The statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MDA") which are not historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions, however, that actual results could differ materially from those indicated in MDA. The following discussion should be read in conjunction with the Condensed Financial Statements and applicable notes to the Condensed Financial Statements, Item 1.

Critical Accounting Policies

The Securities and Exchange Commission ("SEC") defines critical accounting policies as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The Company's significant accounting policies are described in Note 1 of the Notes to Financial Statements in its Annual Report on Form 10-K. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. There have been no significant changes to these policies as discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 during the first three months of 2012.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, including, without limitations, statements concerning the conditions in our industry and our operations, economic performance and financial condition, including, in particular, statements relating to our business and strategy. The words "may," "might," "should," "estimate," "project," "plan," "anticipate," "expect," "intend," "outlook," "believe," and other similar expressions are intended to identify forward-looking statements and information although not all forward-looking statements include these identifying words. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties.

In particular, our business might be affected by uncertainties affecting the railroad and transportation industry generally as well as the following, among other factors:

• general economic, financial and political conditions, including downturns affecting the railroad industry and credit markets;

• our relationships with Class I railroads and other carriers;

• legislative and regulatory developments by the Surface Transportation Board, Railroad Retirement Board or the Federal Railroad Administration;

• our ability to comply with financial and non-financial covenants contained in our revolving line of credit and Construction Loan;

• limitations and restrictions on the operation of our business contained in the documents governing our indebtedness;

• increases in transportation costs, including fuel prices, which in some instances may not be passed on to customers;

• competitive pressures, including changes in competitors' pricing;

• our ability to generate cash flows to invest in the operation of our business; and

• our dependence upon our key customers, executives and other key employees and our ability to renegotiate our union contracts.

Recent Accounting Pronouncements

The Company reviews new accounting standards as issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified any standards that it believes merit further discussion. The Company expects none of the recent accounting pronouncements will have a significant impact on its financial statements.

Results of Operations

The following table sets forth the Company's operating revenues by category in
dollars and as a percentage of operating revenues:



                                             Three Months Ended March 31,
                                             2012                      2011
                                          (In thousands, except percentages)
         Freight Revenues:
         Conventional carloads      $   6,108         91.7 %    $ 6,138        89.6 %
         Containers                       260          3.9          179         2.6
         Other freight related            107          1.6          166         2.4
         Other operating revenues         184          2.8          367         5.4

         Total                      $   6,659        100.0 %    $ 6,850       100.0 %

The following table sets forth a comparison of the Company's operating expenses expressed in dollars and as a percentage of operating revenues:

                                                               Three Months Ended March 31,
                                                              2012                       2011
                                                            (In thousands, except percentages)
Salaries, wages, payroll taxes and employee
benefits                                              $   4,116        61.8 %    $  3,979        58.1 %
Casualties and insurance                                    306         4.6           190         2.8
Depreciation                                                828        12.4           787        11.5
Diesel fuel                                                 784        11.8         1,002        14.6
Car hire, net                                               235         3.5           225         3.3
Purchased services, including legal and
professional fees                                           437         6.7           619         9.0
Repair and maintenance of equipment                         435         6.5           603         8.8
Track and signal materials                                  333         5.0           283         4.1
Track usage fees                                            248         3.7           203         3.0
Other materials and supplies                                320         4.8           314         4.6
Other                                                       495         7.4           595         8.7

Total                                                     8,537       128.2         8,800       128.5
Less capitalized and recovered costs                        393         5.9           134         2.0

Total                                                 $   8,144       122.3 %    $  8,666       126.5 %

Operating Revenues:

Operating revenues decreased $191 thousand, or 2.8%, to $6.66 million in the first quarter of 2012 from $6.85 million in the first quarter of 2011. This decrease is a result of $183 thousand (50.0%) decrease in other operating revenues, mainly reimbursable contract revenue.

The slight decrease in conventional freight revenues is attributable to a 4.7% decrease in traffic volume, offset by a 3.5% increase in the average revenue received per conventional carloading. The Company's conventional carloadings decreased by 333 to 6,691 in the first quarter of 2012 from 7,024 in 2011.

Shipments of most commodities were flat during the first quarter of 2012, as compared to the first quarter of 2011, offset by a decrease in the Company's ethanol and plastic business due to changes in the consumption patterns of the end users. The increase in the average revenue received per conventional carloading is due mainly to rate changes.

The increase in container freight revenues is the result of a 41% increase in traffic volume and a 6.8% increase in the average revenue received per container. Container traffic volume increased by 1,040 containers to 3,574 in the first quarter of 2012 from 2,534 in 2011. This increase in traffic is attributable to the terminal operator located on the Company's line obtaining an additional customer.

The slight decrease in other freight-related revenues is the result of the decrease in both demurrage income and switching income, offset by slight increases in weighing revenue.

Other Income:

The net change in other income is primarily due to the $50 thousand decrease in rental income.

Operating Expenses:

Operating expenses for the first quarter of 2012 decreased by $600 thousand, or 6.9%, to $8.1 million from $8.7 million in the first quarter of 2011. The decrease consists of a $218 thousand decrease in fuel consumed offset in part by an increase in the average price per gallon, $182 thousand in purchased services relating to projects in 2011 and not in 2012, $168 thousand in repairs and maintenance equipment relating to the purchase of parts and supplies, $100 thousand in other relating mainly to utility expenditures, and an increase of $259 thousand in capitalized track expenditures and recovered costs, offset by increases of $137 thousand in payroll and related costs due to contractual wage increases and related costs, $41 thousand in depreciation due mainly to the improvements and purchases being reflected in depreciation in 2012 and not in 2011, $45 thousand in track usage fee due to increased traffic along routes for which the Company pays track usage fees, and $116 thousand in casualties and insurance.

Income Tax Provision/Benefit:

The income tax (provision)/benefit for the first quarter of 2012 and 2011 is approximately 36% and (28%) of the pre-tax loss, respectively. The current rate is impacted by a variety of factors, including estimated future taxable income and possible tax planning strategies. The Company will continue to evaluate its provision for income taxes. The 2011 income tax rate represented the effective tax benefit which the Company expected to realize at that time, including provision for an increase to the Company's valuation allowance against its deferred tax assets.

Liquidity and Capital Resources

During the first quarter of 2012, the Company used $68 thousand of cash in operating activities and $554 thousand in investing activities, and the Company generated $167 thousand from financing activities.

On April 25, 2012, the Company declared a quarterly dividend of approximately $193 thousand ($.04 per common share) to be paid on May 23, 2012. The declaration of future dividends and the amount thereof will depend on the Company's future earnings, financial factors and other events.

The Company has a revolving line of credit facility in the amount of $5 million from a commercial bank expiring on June 25, 2013. At March 31, 2012, no amounts were outstanding.

On May 3, 2012, the Company received approximately $1.85 million in conjunction with the Amtrak settlement.

Seasonality

Historically, the Company's operating revenues are lowest for the first quarter due to the reduction in construction aggregate shipments during a portion of this period and to winter weather conditions.