Amtrak 2013 Annual Report Download - page 61

National Railroad Passenger Corporation and Subsidiaries (Amtrak)
Notes to Consolidated Financial Statements (continued)
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4. Basis of Presentation and Summary of Significant Accounting Policies (continued)
Construction in progress is stated at cost and includes direct costs of construction as well as
interest expense capitalized during the period of construction. Amtrak capitalizes interest costs in
connection with the construction of major facilities, locomotives, and passenger cars.
Construction in progress is transferred to fixed assets when substantially all the activities
necessary to prepare the assets for their intended use are completed, at which time depreciation
commences. Capitalized interest is recorded as part of the asset to which it relates and is
depreciated over the asset’ s useful life. Interest costs capitalized on construction projects were
$8.6 million and $4.8 million for the fiscal years ended September 30, 2013 and 2012,
respectively.
The useful lives of locomotives, passenger cars, and other rolling stock assets for depreciation
purposes range up to 42 years. Right-of-way and other properties (excluding land) are
depreciated using useful lives ranging up to 105 years. Other equipment including computers,
office equipment, and maintenance equipment is depreciated using useful lives ranging from 5 to
20 years. Expenditures that significantly increase asset values or extend useful lives are
capitalized, including major overhauls. Repair and maintenance expenditures, including
preventive maintenance, are charged to operating expense when the work is performed. The cost
of internally developed software is capitalized and amortized over its estimated useful life, which
is generally 5 to 10 years.
The Company recognizes the fair value of any liability for conditional asset retirement
obligations, including environmental remediation liabilities, when incurred, which is generally
upon acquisition, construction, or development and/or through the normal operation of the asset,
if sufficient information exists with which Amtrak can reasonably estimate the fair value of the
obligation. Amtrak capitalizes the cost by increasing the carrying amount of the related long-
lived asset. The capitalized cost is depreciated over the useful life of the related asset and upon
settlement of the liability; Amtrak either settles the obligation for its recorded amount or incurs a
gain or loss upon settlement. The asset retirement costs capitalized were $9.7 million and
$6.3 million as of September 30, 2013 and 2012, respectively, and were included in “Right of
way and other properties” in the Consolidated Balance Sheets.
During 2007, the Company discovered that a significant number of rail ties produced by one
vendor would require replacement significantly earlier than other ties. The Company hired a
third party to perform a full analysis of all related ties. Although the initial inspection is
complete, Amtrak’ s Engineering Department will inspect ties indefinitely and adjust useful lives
to reflect the degradation of the ties and prioritize tie replacement as necessary. Amtrak replaced