Amtrak 2014 Annual Report Download - page 21

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National Railroad Passenger Corporation and Subsidiaries (Amtrak)
Notes to Consolidated Financial Statements (continued)
1509-1694994 13
3. Basis of Presentation and Summary of Significant Accounting Policies (continued)
Materials and Supplies
Materials and supplies, which are stated at weighted-average cost, net of allowance for shrinkage
and obsolescence, consist primarily of items for maintenance and improvement of property and
equipment. The allowance for shrinkage and obsolescence is recorded based on specific
identification and expected usage rates.
Derivative and Hedging Activities
Amtrak periodically enters into derivative contracts to manage a portion of its exposure to
fluctuating energy prices. These derivative financial instruments, which inherently contain
market risk, are generally effective in reducing fluctuations in cash flows. Amtrak does not enter
into energy contracts for trading or speculative purposes.
Amtrak held one and three fuel derivative contracts as of September 30, 2014 and 2013,
respectively. Amtrak does not designate its derivative contracts as hedging instruments. Mark-to-
market gains and losses on these derivatives are recorded in current earnings in the Consolidated
Statements of Operations. Changes in fair value are recorded as a component of “Fuel, power,
and utilities” in the Consolidated Statements of Operations.
For FY2014 and FY2013, Amtrak recognized a net increase of $3.9 million and $6.5 million,
respectively, in “Fuel, power, and utilities” expense in the Consolidated Statements of
Operations associated with derivative fuel contracts. As of September 30, 2014 and 2013,
Amtrak had derivative fuel contracts with a fair value of $0.9 million and $3.3 million,
respectively, included in “Other current assets” in the Consolidated Balance Sheets.
Amtrak periodically enters into interest rate swap agreements to manage its interest rate exposure
to floating rate debt obligations. Amtrak does not designate its interest rate swaps as hedging
instruments. Changes in the fair value of its interest rate swaps are recorded as a component of
“Interest expense” in the Consolidated Statements of Operations.
On June 19, 2014, in conjunction with financing for the early termination of certain capital lease
obligations (see Note 6), Amtrak entered into an interest rate swap arrangement to convert
floating rate debt to a fixed rate. As of September 30, 2014, the fair value of the swap contract
was a liability of less than $100,000.