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entitled 'Financial Management: Amtrak’s Route Profitability Schedules 
Need Improvement' which was released on July 15, 2002. 

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United States General Accounting Office: 
GAO: 

July 15, 2002: 

The Honorable John McCain: 
Ranking Minority Member: 
Committee on Commerce, Science, and Transportation: 
United States Senate: 

Subject: Financial Management: Amtrak’s Route Profitability Schedules 
Need Improvement: 

Dear Senator McCain: 

Each year, Amtrak must provide an Annual Operations Report to the 
Congress [Footnote 1] that shows revenue, cost, and profit or loss on 
all its train routes in the form of route profitability schedules and 
an annual audited financial statement. The Congress uses the 
information provided on these schedules to help evaluate Amtrak’s 
financial performance, including the profitability of individual Amtrak 
routes. 

In addition, Amtrak periodically receives requests from the Congress or 
its staff to provide route profitability schedules at different times 
of the year. In response to such a request, in May 2001 Amtrak provided 
your staff with schedules that included comparative data for fiscal 
years 1999 and 2000. In November 2001, Amtrak provided schedules with 
data for fiscal year 2001 that also included data for fiscal years 1999 
and 2000 that differed from the information previously provided in May. 
Also, it was not readily apparent how any of the schedules tied to 
Amtrak’s audited financial statements. This letter summarizes the 
information provided during our briefing to your staff on May
14, 2002. The enclosed briefing slides highlight the results of our 
work and the information provided. You asked that we (1) determine the 
reasons for the differences between the totals on Amtrak’s annual route 
profitability schedules for the same periods, and how the schedules 
correlate to the audited financial statements, and (2) comment on the 
general clarity and usefulness of the schedule presentations. 

Results in Brief: 

In November 2001, Amtrak changed the way it prepared its route 
profitability schedules and applied this new method to information 
previously provided in May 2001 for fiscal years 1999 and 2000. Based 
on the initial information requested and provided, the schedule totals 
could not be readily reconciled to the audited financial statements for 
the corresponding periods. According to Amtrak officials, in order to 
focus on the operating profitability of its routes, Amtrak excluded 
certain items included in the financial statement amounts in preparing 
the route schedule data. As a result, the totals for both sets of 
schedules did not tie directly to the audited financial statements. In 
addition, for the November 2001 schedules, Amtrak changed the mix of 
these excluded items, which caused the differences between the two sets 
of schedules. The clarity and usefulness of the schedules provided to 
congressional staff were impaired because there was limited explanation 
of how these schedules were prepared, why they changed, and how they
correlated to the audited financial statements. With Amtrak’s 
assistance, we were able to reconcile both sets of schedules to the 
audited financial statements. 

In the course of our work, we also noted that Amtrak allocated certain 
profits from its other business activities to its routes as a reduction 
in route net cost. According to Amtrak, it allocated these profits to 
partially offset the losses incurred on scheduled Amtrak routes. Prior 
to November 2001, Amtrak allocated these profits to all Amtrak routes 
in proportion to their share of total operating costs. In November 
2001, Amtrak began allocating these profits only to routes with losses. 
Amtrak’s allocation of these profits from its other business activities 
undermines the ability to assess whether or not individual routes are 
operated profitably. The more recent change to allocate those profits 
solely to routes operating at a loss further erodes the ability to 
compare the operating results of individual routes. Collectively, these 
practices compromise the usefulness of these schedules to help 
congressional decisionmakers assess route profitability. 

Recommendations: 

To improve the clarity and usefulness of the route profitability 
schedules provided to congressional staff and others, we recommend that 
the President and Chief Executive Officer of Amtrak make the following 
changes. 

* Provide a clear explanation of the methodology used in preparing the 
schedules, including how they correlate to the audited financial 
statements. 

* Clearly explain any changes in the method for producing the 
profitability schedules on the face of the schedules. 

* Discontinue the allocation of non-core profits to the route 
profitability schedules. 

Agency Comments: 

We obtained oral comments on a draft of our briefing slides from Amtrak 
officials. Amtrak officials generally agreed with our findings and 
recommendations and their comments have been incorporated as 
appropriate. Amtrak officials made the following additional points: (1) 
Amtrak is asked to provide financial information on an expedited basis 
and in varying formats to a variety of organizations; (2) the schedules 
provided to the Congress in May and November 2001 were not part of 
Amtrak’s reporting mandate to provide annual financial information on 
its train routes; and, (3) a detailed narrative explanation of changes 
made was provided in February 2002 in the mandated annual report. 
Amtrak officials agreed, however, that more clarity on the informal 
submissions would be appropriate. 

Scope and Methodology: 

To fulfill our objectives, we reviewed the route profitability 
schedules provided in May 2001 and November 2001. Using the schedules, 
we (1) compared the fiscal years 1999 and 2000 total revenues, net 
cost, and profit or loss amounts presented in both sets of Amtrak 
schedules and discussed identified differences with Amtrak officials, 
(2) compared schedule totals to the audited financial statements, and 
(3) reviewed the schedule presentations for clarity and usefulness. 

We did not review detailed data underlying the amounts reported in 
these schedules or assess Amtrak’s route cost accounting methodologies. 
We conducted our work from February 20, 2002, through March 15, 2002, 
in accordance with generally accepted government auditing standards. 

This report is available on our home page at [hyperlink, 
http://www.gao.gov]. If you have any questions about this report, 
please contact me at (202) 512-8341 or John C. Fretwell, Assistant 
Director, Financial Management and Assurance, at (202) 512-9382. You may
also reach us by e-mail at fretwellj@gao.gov or calboml@gao.gov. Key 
contributors to this assignment were Lisa J. Crye, John C. Fretwell and 
Doris G. Yanger. 

Sincerely yours, 

Signed by: 

Linda M. Calbom: 
Director, Financial Management and Assurance: 

Enclosure: 

[End of section] 

Enclosure: 

National Railroad Passenger Corporation (Amtrak): 

Amtrak’s Route Profitability Schedules Need Improvement: 

Briefing to Staff of the Committee on Commerce, Science, and
Transportation, United States Senate: 

May 14, 2002: 

Background: 

Pursuant to Section 24315(a)(1) of Title 49, U.S. Code, Amtrak is
required to provide an Annual Operations Report to Congress no later
than February 15 of each year on revenue, cost, and profit or loss for 
all its train routes. Amtrak provides this information in the form of 
schedules called “Financial Performance of Scheduled Amtrak Routes.” 
Congress uses this information to help evaluate the profitability of 
individual Amtrak routes. 

In addition to the required submission mentioned above, Amtrak 
periodically receives requests by Congress or its staff to provide these
schedules at different times of the year. Schedules provided to 
congressional staff in May 2001 included comparative data for fiscal
years 1999 and 2000. In November 2001, Amtrak provided schedules
with data for fiscal years 1999 – 2001. The fiscal year 1999 and 2000
data provided in November 2001 was different than that provided in May
2001. 

Section 24315(d) of Title 49, U.S. Code requires Amtrak to submit annual
audited financial statements. 

It was not readily apparent how the schedule totals tied to the audited
financial statements. 

Objectives: 

With regard to the schedules provided in May 2001 and November 2001,
you requested that we: 

* determine the reasons for the differences between the annual schedule
totals for the same periods, and how the schedules correlate to the
audited financial statements, and; 

* comment on the general clarity and usefulness of the schedule
presentations. 

Scope and Methodology: 

We reviewed the schedules provided in May 2001 and November 2001,
and: 

* compared the fiscal years 1999 and 2000 total revenues, net cost, and
profit or loss amounts presented in both sets of Amtrak schedules, and
discussed identified differences with Amtrak officials; 

* also compared schedule totals to the audited financial statements 
[Footnote 2] and, with the assistance of Amtrak officials, reconciled 
schedule totals to the financial statements, and; 

* reviewed the schedule presentations for clarity and usefulness. 

We did not review detailed data underlying the amounts reported in these
schedules or assess Amtrak’s route cost accounting methodologies. 

We requested comments on a draft of these briefing slides from Amtrak.
We received oral comments from Amtrak that were incorporated into these
briefing slides as appropriate. 

We conducted our work from February 20, 2002 through March 15, 2002 in
accordance with generally accepted government auditing standards. 

Results in Brief: 

In November 2001, Amtrak changed the way it prepared its route
profitability schedules and applied this new method to information
previously provided for fiscal years 1999 and 2000. 

The schedules provided to congressional staff included limited 
explanation of how these schedules were prepared, why they changed, and 
how they correlated to the audited financial statements. [Footnote 3] 

To focus on the operating profitability of its routes, Amtrak made 
certain adjustments to the financial statement amounts in preparing the 
route schedule data. In addition, because Amtrak allocated certain 
profits from its other business activities to the schedules, the 
clarity and usefulness of the schedules in helping Congressional 
decision makers assess route profitability was impaired. 

Clearly explaining the route profitability schedule preparation method 
and discontinuing the allocation of other business profits to the 
routes would improve the schedules. 

We made several recommendations that will help clarify the schedule
presentation and improve their usefulness. 

Amtrak officials generally agreed with the substance of our briefing and
recommendations, and provided oral technical and clarifying comments. 

Reasons for Differences: 

Amtrak changed the way it prepared the route profitability schedules in
November 2001 and applied this new method to information previously
provided for fiscal years 1999 and 2000. As shown in the following 
table, the route loss totals in the November 2001 schedules differed 
from the route loss totals in the schedules provided in May 2001. 

Table: 

Fiscal Year: 1999; 
Route Loss (in millions), May 2001: $476.0; 
Route Loss (in millions), November 2001: $511.3. 

Fiscal Year: 2000; 
Route Loss (in millions), May 2001: $471.2; 
Route Loss (in millions), November 2001: $506.0. 

[End of table] 

Based on the initial information requested and provided, these amounts
could not be readily reconciled to the related audited financial 
statements for the corresponding periods. 

According to Amtrak officials, in order to focus on the operating 
profitability of Amtrak routes, Amtrak made certain adjustments to the 
financial statement amounts in preparing the route schedule data 
provided in May 2001 and November 2001, which is why the totals for 
both sets of schedules do not directly tie to the audited financial 
statements. 

In addition, for the November 2001 schedules, they changed the mix of
these excluded items, which caused the differences between the two
sets of schedules. 

Prior to November 2001, Amtrak excluded the following revenues and 
expenses that were included in the financial statement amounts when
preparing their route profitability schedules: 

* Other Business (including Commuter) revenue and related expenses 
[Footnote 4]; 

* Certain Corporate expenses (e.g., salaries & benefits, office rent); 

* Federal and state capital payment revenues and related interest 
income on those payments [Footnote 5]; 

* Depreciation expense; 

* The non-cash portion of employee post retirement insurance expense; 

* Cost of progressive overhauls [Footnote 6]. 

Amtrak officials advised us that they changed their schedule preparation
method in November 2001 to better conform to a financial measurement
concept that presents earnings before interest, taxes, depreciation, and
amortization (EBITDA). [Footnote 7] As a result, Amtrak no longer 
excludes: 

* the non-cash portion of employee post retirement insurance expense; 

* the cost of progressive overhauls. 

Also, in keeping with the EBITDA measurement concept, Amtrak changed
the way it accounted for interest expense. Under the old method, 
interest was included in the route schedule net cost. Under the new 
method, it is excluded. 

Amtrak stated that eliminating interest, taxes, depreciation and
amortization, which removes the capital and financing expenses of the
corporation, allows a clearer understanding of operating performance. 

In order to provide comparability with fiscal year 2001 data, Amtrak 
applied the new method to restate schedule data for fiscal years 1999 
and 2000. 

Clarity and Usefulness: 

Clarity and usefulness of the Amtrak route profitability schedules was
impaired because: 

* the original schedule preparation methodology was not explained
clearly; 

* when the preparation method changed, it was not completely evident
from the schedules what had changed and why, and; 

* based on the initial information requested and provided, annual totals
presented in the schedules could not be readily reconciled to the 
related audited financial statements, which caused confusion for those
analyzing Amtrak’s financial results using both sources of information. 

With Amtrak’s assistance, we were able to reconcile the schedules to the
audited financial statements. 

In the course of our work, we also noted that Amtrak allocated non-core
profits to Amtrak routes as a reduction in route net cost.7 According to
Amtrak, non-core profits are allocated to partially offset the losses 
incurred on scheduled Amtrak routes. 

Amtrak changed the allocation method in November 2001. 

* Under the old method, non-core profits were allocated to all Amtrak
routes in proportion to their share of total operating costs. 

* Under the new method, Amtrak allocated non-core profits only to routes
with losses. 

The usefulness of the schedules under both methods is compromised by 
this allocation of non-core profits. 

The allocation of non-core profits to Amtrak routes undermines the 
ability to compare route profitability. 

* Under both allocation methods, year-to-year comparisons of the
profitability of a given route are distorted. Reported route 
profitability rises or falls with changes in non-core profits, which 
are unrelated to actual route performance. 

* The new method that allocates non-core profits only to routes with
losses further distorts comparisons of route profitability during a 
given year. Routes with losses appear to have lower losses, and the 
reported differences between profitable and unprofitable routes are 
diminished or possibly eliminated. 

Conclusions: 

* The route profitability schedules provided to congressional staff in 
May and November 2001 lacked transparency because there was little 
explanation of how the schedules were prepared, why they changed, and 
how they correlated to the audited financial statements. 

* The allocation of non-core profits to routes undermines the ability to
compare performance among scheduled routes. 

* These preparation methods compromise the usefulness of the schedules 
to help Congressional decision makers assess route profitability. 

Recommendations: 

We recommend the President and Chief Executive Officer of Amtrak make
the following changes to improve the clarity and usefulness of the route
profitability schedules provided to congressional staff and others. 

* Provide a clear explanation of the methodology used in preparing the
schedules, including how they correlate to the audited financial
statements. 

* Clearly explain any changes in the method for producing the
profitability schedules on the face of the schedules. 

* Discontinue the allocation of non-core profits to the schedules. 

Agency Comments: 

Amtrak officials generally agreed with the substance of our briefing and
recommendations, and provided oral technical and clarifying comments, 
which we incorporated as appropriate. They made the following additional
points. 

* Amtrak is asked to provide financial information on an expedited basis
and in varying formats to a variety of organizations. 

* The schedules submitted to Congress in May and November 2001 termed 
informal submissions by Amtrak officials, were not part of Amtrak’s 
reporting mandate to provide annual financial information on its train 
routes. 

* In February 2002, Amtrak did provide a detailed narrative explanation
of changes made in the mandated annual report on the financial 
information on its train routes. 

Amtrak officials agreed, however, that more clarity on the informal
submissions is appropriate. 

[End of enclosure] 

Footnotes: 

[1] Pursuant to Section 24315(a)(1) of Title 49, U.S. Code, Amtrak is 
required to provide this report, which includes revenue, cost, and 
profit or loss for all its train routes to the Congress no later than 
February 15th of each year. 

[2] At the time of our review, the fiscal year 2001 audited financial 
statements had not been issued. 

[3] With Amtrak’s assistance, we were able to reconcile the schedules 
to the audited financial statements. 

[4] Other Business revenue and related expenses include items such as 
work for other railroads, and real estate operations and development. As
discussed later, profit (termed non-core profit) from these other lines 
of business was added back to the route profitability schedules and 
resulted in reducing route net cost. 

[5] Federal and state capital payments are grants to supplement 
passenger and other revenue generated from operations. These grants are 
to be used for modernizing the track and other infrastructure Amtrak 
owns, purchasing locomotives, passenger cars, and other rolling stock 
(such as mail cars and express cars). 

[6] Progressive overhauls are phased equipment overhauls that are 
performed each year in lieu of a comprehensive, or “heavy” overhaul 
every 4 years. 

[7] EBITDA is a financial measure used by many analysts and investors 
to assess a company’s operating performance. It eliminates the items 
listed above which are typically included in the determination of net 
income. 

[8] Non-core profits include profits, if any, from other business 
activities such as work for other railroads, and real estate operations 
and development. 

[End of section] 

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