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ALL ABOARD MID-YEAR STATUS CHECK by Chris Aadnesen, President & CEO Ers to Address Complex Issues That Require Coopera- 2 Tive Solutions

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ALL ABOARD MID-YEAR STATUS CHECK by Chris Aadnesen, President & CEO Ers to Address Complex Issues That Require Coopera- 2 Tive Solutions AALLLL AABOARDBOARD SECOND QUARTER 2011 NEWSLETTER FOR ALASKA RAILROAD EMPLOYEES CROSSINGS: NEWS YOU CAN USE INSIDE... RAILROAD GAINS TRACTION IN WEED BATTLE CROSSINGS: PRESIDENT’S Alaska’s long summer days are back… and so able to use this permit for the fi rst time July 25-27, 0022 MESSAGE are the weeds. Th anks to three herbicide use permits 2010. A subsequent appeal to the court system was in force this year, the Alaska Railroad gained some fi led May 27, 2011, and is pending. Th is appeal MILEPOSTS traction in the battle against vegetation that poses is made on procedural and constitutional grounds CFO REPORT & safety risks along the track and in the rail yards. only; it does not involved health or safety issues 0033 ALPAR AWARD ARRC hired railroad vegetation control expert related to the herbicide. Until the courts hear the DeAngelo Brothers to apply the herbicide Aqua- appeal, the permit remains in force. CROSSINGS: Master within the yards and along select areas of ARRC applied for additional permits — An- NEW GREEN track in and around Seward, Anchorage, Healy and chorage and Healy/Fairbanks — in January 2011. 0077 STAR GOALS Fairbanks. Th e application occurred June 20-27. In No comments were made during public hearings accordance with the permits, the contractor avoided held mid-February and ADEC received few com- SIDINGS: areas near surface water. ments by the mid-March deadline. ADEC approved BIKE COMMUTER Th e two-year permit approved in 2010 by the these fi ve-year permits in early May. A 45-day wait- 0088 TEAM SUPPORT Alaska Department of Environmental Conservation ing period ended June 15, allow the railroad to use (ADEC) covers the stretch between Seward and the permits by late June. No legal actions opposing WYE OF IT: Indian. An administrative appeal fi led with ADEC these permits have been fi led as of press time. GRAFFITI & ROW June 1, 2010, was denied, and the railroad was 0099 CLEANUP EFFORTS CROSSINGS: CROSSINGS: NEWS YOU CAN USE GRAVEL OPS 1100 UPDATE 2011 OPEN HOUSES HIGHLY SUCCESSFUL SIDINGS: May 2011 saw the return of TIE GANG GETS the Alaska Railroad’s commu- 1111 GOING nity open houses on consecutive Saturdays — May 7 in Anchor- SIGNALS: age and May 14 in Fairbanks. ICS SUPPORT & Dubbed Railroad Days, the open 1133 MARINE AUDIT houses drew enthusiastic crowds, with an estimated 3,000+ people SIDINGS: in Anchorage and nearly as many TOUR GUIDES in Fairbanks. Th e family-friendly 1166 RETURN events included free train rides, live music by military bands, static WYE OF IT: equipment displays, balloons, kids OPEN HOUSES tattoos and more. 1188 IN PICTURES A big thanks to dozens of railroaders who helped to pull ABOVE: ARRC LOGO TATTOOS ARE A WYE OF IT: off these highly successful open HIT WITH CHILDREN. RIGHT: HUN- TRAVEL WRITER’S PERSPECTIVE ON houses. Highlights are captured in DREDS LINE UP FOR FREE TRAIN RIDES. 2222 SPENCER STOP photos on pages 18-19. (PHOTOS BY STEPHENIE WHEELER) PRESIDENT’S MESSAGE ALL ABOARD MID-YEAR STATUS CHECK By Chris Aadnesen, President & CEO ers to address complex issues that require coopera- 2 tive solutions. Finally, in July we begin remarking 2ND QTR 2011 With the busy summer season about half over, the right-of-way boundary through populated we are due for a status check on key operating Anchorage as a fi rst step toward better preserving a fronts. necessary buff er for train operations and the public. Safety: We are pleased to be making reasonable Freight Business: Our Board of Directors progress with our personal injury and derailment recently approved the purchase of additional railcars safety goals through the fi rst half of 2011. How- to increase freight-hauling capacity and associated ever, we are disappointed that there have been a revenues. Th e near $7 million investment includes number of authority violations, on-track equipment 40 of the longer 85-foot fl atcars and 70 open-top collisions and vehicle incidents. Together, we need bottom-unloading hopper cars. Th e fl atcars will to eliminate this trend throughout the second half eventually replace aging 12000 and 12600 series CHRIS AADNESEN of the year. fl atcars that must be removed from service in 2014. Th e hoppers will help meet growing demand for Passenger Business: Passenger train perfor- export coal. Once they arrive later this summer, we mance has been better than we had hoped. Com- will immediately place them into service, increasing paring mid-June 2011 to mid-June 2010, passenger the number of trains hauling coal from Healy to numbers are 9% higher and total passenger revenue Seward. Th ese two acquisitions are really exciting We were wise is up 17%. Th e popular Gold Star fi rst-class service for the Alaska Railroad, because they mark the fi rst continues to show the greatest gains on both Coastal freight rolling stock purchases in a number of years. to reinstate Classic and Denali Star routes. I’ve been a passenger tour guide on several occasions this summer and am personally Capital Projects: Progress has continued slowly impressed with the level of service we are provid- on the two major rail extension projects. In recent positions on ing to our customers. Our Tour Guide program is months, a number of non-government organiza- simply a winner (story on page 16). I have watched tions have pressed for further scrutiny by the Sur- our trains these knowledgeable young people deliver informa- face Transportation Board (STB) with regard to the and we will tive narrative along our routes and interact with Port MacKenzie Rail Extension. Th ey have linked passengers of all ages. (Just recently, I volunteered the project with potential impacts associated with most certainly to edit the tour guide scripts for future trips.) Th e coal and routing through coastal wetland areas. Th e smiles tell the story. We were wise to reinstate tour result is a possible delay in the STB’s Environmental continue this guide positions on our trains and we will most Impact Statement (EIS) Record of Decision and an program in the certainly continue this program in the future. Th e associated delay on Phase One construction that engineers and conductors are terrifi c as well and I had been expected to begin this year. future. appreciate the confi dence they inspire in our pas- Th e fate of the Northern Rail Extension (NRE) sengers. Our customers clearly enjoy watching these was tenuous this spring when a $44 million funding “real railroaders” in action. gap remained unfi lled and the threat of additional and costly regulatory requirements appeared im- Real Estate Business: Our real estate business minent. NRE Phase One — the bridge over the has had several positive developments. We recently Tanana River at Salcha — appears to be back on resolved the long-standing and contentious issue track, thanks to an eleventh-hour funding ap- with Ice Alaska. Beginning in June, the railroad is propriation from the state and the decision by the helping Ice Alaska move its ice carving venue to Environmental Protection Agency to allow the land it recently purchased in Fairbanks (story on Corps of Engineers construction permit to stand. page 12). We are pleased to continue our support of Even so, the earlier uncertainty caused a two-month an iconic event that reaps economic rewards for the delay in the start of construction activity. A ground- Interior and the state as a whole. breaking ceremony is tentatively being planned for Th e Real Estate Department staff has made real early fall. progress with its Real Estate Customer Service Ac- tion Plan and the results have become noticeable to a number of our leaseholders, industry partners and public offi cials. In addition, the Real Estate staff and ARRC Board of Directors Real Estate Committee members have met several times with lease custom- MILEPOSTS: FINANCE REPORT ALL ABOARD EARNINGS UNLIKELY TO MEET EXPECTATIONS By Bill O’Leary, Chief Finance Offi cer earnings solid, although not at the level originally anticipated. 3 A dynamic economic environment has changed As the second quarter closes and a forecast for 2ND QTR 2011 the initial outlook for key drivers of the Alaska the last half of the year is being prepared, other Railroad’s 2011 business plan. changes are manifesting themselves. Export coal Last November, ARRC’s Board of Directors shipments continue to grow, buoyed by strong approved the 2011 operating budget with planned demand giving rise to higher prices. Petroleum net earnings of $18.2 million and an operating ratio volumes continue to decline from initial expecta- (operating expenses divided by operating revenues) tions. Higher than anticipated diesel fuel prices are of 0.93. Primary factors for this budgeted increase whittling away at margins. Benefi t costs, primarily in profi tability were an anticipated growth in petro- related to medical expenses and increases in re- leum shipments from our largest customer, strong quired workers’ compensation reserves, are spiking. global demand for Alaskan coal, passenger revenue Th ese dynamics highlight the need for ARRC to rebound, and continuation of our cost-control carefully manage budget factors that it can control. BILL O’LEARY eff orts. Th is means holding discretionary costs down and By the end of the fi rst quarter, it became evident seeking effi ciencies in daily activities. that the original petroleum forecast would not be In summary, we do not anticipate the 2011 realized, yet other business changes would help fi ll earnings and operating ratio to meet the initial the void. Positive developments include an unbud- budget expectations. Once the mid-year forecast is geted tax credit transaction, a sale of non-operating complete, we’ll share it with employees, in addi- land in Fairbanks, and even stronger passenger tion to steps implemented to address the earnings bookings.
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