GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The interim consolidated financial statements presented herein include the accounts of Genesee & Wyoming Inc. and its subsidiaries (the Company). All references to currency amounts included in this Quarterly Report on Form 10-Q, including the financial statements, are in U.S. dollars unless specifically noted otherwise. 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 (SEC) and, accordingly, do not contain all disclosures which would be required in a full set of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). In the opinion of management, the unaudited financial statements for the three and nine months ended September 30, 2007 and 2006, are presented on a basis consistent with the audited financial statements and contain all adjustments, consisting of normal recurring adjustments except as otherwise noted in notes to the financial statements, 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 consolidated balance sheet data for 2006 was derived from the audited financial statements in the Company’s 2006 Annual Report on Form 10-K but does not include all disclosures required by U.S. GAAP.

The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2006, included in the Company’s 2006 Annual Report on Form 10-K. Certain prior period balances have been reclassified to conform to the 2007 presentation.

Mexico

In October 2005, the Company’s wholly-owned subsidiary, Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM), was struck by Hurricane Stan which destroyed or damaged approximately 70 bridges and washed out segments of track in the State of Chiapas between the town of Tonalá and the Guatemalan border, rendering approximately 175 miles of rail line inoperable.

On June 25, 2007, FCCM formally notified the Secretaria de Comunicaciones y Transporte (SCT) of its intent to cease its rail operations and to resign its 30-year concession from the Mexican government. The decision to cease FCCM’s operations was made on June 22, 2007, and was due to the continued uncertain timing of the Chiapas reconstruction by the Mexican government. Without reconstruction of the hurricane-damaged line, FCCM is not a viable business. During the third quarter of 2007, the Company ceased its Mexican rail operations and initiated formal liquidation proceedings of FCCM’s operations. There were no remaining employees of FCCM as of September 30, 2007. The SCT has contested the resignation of the concession and has seized substantially all of FCCM’s operating assets in response to the resignation. The Company believes the SCT’s actions are unlawful and is pursuing appropriate legal remedies to recover its operating assets. As a result of these recent actions, the Company recorded a pre-tax loss in the third quarter of 2007 of $18.5 million, including non-cash charges of $14.4 million. This is in addition to the Company’s non-cash charge of $33.1 million recorded in the three months ended September 30, 2006, reflecting the write-down of non-current assets and related effects. Results from the Company’s Mexican operations for the three and nine months ended September 30, 2007 and 2006, are now included in results from discontinued operations. See Note 9 for additional information regarding the Company’s discontinued operations.

As a result of the changing economic circumstances of the Company’s Mexican operations as compared to its other businesses, the Company presented its Mexican business as a separate segment in accordance with Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information,” beginning July 1, 2006. Since the Company’s results from its Mexican operations are now included in results from discontinued operations, the Company no longer presents separate segments within its continuing operations.

Australia

Effective June 1, 2006, the Company and its 50% partner, Wesfarmers Limited (Wesfarmers), completed the sale of the Western Australia operations and certain other assets of Australian Railroad Group Pty Ltd (ARG) to Queensland Rail and Babcock & Brown Limited (ARG Sale) generating a net gain of $218.8 million during the nine months ended September 30, 2006. Simultaneous with the ARG Sale, the Company purchased Wesfarmers’ 50% ownership of the remaining ARG operations, which are principally located

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in South Australia, for $15.1 million (GWA Purchase) (collectively, Australian Transactions). This business, which is based in Adelaide, South Australia, was renamed Genesee & Wyoming Australia Pty Ltd (GWA) and is a 100% owned subsidiary. The GWA Purchase was accounted for under the purchase method of accounting. However, because the Company previously held a 50% share of these assets through the Company’s ownership interest in ARG, it applied a step-method to the allocation of value among the assets and liabilities of GWA. Because the $15.1 million purchase price for Wesfarmers’ 50% share was lower than 50% of the book value ARG had historically recorded on these assets, the Company recorded a non-cash loss of $16.2 million ($11.3 million, net of tax), representing the Company’s 50% share of the impairment loss recorded by ARG, which was included in equity loss of unconsolidated international affiliates in the consolidated statement of operations during the second quarter of 2006. GWA commenced operations on June 1, 2006. Accordingly, the Company has included 100% of the value of GWA’s net assets ($30.1 million) in its consolidated balance sheet since June 1, 2006. The Company completed its allocation of purchase price for this acquisition during the second quarter of 2007 without material adjustment to its preliminary allocation.

South America

As previously disclosed, the Company indirectly has a 12.52% equity interest in Ferroviaria Oriental S.A. (Oriental) through its interest in Genesee & Wyoming Chile S.A. (GWC), an unconsolidated affiliate. In addition, the Company holds a 10.37% indirect equity interest in Oriental through other companies.

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

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

As of June 1, 2006, the Company discontinued equity accounting for the remaining $3.0 million investment in Oriental. Since then, the Company has accounted for this investment under the cost method. Historically, Oriental’s results of operations have not had a material impact on the Company’s results of operations. The Company will continue to monitor the political situation in Bolivia.

United States

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

Commonwealth Railway, Inc.: On August 25, 2006, the Company exercised an option to purchase 12.5 miles of previously leased rail line from Norfolk Southern Corp. (NS) for $3.6 million, of which, approximately $2.1 million is expected to be funded by the Commonwealth of Virginia. The 12.5 mile rail line runs through Portsmouth, Chesapeake, and Suffolk, VA. The Company’s subsidiary, the Commonwealth Railway (CWRY), will own and continue to operate the line upon the final execution of the contract with the Commonwealth of Virginia. In July 2007, the Company completed a $13.2 million improvement project (including $6.6 million in government grants) to meet the projected capacity needs of a customer’s new container terminal in Portsmouth.

Results of Operations

When comparing the Company’s results of operations from one reporting period to another, you should consider that it has historically experienced fluctuations in revenues and expenses due to one-time freight moves, weather-related impacts such as hurricanes or droughts, customer plant expansions and shut-downs, sales of land and equipment, accidents and derailments. In periods when these events occur, results of operations are not easily comparable to other periods. Also, the Company has completed and entered into a number of transactions recently that have changed and will change its results of operations. Because of variations in the structure, timing, and size of these transactions, the Company’s operating results in any reporting period may not be directly comparable to its operating results in other reporting periods.

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Certain of the Company’s railroads have commodity shipments which are sensitive to general economic conditions in the countries in which it operates, including paper products in Canada and lumber and forest products in the United States. However, shipments of other commodities are less affected by economic conditions and are more closely affected by other factors, such as inventory levels maintained at a customer power plant (coal), winter weather (salt) and seasonal rainfall (South Australia grain).

Pro Forma Financial Results

The following table summarizes the Company’s unaudited pro forma operating results for the nine months ended September 30, 2006, as if the Australian Transactions had occurred as of January 1, 2006 (dollars in thousands, except per share amounts):

The unaudited pro forma operating results include the Australian Transactions, adjusted, net of tax, for the net gain of $218.8 million from the ARG Sale, certain closing costs incurred from the ARG Sale and interest expense savings from the pay down of the debt from proceeds received from the ARG Sale.

The pro forma financial information does not purport to be indicative of the results that actually would have been obtained had the Australian Transactions been completed as of the assumed date and for the period presented and are not intended to be a projection of future results or trends.

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For the three months ended September 30, 2007 and 2006, a total of 1,166,634 and 721,184 shares, respectively, and for the nine months ended September 30, 2007 and 2006, a total of 1,166,634 and 721,184 shares, respectively, of Class A Common Stock issuable under the assumed exercises of stock options computed based on the treasury stock method were not included in the calculation of diluted earnings per common share, as the effect of including these shares would have been anti-dilutive.

Stock Repurchase

The Company announced on February 13, 2007 and August 1, 2007, that its Board of Directors authorized the repurchase of up to 2,000,000 shares and 4,000,000 shares, respectively, of the Company’s Class A Common Stock, which was in addition to 538,500 shares available for repurchase under a previous authorization. The repurchases may occur from time to time in the open market, including under 10b5-1 plans, or in privately negotiated transactions. During the nine months ended September 30, 2007, the Company repurchased 6,387,430 shares of the Company’s Class A Common Stock available for repurchase under the repurchase plan. The shares were repurchased at an average cost of $26.75 per share. At September 30, 2007, authorization remained for the repurchase of up to 151,070 shares.

In 2004, we entered into an interest rate swap agreement and swapped our variable LIBOR interest rate on long-term debt for a fixed interest rate. At December 31, 2006, the notional amount under the agreement was $21.4 million and represented a liability with a fair value of less than $0.1 million. The swap expired in September 2007.

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On February 13, 2006, the Company entered into two foreign currency forward contracts with a total notional amount of $190 million to hedge a portion of its investment in 50% of the equity of ARG. The contracts, which expired in May 2006, were extended to June 1, 2006, and protected the hedged portion of the Company’s net investment from exposure to large fluctuations in the U.S. Dollar/Australian Dollar exchange rate. At expiration, excluding the effects of fluctuations in the exchange rate on the Company’s net investment, the Company recorded a loss of $4.3 million from these contracts, which was included in the net gain on the ARG Sale in the second quarter of 2006.

The Company previously disclosed in its financial statements for the year ended December 31, 2006, that it expected to contribute $0.6 million to its pension plans in 2007. As of September 30, 2007, contributions of $0.4 million have been made to fund the Company’s pension plans. The Company anticipates contributing the remaining $0.2 million to fund its pension plans in the fourth quarter of 2007.

During the three months ended June 30, 2007, the Company froze the pension benefits of substantially all remaining eligible employees (Frozen Participants). As a result, the Company recorded a $0.1 million curtailment gain. Effective with the curtailment, new employees will not be eligible to participate in the plan. Future earnings of Frozen Participants will not be considered in the computation of benefits.

The Company’s effective income tax rate in the three months ended September 30, 2007, was 15.0% compared with 28.0% in the three months ended September 30, 2006. The Company’s effective income tax rate for the nine months ended September 30, 2007, was 23.6% compared with 39.0% in the nine months ended September 30, 2006. The decrease in 2007 was primarily attributable to incremental U.S. foreign tax credits of $5.8 million associated with the ARG Sale in 2006. The determination of the amount of the U.S. foreign tax credits was dependent upon the payment of the foreign tax and an election made concurrent with the filing of the 2006 U.S. tax return, which occurred in June and September 2007, respectively. In the three months ended September 30, 2007, the Company recorded $2.6 million of additional prior year U.S. taxes relative to the ARG Sale. The Company assessed the effect of the $2.6 million additional taxes on the consolidated financial statements taken as a whole and determined that the effect was not material to any period.

As disclosed in Note 2, the Company has ceased its Mexican rail operations and initiated formal liquidation proceedings of FCCM’s operations. As a result, the Company recorded a net U.S. tax benefit of $11.6 million within its loss from discontinued operations for the three months ended September 30, 2007. The Company also has a related capital loss carryforward which can be used to reduce the impact of future capital gains. The tax benefit associated with to this carryforward of approximately $8.0 million is fully offset by a valuation allowance. The Company’s capital loss carryforward expires in 2012.

On January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in

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a tax return. After considering the Company’s preexisting reserves for uncertain tax positions, the adoption of FIN 48 did not result in any material adjustments to the Company’s results of operations or financial position.

At September 30, 2007, the Company’s liability for uncertain tax positions was $1.1 million, $0.7 million of which would reduce its effective tax rate if recognized.

The Company recognizes interest and penalties related to uncertain tax positions in its provision for income taxes. As of September 30, 2007, the Company had $0.2 million of accrued interest related to such uncertain tax positions.

As of September 30, 2007, the following tax years remain open to examination by the major taxing jurisdictions to which the Company or its subsidiaries are subject:

7. COMMITMENTS AND CONTINGENCIES:

Litigation

Mexico

On June 25, 2007, FCCM formally notified the SCT of its intent to cease its rail operations and to resign its 30-year concession from the Mexican government. In response to this notification, on July 24, 2007, the SCT issued an official letter informing FCCM that the SCT did not accept the resignation of the concession. On August 8, 2007, the SCT issued another official letter to initiate a proceeding to impose sanctions on FCCM. The proposed sanctions are based, in part, on allegations that FCCM has violated the Railroad Service Law in Mexico and the terms of its concession. On August 30, 2007, FCCM filed a brief with the SCT that challenged the proposed sanctions and introduced evidence supporting FCCM’s right to resign its concession. On September 21, 2007, FCCM also filed a proceeding in the Tax and Administrative Federal Court in Mexico seeking an annulment of the SCT’s July 24, 2007 official letter and recognition of FCCM’s right to resign its concession. The SCT has also seized substantially all of FCCM’s operating assets in response to FCCM’s resignation of the concession. On September 19, 2007, FCCM filed a proceeding in the Second District Court in Merida (District Court) challenging the SCT’s seizure of its operating assets as unconstitutional. The District Court admitted the proceeding on October 11, 2007, and issued a provisional ruling upholding the seizure, pending a full review of the constitutional grounds for the seizure and the legality of the SCT’s actions. The Company believes the SCT’s actions were unlawful and will continue to pursue appropriate legal remedies to support FCCM’s resignation of the concession and to recover FCCM’s operating assets.

Canada

In February 2002, Mr. Paquin, an individual living adjacent to the Outremont rail yard, filed a motion for authorization of class certification in the Quebec Superior Court in Canada in connection with a claim against two of the Company’s subsidiaries, Genesee Rail-One Inc. (now Genesee & Wyoming Canada Inc.) and Quebec-Gatineau Railway Inc., as well as Canadian Pacific Railways (CP) (collectively, the Parties). Mr. Paquin alleged that the noise emanating from the Outremont rail yard causes significant nuisance problems to the residents living near the rail yard. The rail yard is owned by CP, part of which is leased and operated by Quebec-Gatineau Railway Inc. The plaintiff described the proposed class as comprised of all owners and tenants of dwellings who have lived within a defined section of the Outremont neighborhood in Montreal, which is adjacent to the rail yard. Mr. Paquin requested the issuance of an injunction in order to limit the hours when the rail yard may operate. The plaintiff did not allege any specific monetary claim with respect to the damages of other members of the class, but sought to recover for his “trouble and inconvenience” as well as for “potential devaluation of the value of his property.”

Following a May 2007 settlement conference, the Parties agreed on the terms of a settlement agreement whereby all outstanding claims under the class action will be dropped. The settlement agreement remains subject to

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review and approval by the class members and the Quebec Superior Court. The Company does not expect Genesee & Wyoming Canada Inc. or Quebec-Gatineau Railway Inc. to make any material financial contribution in connection with the proposed settlement.

Bolivia

As previously disclosed, the Company indirectly has a 12.52% equity interest in Oriental through its interest in GWC, an unconsolidated affiliate. GWC is an obligor of non-recourse debt of $12.0 million, which debt is secured by a lien on GWC’s 12.52% indirect equity interest in Oriental held through GWC’s subsidiary, Inversiones Ferroviarias Bolivianas Ltda. This non-recourse debt became due and payable on November 2, 2003. In 2006, certain creditors of GWC commenced court proceedings to (i) collect on their share of the debt and (ii) exercise their rights pursuant to the lien. In addition, the Company holds a 10.37% indirect equity interest in Oriental through other companies. The Company does not expect the commencement of court proceedings to have any impact on this remaining 10.37% interest. The Company does not expect these proceedings to have a material effect on its financial statements.

Other

In addition to the lawsuits set forth above, from time to time the Company is a defendant in certain lawsuits resulting from its operations. Management believes that the Company has adequate provisions in the financial statements for any expected liabilities that may result from disposition of pending lawsuits. Nevertheless, litigation is subject to inherent uncertainties and unfavorable rulings could occur. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact to the Company’s results of operations, financial position or liquidity as of and for the period in which the ruling occurs.

Guarantees

On June 8, 2007, the Company entered into an assignment agreement with International Finance Corporation (IFC) and Nederlandse Financierings–Maatschappij voor Ontwikkelingslanden N.V. (FMO), pursuant to which, among other things, IFC and FMO demanded payment of, and the Company paid, approximately $7.0 million due under the guarantee agreement related to its Mexican subsidiary, GW Servicios S.A. (Servicios). See Note 9 for additional information regarding this guarantee.

The Company also guarantees an obligation of one of its Canadian rail lines under a lease agreement entered into on July 28, 1997. The maximum amount of the obligation subject to this guarantee is $2.0 million.

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Accumulated other comprehensive income, net of tax, included in the consolidated balance sheets as of September 30, 2007 and December 31, 2006 (dollars in thousands):

The change in the foreign currency translation adjustment for the nine months ended September 30, 2007, relates primarily to the Company’s operations with a functional currency in Australian and Canadian dollars and the loss from the cumulative foreign currency translation into U.S. dollars of the original Mexico investment and FCCM’s reported earnings since 1999.

As disclosed in Note 2, the Company has ceased its Mexican rail operations and initiated formal liquidation proceedings of FCCM’s operations. There were no remaining employees of FCCM as of September 30, 2007. The SCT has contested the resignation of the concession and has seized substantially all of FCCM’s operating assets in response to the resignation. As a result of these actions, the Company recorded a pre-tax loss in the third quarter of 2007 of $18.5 million, including non-cash charges of $14.4 million. The non-cash charges included $8.9 million related to the write-down of FCCM’s operating assets and a $5.5 million loss from the cumulative foreign

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currency translation into U.S. dollars of the original investment and FCCM’s reported earnings since 1999. This pre-tax loss was partially offset by a U.S. tax benefit of $11.6 million, primarily related to a worthless stock and bad debt deductions to be claimed in the United States.

The Company believes the SCT’s actions were unlawful and is pursuing appropriate legal remedies to recover its operating assets. As of September 30, 2007, there was a net liability of $3.5 million remaining on the Company’s balance sheet associated with its Mexican operations.

The Company’s Mexican operations described above are presented as discontinued operations and its operations are, therefore, excluded from continuing operations in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). The operations and cash flows of FCCM are being eliminated from the ongoing operations of the Company and the Company will not have any significant continuing involvement in the operations of FCCM.

The operating results of the Mexican operations classified as discontinued operations in the Consolidated Statement of Operations are as follows (dollars in thousands):

For the three months ended September 30, 2007, in connection with the shut down of FCCM’s rail operations, the Company recorded $2.5 million of restructuring and other related charges within loss from discontinued operations. These restructuring and other related charges consisted of $1.0 million related to early lease termination fees, $0.7 million for severance and termination benefits in accordance with SFAS No. 112 “Employers Accounting for Postemployment Benefits” (SFAS 112), and $0.8 million of other expenses directly related to the liquidation.

For the nine months ended September 30, 2007, in connection with the liquidation of FCCM, the Company recorded $5.2 million of restructuring and other related charges within loss from discontinued operations. These restructuring and other related charges consisted of $3.2 million for severance and termination benefits in accordance with SFAS 112, $1.0 million related to early lease termination fees and $1.0 million for other expenses directly related to the liquidation.

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Having met the criteria outlined in SFAS No. 144, the assets and liabilities of FCCM and Servicios were classified as discontinued operations on the Company’s Consolidated Balance Sheet as of September 30, 2007. The major classes of assets (at estimated fair value less cost to sell) and liabilities classified as discontinued operations in the Consolidated Balance Sheets are as follows (dollars in thousands):

On June 8, 2007, the Company entered into an assignment agreement with IFC and FMO, pursuant to which, among other things, (i) IFC and FMO demanded payment of, and the Company paid, approximately $7.0 million due under the guarantee agreement related to certain amended loan agreements and promissory notes of the Company’s Mexican subsidiaries (collectively, the Loan Agreements) and (ii) the Company purchased and assumed the remaining loan amount outstanding under the Loan Agreements for a price equal to the principal balance plus accrued interest, or approximately $7.3 million. As a result, the Company recorded a $0.6 million interest charge due to the recognition of previously deferred financing fees related to the Loan Agreements during the nine months ended September 30, 2007.

Also on June 8, 2007, the Company, IFC and the Company’s Mexican subsidiary, Servicios entered into a put option exercise agreement pursuant to which IFC sold its 12.7% equity interest in Servicios to the Company for $1.0 million, plus an additional $0.4 million if FCCM is still in business on June 8, 2008. In addition, on June 8, 2007, the Company, IFC, FMO, Servicios and FCCM entered into a release agreement whereby the parties agreed to release and waive all claims and rights held against one another that existed or arose prior to the date thereof. Neither the payment default discussed above, nor the entering into the agreements described above and the consummation of the transactions contemplated therein, resulted in a default under the Company’s outstanding debt obligations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157), which is effective for fiscal years beginning after November 15, 2007, and for interim periods within those years. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The Company is currently evaluating the provisions of SFAS 157.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of SFAS No. 115” (SFAS 159). SFAS 159 permits, but does not require, entities to choose to measure many financial instruments and certain other items at fair value. The standard provides entities the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective for fiscal years beginning after November 15, 2007, and interim periods within those years. The Company is currently evaluating the provisions of SFAS 159.

On October 22, 2007, the Company announced that it had entered into an agreement to acquire 87.4% of Maryland Midland Railway, Inc. (Maryland Midland) for cash consideration of approximately $29.1 million, with adjustments for working capital at the time of closing. Maryland Midland stockholders have approved the acquisition. The acquisition is subject to customary closing conditions, including, without limitation, receipt of regulatory approvals.

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Headquartered 50 miles northwest of Baltimore, the Maryland Midland operates over 63 miles of track between Glyndon and Highfield, Maryland (near the Pennsylvania border), and between Walkersville and Taneytown, Maryland. Maryland Midland has 30 employees, 10 locomotives and is an interline carrier with CSX.

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