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<div style="margin:0in 0in 8pt;"><span style="font-family:Calibri;">The revisions to Amtrak’s 2012 Consolidated Statement of Operations resulted in an increase of $15.6 million in the previously reported 2012 loss.  The original 2012 loss was $1,239 million; the adjusted loss is $1,255 million.  The adjustment is 1.21 per cent of the original loss.  As noted by the external auditors, it was not material.</span></div> <div style="margin:0in 0in 8pt;"><span style="font-family:Calibri;">The company adjusted 10 of the 17 line items on the Consolidated Statement of Operations, excluding the sub-total and total lines. The three largest adjustments were to Other Revenues (down $10.5 million), Depreciation (down $16.1 million), and Interest Expense (up $17.7 million).  The changes had a flow through impact on the other financial statements. </span></div> <div style="margin:0in 0in 8pt;"><span style="font-family:Calibri;">Apparently Amtrak had to restate its prior period financials.  The restatement period was not disclosed. Had it not done so, the impact on the company’s 2013 Consolidated Statement of Operations would have been $276.1 million, which management, probably at the urging of auditors, believed would have been material.  Under Generally Accepted Accounting Principles in the United States, determining materiality is a judgment call by the chief accountant, management, and the external auditors.  </span></div> <div style="margin:0in 0in 8pt;"><span style="font-family:Calibri;">Amtrak apparently had not been accounting properly for its leases and deferred income taxes.  It appears that it had capitalized some leases that should have been treated as operating leases.  A capital lease acts like a capital asset, i.e. property, plant, and equipment.  It generates depreciation expense over the estimated life of the asset.  An operating lease acts like a period expense, i.e. the lease payments flow directly to expense.  Without access to the company’s books, it is impossible to know the details.  </span></div> <div style="margin:0in 0in 8pt;"><span style="font-family:Calibri;">The date of the auditor’s report for the 2013 financials is November 25, 2014, which is more than a year after the close of Amtrak’s 2013 fiscal year.  In prior years the audit report was issued by December following the close of the fiscal year.</span></div> <div style="margin:0in 0in 8pt;"><span style="font-family:Calibri;">It appears that Amtrak had to make numerous changings to its accounting records to get the 2012 and 2013 as well as prior period financials correct.  A significant number of the changes don’t appear to have been driven by the changes for leases and deferred income taxes.  </span></div> <div style="margin:0in 0in 8pt;"><span style="font-family:Calibri;">Why did the external auditors miss these accounting problems?  Amtrak changed auditors in 2010, 2011, and 2012.  This may be part of the answer.  Most companies retain their external auditors for a minimum of five years.  This gives the auditors sufficient time to become familiar with the company’s accounting policies, procedures, and practices. </span></div> <div style="margin:0in 0in 8pt;"><span style="font-family:Calibri;"> </span></div>
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