Amtrak 2013 Annual Report Download - page 33

34 | Amtrak Annual Report 2013
which major renovations are planned and liabilities have been recorded. However, for remaining
locations, we have no plans or expectations to undertake demolitions or major renovations that
would require the removal of the asbestos containing materials.
Although a liability exists for the removal of asbestos materials, sufficient information is not
available currently to estimate the liability, as the range of time over which we may settle these
obligations is unknown or cannot be reasonably estimated. Although we believe we have
appropriately recorded current and long-term liabilities for known and estimable future
environmental costs, we could incur significant costs that exceed reserves or require unanticipated
cash expenditures as a result of any of the foregoing. Based upon information currently available, we
believe our environmental reserves are adequate to fund remedial actions to comply with present
laws and regulations, and that the ultimate liability for these matters, if any, will not materially affect
our overall financial condition, results of operations, or liquidity. As of the end of FY 2013 and FY
2012, the environmental reserve was $60.5 million and $59.8 million, respectively. These recorded
liabilities for estimated future environmental costs are undiscounted and include future costs for
remediation and restoration of sites as well as any significant ongoing monitoring costs.
Pension and Other Post-Retirement Benefits
Accounting for pensions and other post-retirement benefits requires management to make several
estimates and assumptions (see Note 13 to the Consolidated Financial Statements). These include
the discount rates used to measure future obligations and interest expense, long-term rate of return
on plan assets, salary scale inflation rates, health care cost trend rates, and other assumptions. In
addition, the amounts recorded are affected by changes in the interest rate environment because the
associated liabilities are discounted to their present value.
We engage an independent, external actuary to compute the amounts of liabilities and expenses
relating to these plans subject to the assumptions that we select. We review the discount, long-term
plan asset, rate of compensation increase and health care cost trend rates on an annual basis and
make modifications to the assumptions based on current rates and trends as appropriate.
Discount Rates
Discount rates affect the amount of liability recorded and the interest expense component of
pension and other post-retirement benefit expense. Discount rates reflect the rates at which pension
and other post-retirement benefits could be effectively settled, or in other words, how much it would
cost us to buy enough high quality bonds to generate cash flow equal to our expected future benefit
payments.
We determine the discount rate based on the market yield as of each fiscal year end for high quality
corporate bonds whose maturities match the plans’ expected benefit payments. The discount rate we
used to value our FY 2013 pension and other post-retirement benefits was 5.18%. For FY 2012, the
discount rate we used to value our pension and other post-retirement benefits was 4.35%. Each year,
these discount rates are reevaluated and adjusted to reflect the best estimate of the currently
effective settlement rates. If interest rates generally decline or rise, the assumed discount rates will
change.
Long-term Rate of Return on Plan Assets
The expected long-term rate of return on plan assets reflects the average rate of earnings expected
on the funds invested, or to be invested, to provide for benefits included in the projected benefit