Amtrak 2013 Annual Report Download - page 62

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)
135,515 and 41,000 rail ties during the fiscal years 2013 and 2012, respectively, and plans on
replacing approximately 529,000 remaining ties in fiscal years 2014 through 2018 at an
estimated total cost of $247.8 million. The Company has assigned a unique group depreciation
rate to this group of ties, which was determined by an outside civil engineering firm and factors
in the replacement schedule as determined by Amtrak’ s Engineering Department. As a result,
depreciation expense is being accelerated over the remaining life of these ties. This acceleration
of depreciation expense decreased the net loss during the fiscal year 2013 by approximately
$1.8 million and increased the net loss during fiscal year 2012 by approximately $9.4 million. On
March 15, 2010, Amtrak and the concrete tie manufacturer executed a settlement agreement to
resolve Amtrak’ s claims for defective concrete ties. Under the settlement agreement, Amtrak will
receive a combination of recurring payments totaling $10.0 million and purchase discounts up to
a total of an additional $10.0 million for new concrete tie purchases through December 31, 2018.
Amtrak received $1.4 million and $2.5 million in fiscal years 2013 and 2012, respectively.
Amtrak periodically engages an outside civil engineering firm with expertise in railroad property
usage to conduct a study to evaluate depreciation rates for assets subject to the group method.
These rates are used for the group depreciation calculations. In addition to the adjustment to
group depreciation rates because of periodic depreciation studies, certain other events could
occur that would materially affect Amtrak’ s estimates and assumptions related to depreciation.
Unforeseen changes in operations or technology could substantially alter assumptions regarding
Amtrak’ s ability to realize the return on its investment in operating assets and, therefore, affect
the amount of depreciation expense to charge against both current and future revenues. Because
group method depreciation expense is a function of analytical studies made of property and
equipment, subsequent studies could result in different estimates of useful lives and net salvage
values. If future group method depreciation studies yield results indicating that assets have
shorter lives because of obsolescence, physical condition, changes in technology, or changes in
net salvage values, the group method calculation of depreciation expense could increase.
Likewise, if future studies indicate that assets have longer lives, the group method calculation of
depreciation expense could decrease.
Indirect Cost Capitalized To Property and Equipment
Overhead expense allocations represent the indirect support expenses related to specific
geographic regions and departments that are involved in particular operation and construction
projects. These indirect costs are capitalized along with the direct costs of material, labor, and
other direct costs. Amtrak’ s overhead rates are updated annually at the end of each fiscal year
based upon the actual activity and costs incurred during the fiscal year.