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University of Nebraska October 19, 2012

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Railroad Operating and Engineering Managers--Seeing the

Big Picture

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Iowa Northern Railway Company

Formed from liquidated Rock Island main line, on February 22, 1984

Purchased from on-line elevators and Iowa-Electric Power in November, 1994

IANR covers North Eastern Iowa with 195 route miles

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The early years—The Railroadused as a cattle pasture—

No Traffic on the Line

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Iowa Northern Railway

IANR is a unique short line with multiple rail connections providing independent access to North American Rail System.

Aggressive in economic growth and development in market area.

Averaged 18% annual growth between 2003 and 2011, despite recession and two years of major flood recovery.

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IANR has multiple railroad connections with BNSF, CN, CP, IAIS (through CIC)

and UP

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Iowa Northern Philosophy Run the Company like a business, not like a railroad. Encourage customers to grow their business with great service

and fair, competitive freight rates. Create new business. Be the solution. Tap the strengths of

each rail connection. Empower employees

to do their best in safe and creative ways.

Support the State andCommunities served.

Take some risk. Facilitate new

industries and growth. Be easy to do

business with. Repeat, don’t act like a

railroad.

The Company’s Markets Grain Ethanol Wind Components Machinery Chemicals Fertilizer Bulk Products Food Products Bio-Mass Distillers Grains Corn Oil Trans-load

Commodities9

Originally just a grain hauler, IANR elevators have increased volumes of grain from 230 cars per month

in 1994 to nearly 2,000 per month today.

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Grain Traffic In a normal crop year, nearly 1 billion bushels of corn is grown

along the IANR. IANR will handle nearly 22,000 carloads of corn, soybeans and

oats in calendar year 2012 compared to 10,500 carloads in 2001. Most of the traffic moves to Cedar Rapids, providing high utilization of hopper cars.

If Cedar Rapids was an independent nation, it would rank third in the world in the importation of corn, behind only Japan and Mexico.

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Drought Effect on IANR IANR will miss about 6,000 carloads of

corn in 2012 that would have moved in a normal crop year. This will reduce IANR revenues by about $4 million.

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Ethanol Related Products

Iowa Northern has grown from zero car loads of ethanol related products in 2005 to 14,000 annual car loads in 2011.

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Creation of New Business

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Three large fertilizer terminals have been established along the line with more

expansion planned.

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Iowa Northern Wind Energy Business

IANR wind component distribution center at Manly is the largest in North America.

Future wind business is contingent on extension of tax credits for wind energy.

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IANR handles Wind, Ethanol, Corn Oil, feed

additives and Chemicals at Manly Terminal

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IANR provides rail to truck transload service at several locations, with new infrastructure at

Waterloo and Manly

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Bryant Yard Trans-loading• Two new reload tracks have been built adjacent to IANR’s Bryant Yard in

Waterloo to provide the ability to grow the business. Additional commodities: powdered clay, tomato paste, magnesium chloride, lube oil, bentonite clay.

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IANR provides container handling service for inbound wind components at Manly

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IANR delivers John Deere Tractors from Waterloo to UP at Cedar Rapids and Manly

Flood—2008!!

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Flood 2008 Major bridges at Waterloo and Cedar

Rapids destroyed by flooding, cutting IANR into two separate segments.

Lost traffic and additional costs of $800K per month. Included 150-300 mile detours.

Line was segmented for 18 months. Long term flood mitigation efforts will

continue for decades.

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What’s new at IANR?

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Acquisition of Non-Powered Slugs to reduce emissions and fuel burn

A slug is a vehicle used for moving trains, having traction motors and added weight (or "ballast") but no prime mover or generator. The electric current for its motors is provided by a

"mother" unit, a standard locomotive fitted with cable connections to feed current to the slug. A locomotive

produces more power than it can use at low speeds. A slug can pull as much as the mother, but does not burn any fuel

and discharges no emissions.

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Forest City-Belmond LineSaved the 28 mile line from abandonment-

November 2011

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IANR is pleased with initial traffic volumes of the 30 mile Garner Subdivision Acquisition

Purchased the line from UP and started operations in November, 2011 as a joint venture with the community. Absorbed into base operations.

IANR expected losses for the first year of operations—modestly profitable from the start.

More traffic handled in first month than the line handled in the past five years.

Averaging nearly 100 loads per month in first ten months of operation—corn and fertilizer.

The line is well suited for industrial growth. A gateway for a new market territory for IANR.

Bio-Mass Material Regulators will require at least 10-20% biomass fuel for coal

burning power plants and a whole new industry is developing to convert crop waste into all types of fuels.

Iowa Northern has approximately 12 million tons of excess crop waste within 30 miles of the line, equivalent of 75,000+ carloads annually.

Biomass will provide exceptional new revenue base to farmers. Biomass products could be the next major commodity handled

by railroads.

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Future Plans

Butler Logistics Park

Manly Logistics Park

Garner-Forest City Logistics Park

Palo Logistics Park

Butler Logistics Park Terminal A major Industrial development expected to exceed 300 acres

. Site of future rail yard and locomotive shop. Two new industries breaking ground in Q4 2012

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Manly Logistics Park will be the major logistics campus in the State of Iowa

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Manly Logistics Park

Manly Terminal

UP Spine LineUP connection to Manly Yard

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Manly Logistics Park A major development adding 162 acre park

dedicated to reducing costs to shippers in North Iowa and Southern Minnesota

Trans loading facility for misc. commodities including lumber, machinery, distillers grains, edible beans, stuffing containers

Steel Distribution Center-Steel coils and plates inbound by rail, outbound by truck to Midwestern markets

Cold storage and freezer warehouse of major size with rail cross dock

Substantial intermodal facility for Northern Iowa-Southern Minnesota

New Steel Distribution CenterGround Breaking in November

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Meat and Eggs-Refrigerated and Other Food Products

Iowa is the largest egg producing state, as well as high volumes of meat and poultry products, processed foods.

Iowa lacks appropriate and efficient access to intermodal, particularly Texas, Mexico and California traffic lanes.

High fuel surcharges are hurting competitive access to Northern Iowa-Southern Minnesota producers.

New facilities are planned to accommodate the massive volumes of dry and refrigerated-frozen food products on Northern Iowa and Southern Minnesota.

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Intermodal Base Case Iowa is a small consumption state, so it has a severe imbalance

of inbound vs. outbound containers. According to US Census Bureau Data, the 2011 ratio of non-bulk international commerce in Iowa is 1:3 inbound to outbound. This creates a severe shortage of empty containers available to Iowa producers for loading. Empty containers must be shipped or “drayed” into Iowa to meet demand.

Minnesota’s international commerce is opposite that of Iowa. The 2011 ratio of non-bulk international commerce in Minnesota is 6:5 inbound to outbound. Taking a regional approach with consolidation of the two states provides an almost even match of 7.2 : 7.6 inbound to outbound.

A new, efficient intermodal terminal in North Central Iowa can draw inbound and outbound container loads from a widespread region including the Northern half of Iowa and Southern Third of Minnesota.

Minnesota lacks direct intermodal service to/from Texas/Mexico and California which can be provided through a north Iowa facility.

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Manly is a strategic location for a new Intermodal Terminal

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Manly Logistics Park layout design with intermodal facility included

Additional transload tracks, a major steel distribution center, refrigerated-freezer cross dock and warehouse operation planned adjacent to intermodal site, allowing consolidation, stuffing of heavy containers.

Major truck base planned near MLP.

Sand Processing

Trans-Load Tracks

Steel Distribution

Cold Storage Warehouse & Cross Dock

Intermodal Facility

Loop Track

Union Pacific Overhead

Nearly 20,000 Revenue Cars Annually

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CPR Overhead TrafficAbout 6,000 Revenue Cars Annually

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Expected Iowa Northern Railway Growth from 20,000 to 105,000+ carloads in 15 years-

IANR Climbing to Class II carrier in 2012

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1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Carloads

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Comparing Pre-Flood with Post Flood Financial Performance

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5000000

10000000

15000000

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35000000

Revenues

Opr Expenses

EBITDA

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Operating Managers Have Direct Connection to Bottom Line

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Financial Performance

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Revenue

Cash Expenses

Net Cost Capital Spending

EBITDA

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Train Crew ProductivityUp is Good

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Revenue Cars Per Crew Start

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Correlation of Crew Starts to Revenue Cars Handled

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Crew Starts

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Revenue Per Crew StartUp is Good!

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

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d 20

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Fuel Burn Per Revenue CarDown is Good

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Proj

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Gallons Per Revenue Car

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Fuel Burn Per Crew Start

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Proj

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Fuel Burn Per Crew Start

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Enforce Fuel Efficiencies

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Reduction in Fuel Burn—Engineer Training & Enforcement

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Best Use of Slugs

Slugs placed in service on the North End with 24/7 operations, slow orders and work at every station.

Expanding slug fleet from 2 to 6 units. Payback in 10 months in fuel savings.

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Capital Spending

Iowa Northern continues to upgrade its line and provide more capacity for growth. Will have

spent over $100 million along the line by 2015.

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Manly Yard Critical to operations

and industrial development.

Relocated elevator tracks to eliminate route conflict.

Tracks 7-12 in place. Tracks 2-6 under

construction. Lights added for night

crew safety and security.

New car repair facility is open.

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Continued upgrading of the Railroad

Increased Yard and Side Track Capacity-100K Main Line wood ties, 75,000 Steel Ties and 42 miles of new Continuous Welded Rail (CWR)

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Eliminate Slow OrdersDown from 46% to 32% slow ordered

main line track in 18 months

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Cedar Rapids Sub Manly Sub

Total Miles

Slow Orders 12/10

Slow Orders 9/12

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Continuous Welded Rail (CWR) ROI

Total investment 2008-2012 42.67 miles cwr $12.75 million.

Derailment Cost Avoidance Since 2001, Annual Derailment Costs / Mile

CWR Caused Derailments - $0 / mile Non-CWR Caused Derailments - $ 1,921 / mile With 42.6 miles of CWR this equates to an estimated

annual cost avoidance of $81,834. Fuel Savings & Speed Improvement

Based on GPS and fuel data before and after installation of 16.5 miles of CWR in 2011 & 2012 67% increase in average speed (From 10.39 – 17.34 mph) Saved 4.21 gal / mile (From 10.16 – 5.95 gal) At current diesel price of $3.34 / gal this equates to an

estimated annual fuel cost savings of $437,244 for the entire 42.6 miles of CWR IANR operate two trains per day.

Other benefits to quantify-crew starts, increased track capacity, locomotive utilization and costs, rolling stock utilization and costs.

Continual increased capacity

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Major Projects handled in-house

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IANR Capital Spending for Increased Capacity

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Increased Operating Capacity

IANR employees are pretty good at building new track.

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Derailment and Other Incident Costs

Year Incidents Cost

Average cost/inc

Total Cars

Handled

Train Miles

Operated

Cost Pct of

Revenue

2000 18 461,124 25,618 23,766 79,970 8.42%

2001 26 566,424 21,786 24,758 81,587 9.63%

2002 28 411,413 14,693 25,531 85,823 6.41%

2003 16 39,447 2,465 26,174 91,418 0.62%

2004 27 56,906 2,108 28,931 91,218 0.79%

2005 21 30,383 1,447 31,608 95,103 0.35%

2006 29 482,541 16,639 39,240 105,449 4.15%

2007 47 861,907 18,338 43,926 133,913 5.47%

2008 53 177,967 3,358 45,416 144,546 0.99%

2009 51 313,095 6,139 43,913 143,692 1.87%

2010 55 877,160 15,948 57,831 184,385 8.14%

2011 45 209,970 4,666 59,074 194,440 0.79%

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Expanded Shop Capacity

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Good Locomotive FleetIANR has 26 locomotives on line to absorb short term growth. Use of Class I power will increase with run-through trains.

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Expanded capacity with additional mother-slugs

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Continued rehab of older units

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IANR Leadership•IANR provides momentum and direction in logistical solutions that cannot be matched by larger, cumbersome organizations.•IANR can work closely with connecting lines, existing and new customers to be responsive to the customer’s needs on a real time basis.•All Departments are responsible for IANR’s success.•Field authority for service needs.

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Iowa Northern constantly redefines targets to create new markets and maintain constant growth.

Iowa Northern must always be more diligent, more responsive, more resilient and quicker to identify new opportunities.

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Hawkeye Express, LLC handles 5,000+ football fans to Kinnick Stadium on each game day. Over 30,000 fans used the train during the 2011

season. We look forward to the Cornhuskers visit on November 23.

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Thanks!!

70dsabin@iowanorthern.com