$	13,970		35.1	%
Equipment rents		5,162		12.5	%		4,726		11.9	%
Purchased services		2,829		6.8	%		2,924		7.4	%
Depreciation and amortization		2,967		7.2	%		2,711		6.8	%
Diesel fuel		2,906		7.0	%		2,839		7.1	%
Casualties and insurance		1,889		4.6	%		1,370		3.4	%
Materials		2,901		7.0	%		2,590		6.5	%
Other expenses		2,355		5.7	%		2,375		6.1	%
Total operating expenses	$	35,533		86.0	%	$	33,505		84.3	%

      U.S. Industrial Switching Operating Expenses

      The following table sets forth a comparison of the Company’s U.S. industrial switching operating expenses in the quarters ended June 30, 2001 and 2000:

U.S. Industrial Switching
Operating Expense Comparison
Quarters Ended June 30, 2001 and 2000
(dollars in thousands)

	2001					2000
			% of					% of
			Operating					Operating
	$		Revenue			$		Revenue
Labor and benefits	$	1,847		63.2	%	$	1,511		59.3	%
Equipment rents		75		2.6	%		45		1.8	%
Purchased services		88		3.0	%		53		2.1	%
Depreciation and amortization		156		5.3	%		160		6.3	%
Diesel fuel		112		3.8	%		122		4.8	%
Casualties and insurance		95		3.3	%		128		5.0	%
Materials		194		6.6	%		147		5.8	%
Other expenses		183		6.3	%		202		7.8	%
Total operating expenses	$	2,750		94.1	%	$	2,368		92.9	%

      Labor and benefits expense was $1.8 million in the quarter ended June 30, 2001 compared to $1.5 million in the quarter ended June 30, 2000, an increase of $336,000 or 22.2%, due primarily to costs associated with new switching contracts.

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      Operating Ratios

      The Company’s combined operating ratio increased to 86.5% in the quarter ended June 30, 2001 from 85.1% in the quarter ended June 30, 2000. The operating ratio for North American railroad operations increased to 86.0% in the quarter ended June 30, 2001 from 84.3% in the quarter ended June 30, 2000. The operating ratio for U.S. industrial switching operations increased to 94.1% in the quarter ended June 30, 2001 from 92.9% in the quarter ended June 30, 2000. The operating ratio for Australian railroad operations was 86.3% in the quarter ended June 30, 2000.

      Interest Expense

      Interest expense was $2.3 million in the quarter ended June 30, 2001 compared to $2.5 million in the quarter ended June 30, 2000, a decrease of $206,000 or 8.2% due primarily to a decrease in outstanding debt.

      Valuation Adjustment of U.S. Dollar Denominated Foreign Loans

      Amounts previously outstanding under the Company’s credit agreement which were borrowed by FCCM represented U.S. dollar denominated foreign debt of the Company’s Mexican subsidiary. As the Mexican peso moved against the U.S. dollar, the revaluation of this outstanding debt to its Mexican peso equivalent resulted in non-cash gains and losses. On June 16, 2000, pursuant to a corporate and financial restructuring of the Company’s Mexican subsidiaries, the income statement impact of the U.S. dollar denominated foreign loans was significantly reduced. For the quarters ended June 30, 2001 and 2000, the Company recorded approximately $26,000 and $2.4 million of non-cash expense, respectively, related to valuation adjustments on these loans.

      Other Income, Net

      Other income, net in the quarter ended June 30, 2001, was $223,000 compared to $691,000 in the quarter ended June 30, 2000, a decrease of $468,000. Other income, net consists primarily of interest income and the decrease was primarily related to the decrease of an interest bearing special deposit in Mexico.

      Income Taxes

      The Company’s effective income tax rate in the quarter ended June 30, 2001 was 35.8% which compared to 37.1% in the quarter ended June 30, 2000 due primarily to a lower effective income tax rate for the Company’s operations in Mexico in the 2001 period.

      Equity in Net Income of Unconsolidated International Affiliates

      Equity earnings of unconsolidated international affiliates in the quarter ended June 30, 2001, were $2.6 million while there were no equity earnings of unconsolidated international affiliates in the quarter ended June 30, 2000. The equity earnings in the quarter ended June 30, 2001, consist of $2.5 million from Australian Railroad Group and $140,000 from South American affiliates.

      Net Income and Earnings Per Share

      The Company’s net income in the quarter ended June 30, 2001 was $5.1 million compared to net income in the quarter ended June 30, 2000 of $2.3 million, an increase of $2.8 million. The increase in net income is the net result of an increase in equity in net income of unconsolidated international affiliates of $2.6 million and an increase in net income from North American railroad operations of $929,000; offset by a decrease in net income from operations in Australia of

20

$716,000 due to the deconsolidation of ASR, and a decrease in the net income of industrial switching operations of $24,000.

      Basic and Diluted Earnings Per Share in the quarter ended June 30, 2001 were $0.70 and $0.60 respectively, on weighted average shares of 6.9 million and 8.4 million respectively, compared to $0.35 and $0.34 respectively, on weighted average shares of 6.5 million and 6.7 million respectively, in the quarter ended June 30, 2000. The weighted average shares outstanding for quarters ended June 30, 2001 and 2000 are adjusted for the impact of the June 15, 2001 stock split (see Note 1. to consolidated financial statements). The increase in weighted average shares outstanding for Diluted Earnings Per Share of 1.7 million is primarily attributable to the dilutive impact of the common stock equivalents (1,304,348 shares) associated with the issuance of the Redeemable Convertible Preferred Stock in December 2000.

Supplemental Information — Australian Railroad Group

      ARG is a joint venture owned 50% by the Company and 50% by Wesfarmers Limited, a public corporation based in Perth, Western Australia. The Company accounts for its 50% ownership in ARG under the equity method of accounting. In the quarter ended June 30, 2001, the Company recorded $2.5 million of equity earnings in the Equity in Net Income of International Affiliates — Australian Railroad Group caption in the accompanying consolidated statements of income. The following table provides ARG’s freight revenues, carloads and average freight revenues per carload for the quarter ended June 30, 2001.

Australian Railroad Group Freight Revenues and Carloads by Commodity Group
Quarter Ended June 30, 2001
(U.S. dollars in thousands, except average per carload)

					Average
					Freight
					Revenues
	Freight				Per
	Revenues		Carloads		Carload
Grain	$	12,445		41,827	$	298
Other Ores and Minerals		10,219		25,612		399
Iron Ore		4,822		39,857		121
Alumina		4,392		37,035		119
Hook and Pull (Haulage)		2,367		10,370		228
Bauxite		2,131		30,515		70
Gypsum		445		8,494		52
Other		3,802		15,459		246
Total	$	40,623		209,169		194

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

      Consolidated Operating Revenues

      Operating revenues were $87.1 million in the six months ended June 30, 2001 compared to $107.8 million in the six months ended June 30, 2000, a net decrease of $20.7 million or 19.2%. The net decrease was attributable to a $20.7 million decrease due to the deconsolidation of Australian railroad operations and a $691,000 decrease in North American railroad revenues; offset by a $726,000 increase in industrial switching revenues.

21

      The following two sections provide information on railroad revenues in North America and industrial switching revenues in the United States.

      North American Railroad Operating Revenues

      North American railroad operating revenues were $81.3 million in the six months ended June 30, 2001 compared to $82.0 million in the six months ended June 30, 2000, a net decrease of $692,000 or 0.8%. The net decrease was attributable to a $568,000 increase in freight revenues and a $1.3 million decrease in non-freight revenues.

      The following table compares North American freight revenues, carloads and average freight revenues per carload for the six months ended June 30, 2001 and 2000:

North American Freight Revenues and Carloads Comparison by Commodity Group
Six Months Ended June 30, 2001 and 2000
(dollars in thousands, except average per carload)

																						Average
																						Freight
																						Revenues
																						Per
		Freight Revenues												Carloads								Carload
				% of					% of					% of					% of
Commodity Group		2001		Total			2000		Total			2001		Total			2000		Total			2001		2000
Coal, Coke &
	Ores	$	14,752		22.4	%	$	13,383		20.5	%		64,575		33.7	%		59,102		30.9	%	$	228	$	226
Pulp & Paper			9,733		14.8	%		9,864		15.1	%		25,635		13.4	%		25,704		13.4	%		380		384
Minerals & Stone			9,635		14.6	%		8,802		13.5	%		20,920		10.9	%		19,916		10.4	%		461		442
Petroleum Products			9,522		14.5	%		9,726		14.9	%		15,276		8.0	%		16,338		8.5	%		623		595
Farm & Food Products			5,328		8.1	%		5,108		7.8	%		15,169		7.9	%		14,419		7.5	%		351		354
Metals			5,218		7.9	%		5,273		8.1	%		18,694		9.8	%		19,081		10.0	%		279		276
Chemicals &
	Plastics		4,442		6.7	%		4,634		7.1	%		8,621		4.5	%		8,957		4.7	%		515		517
Lumber & Forest Products			4,176		6.3	%		4,398		6.7	%		12,166		6.4	%		14,324		7.5	%		343		307
Autos & Auto Parts			667		1.0	%		1,609		2.5	%		1,104		0.6	%		2,934		1.5	%		604		548
Other			2,417		3.7	%		2,525		3.8	%		9,371		4.8	%		10,462		5.6	%		258		241
Total		$	65,890		100.0	%	$	65,322		100.0	%		191,531		100	%		191,237		100	%		344		342

      Total North American carloads were 191,531 in the six months ended June 30, 2001 compared to 191,237 in the six months ended June 30, 2000, an increase of 294 carloads. The average revenue per carload increased to $344 in the six months ended June 30, 2001, compared to $342 per carload in the six months ended June 30, 2000, an increase of 0.6%.

      North American non-freight railroad revenues were $15.4 million in the six months ended June 30, 2001 compared to $16.7 million in the six months June 30, 2000, a decrease of $1.3 million or 7.6%. The following table compares North America non-freight revenues for the six months ended June 30, 2001 and 2000:

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North American Railroad
Non-Freight Operating Revenue Comparison
Six Months Ended June 30, 2001 and 2000
(dollars in thousands)

	2001					2000
	$		% of			$		% of
			Non-Freight					Non-Freight
			Revenue					Revenue
Railroad switching	$	4,282		27.8	%	$	5,550		33.3	%
Car hire and rental income		3,035		19.7	%		4,040		24.2	%
Car repair services		1,654		10.7	%		1,672		10.0	%
Other operating income		6,438		41.8	%		5,406		32.5	%
Total non-freight revenues	$	15,409		100.0	%	$	16,668		100.0	%

      Industrial Switching Revenues

      Revenues from U.S. industrial switching activities were $5.8 million in the six months ended June 30, 2001 compared to $5.1 million in the six months ended June 30, 2000, an increase of $726,000 or 14.3% due primarily to new switching contracts.

      Consolidated Operating Expenses

      Operating expenses for all operations combined were $76.1 million in the six months ended June 30, 2001, compared to $91.7 million in the six months ended June 30, 2000, a decrease of $15.6 million or 17.0%. The net decrease was attributable to a $18.3 million decrease due to the deconsolidation of Australian railroad operations; offset by a $2.3 million increase in North American railroad operating expenses and a $578,000 increase in industrial switching operating expenses.

      The following two sections provide information on railroad expenses in North America and industrial switching expenses in the United States.

      North America Railroad Operating Expenses

      The following table sets forth a comparison of the Company’s North American railroad operating expenses in the six months ended June 30, 2001 and 2000:

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North American Railroad
Operating Expense Comparison
Six Months Ended June 30, 2001 and 2000
(dollars in thousands)

	2001					2000
			% of					% of
			Operating					Operating
	$		Revenue			$		Revenue
Labor and benefits	$	28,416		35.0	%	$	27,923		34.1	%
Equipment rents		10,189		12.5	%		9,874		12.0	%
Purchased services		5,429		6.7	%		5,667		6.9	%
Depreciation and amortization		6,037		7.4	%		5,133		6.3	%
Diesel fuel		6,438		7.9	%		6,226		7.6	%
Casualties and insurance		3,294		4.1	%		3,158		3.9	%
Materials		5,649		6.9	%		5,496		6.7	%
Other expenses		5,115		6.3	%		4,825		5.8	%
Total operating expenses	$	70,567		86.8	%	$	68,302		83.3	%

      U. S. Industrial Switching Operating Expenses

      The following table sets forth a comparison of the Company’s U.S. industrial switching operating expenses in the six months ended June 30, 2001 and 2000:

U.S. Industrial Switching
Operating Expense Comparison
Six Months Ended June 30, 2001 and 2000
(dollars in thousands)

	2001					2000
			% of					% of
			Operating					Operating
	$		Revenue			$		Revenue
Labor and benefits	$	3,654		62.8	%	$	3,053		60.0	%
Equipment rents		143		2.5	%		91		1.8	%
Purchased services		180		3.1	%		148		2.9	%
Depreciation and amortization		311		5.3	%		320		6.3	%
Diesel fuel		256		4.4	%		282		5.5	%
Casualties and insurance		171		2.9	%		253		5.0	%
Materials		377		6.5	%		325		6.4	%
Other expenses		425		7.4	%		467		9.2	%
Total operating expenses	$	5,517		94.9	%	$	4,939		97.1	%

      Operating Ratios

      The Company’s combined operating ratio increased to 87.3% in the six months ended June 30, 2001 from 85.1% in the six months ended June 30, 2000. The operating ratio for North American railroad operations increased to 86.8% in the six months ended June 30, 2001 from 83.3% in the six months ended June 30, 2000. The operating ratio for U.S. industrial switching operations decreased to 94.9% in the six months ended

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June 30, 2001 from 97.1% in the six months ended June 30, 2000. The operating ratio for Australian railroad operations was 89.0% in the six months ended June 30, 2000.

      Interest Expense

      Interest expense in the six months ended June 30, 2001 was $5.1 compared to $5.3 million in the six months ended June 30, 2000, a decrease of $139,000 or 2.6% due primarily to a decrease in outstanding debt.

      Gain on 50% Sale of APTC to Australian Railroad Group

      On April 20, 2001, APTC completed the arrangement of debt and equity capital to finance a project to build, own and operate the Alice Springs to Darwin railway line in the Northern Territory of Australia. As previously arranged, upon APTC reaching financial closure, Wesfarmers contributed an additional $7.4 million into ARG and accordingly, the Company recorded an additional first quarter gain of $3.7 million related to the December, 2000 issuance of ARG stock to Wesfarmers. The $3.7 million purchase price adjustment was recorded as a one-time gain for the Company in the quarter ended March 31, 2001. A related deferred income tax expense of $1.1 million was also recorded. In the second quarter of 2001, ARG paid the $7.4 million to its two shareholders, in equal amounts of $3.7 million each, as partial payment of each shareholder’s non-interest bearing note.

      Valuation Adjustment of U.S. Dollar Denominated Foreign Loans

      Amounts previously outstanding under the Company’s credit agreement which were borrowed by FCCM represented U.S. dollar denominated foreign debt of the Company’s Mexican subsidiary. As the Mexican peso moved against the U.S. dollar, the revaluation of this outstanding debt to its Mexican peso equivalent resulted in non-cash gains and losses. On June 16, 2000, pursuant to a corporate and financial restructuring of the Company’s Mexican subsidiaries, the income statement impact of the U.S. dollar denominated foreign loans was significantly reduced. For the six months ended June 30, 2001 and 2000, the Company recorded approximately $69,000 and $1.5 million of non-cash expense, respectively, related to valuation adjustments on these loans.

      Other Income, Net

      Other income, net in the six months ended June 30, 2001, was $604,000 compared to $1.2 million in the six months ended June 30, 2000, a decrease of $644,000. Other income, net consists primarily of interest income and the decrease was primarily related to the decrease of an interest bearing special deposit in Mexico.

      Income Taxes

      The Company’s effective income tax rate in the six months ended June 30, 2001 was 34.9% which compared to 36.9% in the six months ended June 30, 2000. The decrease is partially attributable to a lower Australian income tax rate (30%) recorded on the $3.7 million one-time gain on the sale of 50% of its interest in APTC, and partially attributable to a lower income tax rate recorded on the Company’s operations in Mexico.

      Equity in Net Income of Unconsolidated International Affiliates

      Equity earnings of unconsolidated international affiliates in the six months ended June 30, 2001, were $4.9 million while there were no equity earnings of unconsolidated international affiliates in the six months ended June 30, 2000. The equity earnings in the six months ended June 30, 2001, consist of $4.7 million from Australian Railroad Group and $206,000 from South America affiliates.

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      Net Income and Earnings Per Share

      The Company’s net income in the six months ended June 30, 2001 was $11.6 million compared to net income in the six months ended June 30, 2000 of $6.7 million, an increase of $4.9 million. The increase in net income is the net result of an increase in equity in net income of unconsolidated international affiliates of $4.9 million, an increase in net income from North American railroad operations of $910,000 (including a $2.6 million after-tax gain on the APTC sale), and an increase in net income of industrial switching operations of $66,000; offset by a decrease in net income from operations in Australia of $1.1 million due to the deconsolidation of ASR.

      Basic and Diluted Earnings Per Share in the six months ended June 30, 2001 were $1.62 and $1.38 respectively, on weighted average shares of 6.8 million and 8.4 million respectively, compared to $1.03 and $1.00 respectively, on weighted average shares of 6.5 million and 6.7 million respectively, in the six months ended June 30, 2000. The weighted average shares outstanding for six months ended June 30, 2001 and 2000 are adjusted for the impact of the June 15, 2001 stock split (see Note 7. to consolidated financial statements). The increase in weighted average shares outstanding for Diluted Earnings Per Share of 1.7 million is primarily attributable to the dilutive impact of the common stock equivalents (1,304,348 shares) associated with the issuance of the Redeemable Convertible Preferred Stock in December 2000.

Supplemental Information — Australian Railroad Group

      ARG is a joint venture owned 50% by the Company and 50% by Wesfarmers Limited, a public corporation based in Perth, Western Australia. The Company accounts for its 50% ownership in ARG under the equity method of accounting. In the six months ended June 30, 2001, the Company recorded $4.7 million of equity earnings in the Equity in Net Income of International Affiliates — Australian Railroad Group caption in the accompanying consolidated statements of income. The following table provides ARG’s freight revenues, carloads and average freight revenues per carload for the six months ended June 30, 2001.

Australian Railroad Group Freight Revenues and Carloads by Commodity Group
Six Months Ended June 30, 2001
(U.S. dollars in thousands, except average per carload)

					Average
					Freight
					Revenues
	Freight				Per
	Revenues		Carloads		Carload
Grain	$	24,820		82,498	$	301
Other Ores and Minerals		16,894		49,424		342
Iron Ore		8,969		75,728		118
Alumina		8,816		72,342		122
Hook and Pull (Haulage)		4,448		19,325		230
Bauxite		4,328		61,488		70
Gypsum		983		18,322		54
Other		11,144		31,130		358
Total	$	80,402		410,257		196

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Liquidity and Capital Resources

      During the six months ended June 30, 2001 the Company generated cash from operations of $11.5 million, invested $6.2 million in capital assets (including $227,000 in state grant funds received for track rehabilitation and construction), received $6.9 million in proceeds from the disposition of property including $6.5 million from a sale-leaseback of locomotives, received $617,000 in dividends from an unconsolidated South American affiliate, received a $3.7 million purchase price adjustment from an unconsolidated Australian affiliate, and received $3.5 million in proceeds from employee stock purchases. The proceeds from employee stock purchases relate primarily to the exercise of employee stock options that carried an expiration date of June 15, 2001. The Company also paid $444,000 of dividends on the Company’s Redeemable Convertible Preferred Stock, and had a net decrease in debt of $12.4 million during this same period.

      During the six months ended June 30, 2000 the Company generated cash from operations of $10.8 million, invested $16.6 million in capital assets (including $5.8 million in state grant funds received for track rehabilitation and construction), had a net increase in debt of $1.7 million, and received $157,000 in proceeds from the disposition of property.

      The Company has budgeted approximately $18.0 million in capital expenditures in 2001, of which $15.0 million is for track rehabilitation. Of the $18.0 million in capital expenditures, $1.7 million is expected to be funded by rehabilitation grants from state and federal agencies to several of the Company’s railroads, and $1.6 million will be funded by the remaining Special Track Project deposit which was part of the purchase allocation of the Company’s subsidiary in Mexico. Approximately $7.8 million of the budgeted capital expenditures of $18.0 million were completed as of June 30, 2001. Of this $7.8 million in capital expenditures, $6.0 million was funded by cash from operations, $227,000 was funded by governmental grants, and $1.6 million was funded by the Special Track Project deposit in Mexico.

      At June 30, 2001 the Company had long-term debt, including current portion, totaling $92.2 million, which comprised 41.7% of its total capitalization including the Convertible Preferred. At December 31, 2000 the Company had long-term debt, including current portion, totaling $104.8 million, which comprised 48.0% of its total capitalization including the Convertible Preferred.

      The Company has historically relied primarily on cash generated from operations to fund working capital and capital expenditures relating to ongoing operations, while relying on borrowed funds to finance acquisitions and equipment needs (primarily rolling stock) related to acquisitions. The Company believes that its cash flow from operations together with amounts available under its credit facilities will enable the Company to meet its liquidity and capital expenditure requirements relating to ongoing operations for at least the duration of its credit facilities.

Forward-Looking Statements

      This Report and the documents incorporated herein by reference may contain forward-looking statements based on current expectations, estimates and projections about the Company’s industry, management’s beliefs, and assumptions made by management. Words such as “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are no guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to forecast. Therefore, actual results may differ materially from those expressed or forecast in any such forward-looking statements. Such risks and uncertainties include, in addition to those set forth in this Item 2, those noted in the documents incorporated by reference. The Company undertakes no

27

obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

      The Company actively monitors its exposure to foreign currency exchange rate and interest rate risks and uses derivative financial instruments to manage the impact of certain of these risks. The Company uses derivatives only for purposes of managing risk associated with underlying exposures. The Company does not trade or use instruments with the objective of earning financial gains on the exchange rate or interest rate fluctuations alone, nor does it use instruments where there are not underlying exposures. The Company’s use of derivative financial instruments may result in short-term gains or losses and increased earnings volatility. Complex instruments involving leverage or multipliers are not used. Management believes that its use of derivative instruments to manage risk is in the Company’s best interest.

      The Company has estimated its market risk exposures using sensitivity analyses. Market risk exposure has been defined as the change in the Company’s cash flow for individual derivative instruments assuming hypothetical adverse changes in market rates or exchange rates. The results of the sensitivity analyses as of June 30, 2001, did not differ materially from the amounts determined as of December 31, 2000. Actual changes in market prices or rates may differ from hypothetical changes presented in sensitivity analyses.

      The Company is exposed to the impact of foreign currency exchange rate risk at its foreign operations in Canada, Mexico, Australia and Bolivia. In particular, the Company is exposed to the non-cash impact of its equity earnings in ARG which uses the Australian dollar as its functional currency.

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PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS — NONE
ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS — NONE
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES — NONE
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On May 22, 2001, the Stockholders of the Company voted on the following proposals at the Annual Meeting (numbers of shares do not reflect the effect of a subsequent stock dividend):

Proposal 1: To elect three directors to serve for a three-year term expiring in 2004:

	For		Authority Withheld
C. Sean Day		12,873,242		16,354
Louis S. Fuller		12,871,284		18,312
Philip J. Ringo		12,873,878		15,718

The other directors, whose terms of office continued after the meeting, are Mortimer B. Fuller, III, James M. Fuller, T. Michael Long, Robert M. Melzer, John M. Randolph and Hon. M. Douglas Young, P.C.

Proposal 2: To approve and ratify an amendment to the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors which increases the total number of shares available for option grants thereunder from 50,000 to 90,000:

For	12,626,951
Against	259,897
Abstain	2,748

Proposal 3: To approve and ratify the selection of Arthur Andersen LLP as the Company’s independent auditors for the year ending December 31, 2001:

For	11,927,935
Against	959,692
Abstain	1,969

ITEM 5. OTHER INFORMATION — NONE

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS — SEE INDEX TO EXHIBITS

(B) REPORTS ON FORM 8-K:

Report on Form 8-K dated May 1, 2001 reporting on Item 5. Other Events was filed during the period covered by this report.

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INDEX TO EXHIBITS

(2)	Plan of acquisition, reorganization, arrangement, liquidation or succession
	Not applicable.
(3)	(i)     Articles of Incorporation
	The Form of Restated Certificate of Incorporation referenced under (4)(a) hereof is incorporated herein by reference.
	(ii)     By-laws
	The By-laws referenced under (4)(b) hereof are incorporated herein by reference.
(4)	Instruments defining the rights of security holders, including indentures

(a)	Restated Certificate of Incorporation (Exhibit 3.1)6
(b)	Certificate of Designation of 4.0% Senior Redeemable Convertible Preferred Stock, Series A (Exhibit 3.2)6
(c)	By-laws (Exhibit 3.3)1
(d)	Specimen stock certificate representing shares of Class A Common Stock (Exhibit 4.1)3
(e)	Form of Class B Stockholders’ Agreement dated as of May 20, 1996, among the Registrant, its executive officers and its Class B stockholders (Exhibit 4.2)2
(f)	Promissory Note dated October 7, 1991 of Buffalo & Pittsburgh Railroad, Inc. in favor of CSX Transportation, Inc. (Exhibit 4.6)1
(g)	First Amendment to Promissory Note dated as of June 19, 1999 between Buffalo & Pittsburgh Railroad, Inc. and CSX Transportation, Inc. (Exhibit 4.1)4
(h)	Third Amended and Restated Revolving Credit and Term Loan Agreement dated as of August 17, 1999 among the Registrant, certain subsidiaries, BankBoston, N.A. and the banks named therein (Exhibit 4.1)5
(i)	Stock Purchase Agreement by and between Genesee & Wyoming Inc. and The 1818 Fund III, L.P. dated October 19, 2000 (Exhibit 10.1)6
(j)	Registration Rights Agreement between Genesee & Wyoming Inc. and The 1818 Fund III, L.P. dated December 12, 2000 (Exhibit 10.2)6
(k)	Letter Agreement between Genesee & Wyoming Inc., The 1818 Fund III, L.P. and Mortimer B. Fuller, III dated December 12, 2000 (Exhibit 10.3)6

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(10)	Material Contracts
*(10.1)	Amendment No. 3 to the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors
*(10.2)	Amendment No. 4 to the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors
*(11.1)	Statement re computation of per share earnings
(15)	Letter re unaudited interim financial information
	Not applicable.
(18)	Letter re change in accounting principles
	Not applicable.
(19)	Report furnished to security holders
	Not applicable.
(22)	Published report regarding matters submitted to vote of security holders
	Not applicable.
(23)	Consents of experts and counsel
	Not applicable.
(24)	Power of attorney
	Not applicable.
(99)	Additional Exhibits
	Not applicable.

_____________________

   *Exhibit filed with this Report.

      1  Exhibit previously filed as part of, and incorporated herein by reference to, the Registrant’s Registration Statement on Form S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit number in such Registration Statement.

      2  Exhibit previously filed as part of, and incorporated herein by reference to, Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit number in such Amendment.

      3  Exhibit previously filed as part of, and incorporated herein by reference to, Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit number in such Amendment.

31

      4  Exhibit previously filed as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 1998. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

      5  Exhibit previously filed as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-Q for the quarter ended September 30, 1999. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

      6  Exhibit previously filed as part of, and incorporated herein by reference to, the Registrant’s Report on Form 8-K dated December 7, 2000. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

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SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GENESEE & WYOMING INC.
Date: August 13, 2001	By: /s/John C. Hellmann _____________________________ Name: John C. Hellmann Title: Chief Financial Officer
Date: August 13, 2001	By: /s/Alan R. Harris _____________________________ Name: Alan R. Harris Title: Senior Vice President and Chief Accounting Officer

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