Amtrak 2014 Annual Report Download - page 24

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National Railroad Passenger Corporation and Subsidiaries (Amtrak)
Notes to Consolidated Financial Statements (continued)
1509-1694994 16
3. Basis of Presentation and Summary of Significant Accounting Policies (continued)
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 as of both
September 30, 2014 and 2013, 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
99,697 and 135,515 rail ties during FY2014 and FY2013, respectively, and plans on replacing
approximately 430,000 remaining ties in FY2015 through FY2018 at an estimated total cost of
$201.1 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 increased the net loss during FY2014 by approximately $1.3 million and decreased the
net loss during FY2013 by approximately $1.8 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
$2.0 million and $1.4 million in FY2014 and FY2013, respectively.
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 operating and construction
projects. These indirect costs, which include fringe benefits allocable to direct labor, are
capitalized along with the direct costs of material, labor, and other direct costs. Amtrak’ s
overhead rates are updated at the end of each fiscal year based upon the actual activity and costs
incurred during the fiscal year.