The Phillips column in the June issue takes substantial issue with accounting methods used by Amtrak in reporting the profitabilty, or lack thereof, for different Amtrak operations. This is an issue which concerns those of us who through the years have acquired at least a rudimentary understanding of this discipline.
On this issue at another RR site I suggested that Congress mandate that Amtraks accounting firm, Ernst & Young I believe, establish an accounting proceedure for Amtrak which would be similar to or identical with those used by, for example, Chevron, BNSF or perhaps JB Hunt. Further that Amtraks officers would not be able to influence those accounting proceedures and practices. Then perhaps Congress and we taxpayers would have a viable comparison of Amtrak with other businesses.
LION is monk, lives in monastery. Congregation said all monasteries in the Congregation will use the same standard accounting methods. End of story.
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I get the feeling at Don Phillips mistrusts Boardman quite a bit. But because Amtrak is a step child of Congress rather than Wall Streeters, no one will ever get a straight or common answer, especially for accounting purposes, from Amtrak...but come to think of it we don't from private enterprises today either. Amtrak being a political puppy just makes it all the easier to use different methods of accounting for political purposes than we are used to. It is playing with the half full/half empty conundrum on an as needed or as can be adapted basis.
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And Wall Streets accounting methods were so pristine that the financial melt down of bank bail outs never happened.
Figures lie and liars figure.
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That's my point, Balt...accounting is a manipulation of numbers and figures so designed to defend or tear apart anything you want anyway you want. In this case Boardman is doing just that to get what he feels he wants and needs for Amtrak. And he does this from the point of being the most politically savvy Amtrak president.
Since Amtrak is a corporation, a quasi-governmental one, it should use these accounting standards. The most authoritative source of generally accepted accounting principles (GAAP) developed by FASAB for federal entities is contained in The FASAB Handbook of Accounting Standards and Other Pronouncements, As Amended (FASAB Handbook). Past violations of accounting standards (Enron, etc.) does not mean the attempt to follow uniform accounting procedures should be abandoned, any more than the fact that drivers violate traffic laws means those should be abandoned.
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I don't know if Phillips ever passed an accounting course. One very frustrating thing regarding writers such as Phillips is that you never know their qualifications for being a critic. Same thing with some commenters on this forum.
Myself, I'm not an accountant. But I did take and pass several accounting classes at the undergraduate and graduate level.
The objective of accounting is to match revenues and expenses. For example, if a firm had $500,000 of revenue from selling turnips last year, just what was the total expense of getting that $500,000 in revenue? If it was more than $500,000 they really need to do something. Up to, and including, the cessation of selling turnips.
The matching of revenues and expenses is much more subjective than some people want to believe. It's far easier to imagine a villain (evil Wall Street type) than it is to actually understand the complexities.
My favorite railroad example comes from when I was doing analysis of branch line abandonments. The expenses weren't much of a problem. We could determine the crew pay, the maintenance on the branch, the taxes, the fuel used, etc. pretty well . But we couldn't match revenues to those expenses in any meaningful manner.
An example would be the branch line from Bloomigton, IL to Mason City, IL. Right at 45 miles long. Six days a week a crew would go on duty in Bloomington and take very few cars to and from the various small towns between Bloomington and Mason City. Now, those cars weren't going to or comming from Bloomington.
If we received a carload of lumber destined to the branch from the Union Pacific at Council Bluffs we had to haul it about 626 miles to get it to Bloomington. Then a maximum of 45 miles on the branch. 93% of our haul was off the branch. If we got $600 to move the car from Council Bluffs to destination, just how much of that $600 could be "matched" to the branch's expenses? We certainly couldn't haul the car from Council Bluffs to Bloomington for nothing. Any answer would have to be subjective, not objective.
On a straight mileage pro rate only $42 would be subjectively allocated to cover the branch expenses. On that basis the branch was a dead weight looser. The government regulators, ever mindful of politics, had to come up with a different formula for revenue allocation. And they did. We were to arbitrarily allocate 50% of the revenue to the branch. They had no real basis for this arbitrary allocation. But they wanted to avoid the political heat from branch line abandonments. (The 50% figure applied across the board to all branches.)
So, according to government mandated accounting, we hauled the lumber 626 miles for $300, then another 45 branch line miles for another $300. It was a totally arbitrary, politically movitivated, form of accounting. In any event, the branch still came up a looser under the government mandated accounting system. And it is thankfully gone.
The point is that there is a real element of subjectivity in accounting. People need to understand that. Good managers will look at the accounting numbers, understand their context and subjectivity, and make decisions accordingly. People such as Phillips seem to just get confused.
Don is an old line journalist....achieve the art with the skills; work at it with intelligence and enthusiasm; research and study the facts and then chek them again; develop reliable and credible contacts; respect your contacts, your readers, your work and yourself; report with an even hand. Then, if you want or when you can, draw your own conclusions and report them as your conclusions and thoughts. Frailey and a few others around Trains have that same bent, unlike those in the mass media of newspapers, TV, Radio, and internet.
greyhounds An example would be the branch line from Bloomigton, IL to Mason City, IL. Right at 45 miles long. Six days a week a crew would go on duty in Bloomington and take very few cars to and from the various small towns between Bloomington and Mason City. Now, those cars weren't going to or comming from Bloomington. If we received a carload of lumber destined to the branch from the Union Pacific at Council Bluffs we had to haul it about 626 miles to get it to Bloomington. Then a maximum of 45 miles on the branch. 93% of our haul was off the branch. If we got $600 to move the car from Council Bluffs to destination, just how much of that $600 could be "matched" to the branch's expenses? We certainly couldn't haul the car from Council Bluffs to Bloomington for nothing. Any answer would have to be subjective, not objective.
Ken,
Keeping in mind that the goal of the company is to produce net income, I'd first subtract out the incremental cost of moving the car from Council Bluffs to Bloomington, then compare the remainder with the pro-rated costs for moving the car from Bloomington to the destination. If the remainder is less than the pro-rated costs then the branch line is almost certainly a loser, with the exception based on keeping an otherwise profitable customer.
You're right in that the is a great deal of subjectivity in cost and revenue allocation.
- Erik
Accounting for large complex organizations causes myriad of assumptions to be made when allocating both revenues and expenses.
We all know what happens when you ASSUME - something about ass U and me.
Another item of subjectivity is whether the recipient of that carload would be happy with it being hauled only to Bloomington. If not, then the railroad looses the entire $600 if that branch line is gone. That loss may not impact the balance sheets much today, but may well do so at a future point when enough branch lines are dropped due to their perceived individual lack of profitability.
Or the railroad may find itself stronger and more financially viable when it drops its branch lines and focus on the business it can generate on the main line.
greyhounds' example of allocating a part of the revenue to the branch line move makes me think of the former practice (is it still the practice?) of revenue allocation to a short line which had a part in a particular movement--the short line received more than its proportional share of the total revenue when its mileage was compared with the total mileage.
Johnny
Phillips makes a number of statements regarding Amtrak's accounting procedures that appear to be without support. He quotes a Mr. Seldon as someone who has insight into Amtrak's cost allocation methods, i.e. loading the long distance trains operating in the NEC with extraordinary costs if I remember correctly. How Seldon got his information remains a mystery. What is even more interesting is the fact that he was the only source willing to be named in Phillips article. To know how Amtrak allocates its costs, one would have to be an insider or have an insider give him or her access to the company's books.
As per the external auditor's report, Amtrak keeps its books in accordance with, "accounting principles generally accepted in the United States of America", which is frequently referred to as GAAP. It's standards, which are promulgated by the Financial Accounting Standards Board, are codified in FASB Statements, Interpretations, FASB Staff Positions, Technical Bulletins, and EITF Abstracts. These are the standards that govern Amtrak's accounting, although it may adhere to some government accounting standards.
The implication that Amtrak's officers are unduly influencing the company's accounting procedures and practices, i.e. not following GAAP as well as governmental accounting principles where applicable, is not supported. The further implication that the external auditors from one of the world's most highly regarding accounting firms are turning a blind eye to these accounting irregularities is likewise without foundation.
Amtrak follows the same accounting principles as every other stock company in the United States. That is not to say that they don't have some wiggle room in how they interpret and apply accounting standards, especially when it comes to estimates, i.e. depreciation, amortization, retiree benefits, etc., but any estimates that they use must be supported, and they must be consistent.
I like Don Philiips and read his column and appreciate his insights. The same with Frred Frailey. But the two do not agree on everything. I think Don's opinion of Boardman is less than Fred's. although Fred has criticised Boardman on occasion as well. But I agree with Henry that, with all his faults, and he is not a Rystrup or Claytor or Gunn, he may be the best man for Amtrak at the present time, better than the three just pentioned, again for the present time. Of course it depends on what you want Amtrak to be. I think Boaaaardman understands what the majority of concerned Americans want Amtrak to be, and I believe I agree with them and h im. Inlcuding the retention of dining and sleeping cars and long distance trains.
Sam1As per the external auditor's report, Amtrak keeps its books in accordance with, "accounting principles generally accepted in the United States of America", which is frequently referred to as GAAP. It's standards, which are promulgated by the Financial Accounting Standards Board, are codified in FASB Statements, Interpretations, FASB Staff Positions, Technical Bulletins, and EITF Abstracts. These are the standards that govern Amtrak's accounting, although it may adhere to some government accounting standards.
Just as a reminder for those 'not in the know' -- FASB and FASAB are two very different organizations. FASB is general accounting, and FASAB is Federal application. It is a matter of discussion which of these is more applicable to determining a proper form of GAAP for Amtrak as a 'quasi-public' (and therefore by implication quasi-Federal) organization, but anyone considering the issues should look at BOTH when discussing the issue.
Overmod Sam1As per the external auditor's report, Amtrak keeps its books in accordance with, "accounting principles generally accepted in the United States of America", which is frequently referred to as GAAP. It's standards, which are promulgated by the Financial Accounting Standards Board, are codified in FASB Statements, Interpretations, FASB Staff Positions, Technical Bulletins, and EITF Abstracts. These are the standards that govern Amtrak's accounting, although it may adhere to some government accounting standards. Just as a reminder for those 'not in the know' -- FASB and FASAB are two very different organizations. FASB is general accounting, and FASAB is Federal application. It is a matter of discussion which of these is more applicable to determining a proper form of GAAP for Amtrak as a 'quasi-public' (and therefore by implication quasi-Federal) organization, but anyone considering the issues should look at BOTH when discussing the issue.
What you say is true. My impression is that the biggest difference between public company accounting and government accounting is that the latter uses fund accounting. Otherwise the overwhelming majority of the principles are the same.
Amtrak's Balance Sheet has an owners equity (capitalization) category just like a business. It does not have a general fund like a government agency.
The key point is neither Amtrak's management or anyone else just makes up their own accounting rules as they go along. Management must follow generally accepted accounting principles and practices or be called out by the external and internal auditors. I have read nearly every Amtrak financial report for the last eight years. I don't recall the auditors every issuing anything other than a clean audit report.
The audit community (external, internal, private, government, etc.) has gotten a few black eyes over the years. And people out of the know like to generalize the outliers to the whole. All up, however, auditors do a pretty good job. They get it right most of the time, frequently to the chagrin of management.
An examination of the Amtrak 2012 Consolidated Financial Statement audited by Ernst and Young says only adhering to GAAP, without specifying FASB or FASAB.
In one section it does refer to FASB ASC topic 20 in reference to Fair Value Measurements.
ASC stands for Accounting Standards Codification. It was effective for interim and annual periods after September 15, 2009. ASC reorganized thousands of GAAP pronouncements into roughly 90 accounting topics and displays all topics in a consistent structure. It makes GAAP easier to understand, at least for accountants as well as reasonably sophisticated financial statement users.
ASC appears repeatedly throughout Amtrak's financial statements.
henry6I get the feeling at Don Phillips mistrusts Boardman quite a bit.
I agree, Henry. But it is more than a feeling and it goes beyond Joe Boardman. Consider Don Phillips' second sentence: The misinformation is spread by confused and shallow politicians, young reporters who have no idea of what they're talking about, and by Amtrak officials who have learned they can count on the first two groups not to understand their technical jargon." (Emphasis added). Don Phillips charges there is a deliberate and successful effort by "Amtrak officials" to decieve just about everyone.
Then in his second paragraph, the one he wants us to read three times and think about, he makes two statements about Amtrak. First, Generally Accepted Accounting Principles would show Acela "loses money, big-time." Second, "If Amtrak calculated long-distance train financials in the same way it counts Acela financials, most long distance-distance trains would be would be profitable."
So Amtrak officials deliberately provide a "mass of misinformation" to get us to believe Acela makes money when it doesn't and long-distance trains loose large amounts of money when they do not do so.
The word that covers all of that is mistrust. In fact, deep mistrust.
John
As mentioned, there is a lot of fuzzy stuff in accounting. Look at your own home budget. You may have a limited budget for entertainment, etc, but if you consider dinner at your favorite restaurant as part of your food budget, then the entertainment budget stays on (or under) the budgeted amount, while your food budget goes high.
A friendly auditor wouldn't have a problem with this. Someone looking to make you look bad would have a field day.
As Disraeli (famously quoted by Twain) said - "There's lies, damned lies, and statistics." And accounting...
Larry Resident Microferroequinologist (at least at my house) Everyone goes home; Safety begins with you My Opinion. Standard Disclaimers Apply. No Expiration Date Come ride the rails with me! There's one thing about humility - the moment you think you've got it, you've lost it...
diningcarThe Phillips column in the June issue takes substantial issue with accounting methods used by Amtrak in reporting the profitabilty, or lack thereof, for different Amtrak operations
I have not yet had the opportunity to read the article in question, however it has often appeared to me that Amtrak must accelerate the amortization of their plant and use the inflated cost figures that result for shock value. How all the better to justify those inflated charges for sleeper service?
No wonder the long range trains are all "losing" money, if Amtrak insists upon amortizing entire cost of their sleeping cars well before their actual service life has lapsed?
Convicted OneNo wonder the long range trains are all "losing" money, if Amtrak insists upon amortizing entire cost of their sleeping cars well before their actual service life has lapsed?
Do you suggest (as Don Phillips does) that Amtrak misrepresents their long distance trains as loosing large amounts of money when in fact most long distance trains make a profit?
Since according to Amtrak's financials, depreciation represents only ~15% of Amtrak's expenses, it seems unlikely that the claims made by Phillips are credible. But perhaps an expert like sam1 could shed more light on this.
John WR Convicted OneNo wonder the long range trains are all "losing" money, if Amtrak insists upon amortizing entire cost of their sleeping cars well before their actual service life has lapsed? Do you suggest (as Don Phillips does) that Amtrak misrepresents their long distance trains as loosing large amounts of money when in fact most long distance trains make a profit?
My take on what Mr. Phillips is saying is not that long distance trains actually make a profit. It's that they don't lose as much money as Amtrak says they do. That if costs to the long distance trains were calculated in the same manner that they are for the Acela trains, the LD trains would also show a profit. That the Acela trains without some tweaking of the numbers also actually lose money.
Mr. Phillips isn't the first one to suggest this. There have been a few articles in Trains Mag over the years that have said Amtrak and other entities who want to ditch the LD services, if not all of Amtrak, have played with the numbers to make the LD trains look worse than what they are.
Jeff
Define "misrepresents". Any and all accountants, CPA's and politicians use numbers and statistics as they need...businesses do too, of course. Joe Boardman is well versed in operations of transportation, as well as anyone who has gotten to the position. But he has come up through government agencies from small NY counties transit operations to the State of NY Transportation Department as Commissioner (where he held sway over Amtrak's Empire State services including balking at paying for the Turbos when he deemed them unfit for use and overly expensive) so he has more political savvy than any other Amtrak president. So, I don't think he "misrepresents" the accounting so much as he uses it to his advantage in dealing with politicians who hold the purse strings.
Is it just possible that Mr. Phillips, like Mr. Boardman, also has (like many reporters) his own "agenda" in writing this article? It should be remembered that he writes an opinion column, not straight news reporting, and so the journalistic standards of checked facts don't apply. On the other hand, it is rather facile to dismiss the audited financial statements without any evidence that the numbers are a "misrepresentation" of the realities.
jeffhergertMy take on what Mr. Phillips is saying is not that long distance trains actually make a profit. It's that they don't lose as much money as Amtrak says they do.
Jeff,
Here are Don Phillips' words from his second paragraph: "What's more, long-distance trains are money losers but not big ones. If Amtrak calculated long-distance train financials the same way it counts Acela financials, most long distance trains would be profitable." (emphasis added). You are as able to draw conclusions from that statement as I am.
henry6Define "misrepresents".
Henry,
The word Don Phillips uses for Amtrak's financial descriptions is "misinformation." And he attributes the "misinformation" to "Amtrak officials." And he includes Joe Boardman among those "Amtrak officials." That is in the third paragraph of his article. So I think it is reasonable to say Mr. Phillips alleges Amtrak misrepresents financial information.
Bit I cannot imagine that Joe Boardman or anyone at Amtrak would have any reason to report all long--distance trains loose money if some of them make money nor can I see any reason why lgreater ooses should be claimed than actually happen. Mr. Phillips claims of that leave me wondering what to think of him.
So please understand I was simply trying to accurately report the article. I remain unpersuaded at Mr. Phillips allegations are true.
You cannot say "checked facts don't apply". Checked facts are very important in forming an opinion, especially an informed opinion. Opinion comes from the interpretation of facts and one's experience with the facts, the situation, and the people involved. I understand what Don is saying and why. I don't think he is ignorning facts nor not fact checking but merely interpreting what he sees and telling us what he believes to be. I don't think he'd disagree with what I have said about Boardman but just disagrees with what Boardman has done and how Boardman behaves. I don't know Boardman that well and have not dealt with him in any way in over 30 years. Phillips may or may not be right in his interpretation.
Information regarding Amtrak's depreciation policies and practices can be found on Pages 14 - 16, Notes to Consolidated Financial Statements, of the company's 2012 Consolidated Financial Statements. These are the lastest audited annual financial reports.
Amtrak uses the group method to depreciate classes of capital investment. This means, for example, that all the equipment in a class, i.e. Superliner I sleeping cars, would be depreciated over the same time period at a constant rate even though they may have gone into service over a year. Grouping significant capital assets for depreciation is not unusual.
In reading the notes I noted that Amtrak periodically engages engineering firms to assess its depreciation schedules, i.e. useful lives, fair value, salvage values, rates, etc. Firms that do this work are not likely to sully their reputations by bending their best judgement of Amtrak's depreciation practices to play to management or a special interest audience.
How much depreciation do the long distance trains wear? Without access to Amtrak's detailed property records, it is impossible to say. It is reasonable to conclude, I believe, that the bulk of Amtrak's depreciation is driven by its investments in the NEC. In several of my analysis's I have arbitrarily assigned 80 per cent of the depreciation to the NEC and 10 per cent to each of the other product lines, i.e. short haul corridor trains and long distance trains.
I wrote (real paper and envelope) to Mr. Phillips asking him from whom he got his information regarding Amtrak's cost allocation information. It is important to support the conclusions that he arrived at. I am seeking information regarding the company's depreciation schedules, inasmuch as they could be quite informative. I have not heard from him.
The depreciation expense driven by the long haul trains would be primarily on the locomotives and cars, plus any allocated depreciation when these trains are operating over Amtrak's owned infrastructure and any billed depreciation from the hoist railroads.
Amtrak's depreciation in FY12 was $663.7 million. The long distance trains lost $600.9 million in FY12 before depreciation, interest, and ancillary charges. They wiped out the NEC operating profit without any help from depreciation. Their results are worse after application of depreciation, interest and ancillary charges.
In an analysis that I performed on FY10 numbers year or so ago, I calculated that the fully allocated loss per passenger mile for the NEC was 20.8 cents vs. 16.5 cents for the short haul corridor trains and 23.1 cents for the long distance trains. Again, I had to make some assumptions about depreciation, interest, and ancillary charges.
Phillips and others are correct when they say that the Acela or NEC is not profitable. They had an operating profit of $281.9 million before depreciation, etc. in FY12. However, if my assumption that the NEC wears 80 per cent of Amtrak's depreciation is anywhere near being correct, then the loss on the NEC, which would be skewed onto the Acela because of the capital improvements made to hoist it, would be in the neighborhood of $241.2 million. Again, without access to Amtrak's books, my assumptions could be wrong. The loss could be greater or less.
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