Amtrak 2015 Annual Report Download - page 23

National Railroad Passenger Corporation and Subsidiaries (Amtrak)
Notes to Consolidated Financial Statements (continued)
4. Accounting and Reporting for Federal Payments (continued)
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as of September 30, 2015 and 2014, was issued in 1983 and matures on November 1, 2082, with successive
99-year renewal terms, if the note has not been paid at maturity or accelerated in accordance with its terms,
and is secured by all rolling stock owned by Amtrak. Neither of the notes bears interest, unless prepaid, which
Amtrak does not intend to do. The Federal Government is entitled to repayment and interest in the event
Amtrak ceases operations, is acquired by another entity, or seeks relief under bankruptcy or insolvency laws.
The amount due to the Federal Government on the first note may be accelerated by enactment of federal law
or upon the occurrence of an event of default under the leases and mortgage entered into by Amtrak and PSL
on June 20, 2001 (see Penn Station mortgage in Note 6), or upon the occurrence of various actions concerning
an Amtrak bankruptcy, reorganization, or assignment for the benefit of creditors.
5. Preferred and Common Stock
For funds received from the Federal Government prior to December 2, 1997, the Rail Passenger Service Act
(49 U.S.C. 24304) required Amtrak to issue to the Secretary preferred stock equal in par value to all federal
operating payments and most federal capital payments received subsequent to October 1, 1981, as well as
capital and certain operating payments received prior to that date. As of September 30, 2015 and 2014,
109,396,994 shares of $100 par value preferred stock were authorized, all of which were issued and
outstanding. All issued and outstanding preferred shares are held by the Secretary for the benefit of the Federal
Government. The Amtrak Reform and Accountability Act of 1997 (the Act) resulted in significant
modifications to Amtrak’s capital structure. The Act abolished the voting rights and the liquidation preference
of the preferred stockholder and established that no additional preferred stock be issued by Amtrak in exchange
for federal grants received. At the time of enactment of the Act, the minimum undeclared cumulative preferred
dividend in arrears for all series issued and currently outstanding approximated $5.8 billion and ranged
between $0.02 and $97.08 per share. Each share of preferred stock is convertible into ten shares of common
stock at the option of the preferred stockholder.
As of September 30, 2015 and 2014, 10,000,000 shares of $10 par value common stock were authorized, of
which 9,385,694 shares were issued and outstanding. The common stockholders, who acquired their stock
from four railroads whose intercity rail passenger operations Amtrak assumed in 1971, have voting rights
for amendments to Amtrak’s Articles of Incorporation proposed by the Board of Directors. The Act also
required Amtrak to redeem at fair market value the shares of common stock outstanding as of December 2,
1997, by the end of FY2002. In an effort to comply with the Act, Amtrak made an offer to the stockholders
to redeem the stock for cash at a price of $0.03 per share. By a letter, dated November 2, 2000, counsel for
the four common stockholders responded to Amtrak and rejected the offer.
In May 2008, American Premier Underwriters, Inc. (APU) owner of 55.8% of Amtrak’s common stock
through its corporate predecessor, Penn Central, filed a lawsuit in federal court in Cincinnati, Ohio, asserting
that Amtrak has “eroded” the value of the common stock. APU is seeking $52.0 million and more than 40
years of interest. The lawsuit has been dismissed twice in its entirety by the federal district court. APU
appealed the second dismissal on June 29, 2015. Legal briefing before the Sixth Circuit Court of Appeals
was completed in November 2015 (see Note 10). Management does not believe that the ultimate outcome
of this lawsuit will have a material impact on its financial condition or results of operations.