289.5 Insurance by the United States. AUTHORITY: The provisions of this Part 289 issued under sec. 204, 49 Stat. 1987, as amended; 46 U.S.C. 1114. Interpret or apply sec. 12, 60 Stat. 49, as amended; 50 U.S.C. App. 1745. SOURCE: The provisions of this Part 289 contained in General Order 67, Revised, 18 F.R. 230, Jan. 10, 1953, unless otherwise noted. § 289.1 Definition. For the purpose of this part, when reference is made to the phrase "interest of the United States", it shall mean: (a) As to vessels constructed or sold with construction-differential subsidy and/or national defense feature allowance under Titles V or VII of the Merchant Marine Act, 1936, as amended, the value of the construction-differential subsidy allowance, plus the allowance for national defense features; (b) As to vessels constructed or sold under Titles V or VII of the Merchant Marine Act of 1936, as amended, and adjusted in price pursuant to section 9 of the Merchant Ship Sales Act of 1946, the difference between the pre-war domestic cost and the statutory sales price as defined in the Merchant Ship Sales Act of 1946. § 289.2 Vessels included. Vessels subject to the provisions of this part are: (a) All vessels which may in the future be constructed or sold with constructiondifferential subsidy allowances and/or national defense features allowance under Titles V or VII of the Merchant Marine Act 1936, as amended. (b) All vessels which have previously been constructed or sold with construction-differential subsidy allowances and national defense features allowances under Titles V or VII of the Merchant Marine Act, 1936, as amended; (c) All vessels which have previously been constructed with construction-differential subsidy allowances or national defense features allowance under Titles V or VII of the Merchant Marine Act of 1936, as amended, and later adjusted in price pursuant to section 9 of the Merchant Ship Sales Act of 1946; (d) All vessels which are subsidized under operating-differential subsidy agreements. § 289.3 Provision in subsidy agreements and mortgages. (a) All construction-differential subsidy agreements and mortgages relative to vessels covered in § 289.2(a) shall provide, wherever possible, that the Maritime Administrator may, in his discretion, require the owner to insure, with commercial underwriters, the interest of the United States. (b) All future construction-differential subsidy agreements and future operating subsidy agreements shall require that owners insure vessels covered in § 289.2 (a) and (d) in amounts acceptable to the Maritime Administration. § 289.4 Insurance by owners. Owners of vessels covered in § 289.2 will not be required to arrange commercial insurance to cover the interest of the United States, exclusive of its mortgage interest, but the United States reserves the right to require, whenever the contracts so provide, that this be done at some future date, should it deem it necessary. Sec. 290.1 290.11 PART 290-FORMS Construction contract. Operating-Differential Subsidy AUTHORITY: The provisions of this Part 290 issued under sec. 204, 49 Stat. 1987, as amended; 46 U.S.C. 1114. § 290.1 Construction contract. (a) The Maritime Subsidy Board on May 9, 1967, adopted the revised form of Construction Contract under Title V, Merchant Marine Act, 1936, as amended, to be identified as "Special Provisions, Contract No. MA/MSB-Contract for the Construction of MA Design " into for which is incorporated "Maritime Subsidy Board, Department of Commerce Construction Contract Part II. General Provisions (Approved May 9, 1967)". (b) Copies of the contract form, containing the said "Special Provisions and General Provisions," may be obtained by persons having a proper interest therein upon application to the Secretary, Maritime Subsidy Board, Washington, D.C. 20235. Copy of the contract was filed with the original of this document. [32 F.R. 7174, May 12, 1967] § 290.11 Operating-Differential Subsidy Agreement; Part II, General Provisions. (a) The Federal Maritime Board on July 29, 1957, and August 5, 1957, adopted a revised standard form of OperatingDifferential Subsidy Agreement incorporating general provisions, effective as of January 1, 1958, to existing and future Operating-Differential Subsidy Agreements made under authority of Title VI of the Merchant Marine Act, 1936, as amended (46 U. S. C. 1171). (b) Copies of the Agreement, identified as Part II, General Provisions, Operating-Differential Subsidy Agreement, may be obtained by persons having a proper interest upon application to the Secretary, Federal Maritime Board, Washington 25, D. C. [24 F.R. 55, Jan. 8, 1959] PART 291-DEFINITION OF CAPITAL NECESSARILY EMPLOYED IN THE BUSINESS § 291.5 Definition of capital necessarily employed in the business. Pursuant to section 607 (d) of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1177 (d)), “capital necessarily employed in the business" is defined to be that part of the net worth of a contractor as of the beginning of the accounting period, as defined in paragraph (f) (2) of this section (subject, however, to such interim adjustments as may be provided in this section), properly allocated to and required in the business of operating subsidized vessels and services incident thereto, covered by an effective operating-differential subsidy contract which is represented by and limited to the aggregate of the amounts determined in accordance with the succeeding paragraphs of this section. (a) Ship equities. The sum of the allowable financial equities of the contractor shall be determined, on a ship by ship basis (except for the purposes of subparagraph (4) (i), (ii), and (iii) of this paragraph), as set forth in subparagraphs (1) through (7) of this paragraph, with respect to vessels owned by the contractor and covered by an effective operating-differential subsidy contract as of the beginning of the accounting period (except as otherwise specifically provided in this paragraph), to the extent of the use in relation to time that such vessels are employed under such operating-differential subsidy contract during the accounting period, including the time the vessels are in idle status incident to normal operations of the vessels or resulting from unavoidable causes; subject, however, in particular cases to the provisions of section 606 (2) of the Merchant Marine Act, 1936, as amended (46 U. S. C. 1176 (2)). (1) Acquisition cost. The cost of the vessel to the contractor shall be ascertained as set forth in subdivisions (1) and (ii) of this subparagraph: (i) If the vessel was acquired for cash paid in full, or for cash in part and deferred payments for the balance, the acquisition cost of the vessel shall be determined to be the amount of the cash paid in full or the cash paid in part, plus the principal amount of the deferred payments, except as provided in subdivision (ii) of this subparagraph. (ii) If the vessel was acquired from a related company or for a consideration other than cash, the cost of the vessel shall be determined as provided in Part 284 of this chapter (General Order 24, 2d Revision). (2) Improvements. To the cost of the vessel, as determined in subparagraph (1) of this paragraph, shall be added such of the contractor's capital expenditures for improvements added to the vessel as are determined by the Maritime Administration to be properly capitalizable in conformity with the provisions of Part 284 of this chapter (General Order 24, 2d Revision, 14 F. R. 7589) and not reflected in the initial acquisition cost or in any adjustment of the purchase price of the vessel under section 9 of the Merchant Ship Sales Act of 1946 (50 U. S. C. App. 1742). Improvements so found to be properly capitalizable shall be added to the acquisition cost of the vessel determined pursuant to subparagraph (1) of this paragraph, as of the beginning of the accounting period next succeeding the end of the month during which such improvements are completed. (3) Depreciation. From the amount determined pursuant to subparagraph (1) of this paragraph there shall be deducted depreciation accrued for the period beginning with the date of acquisition of the vessel by the contractor and terminating with the beginning of the accounting period, computed on the basis of a 20-year useful life from the date of the delivery of the vessel by the shipyard, or that portion of a 20-year useful life which remains unexpired as of the date of acquisition by the contractor, and from the amount determined pursuant to subparagraph (2) of this paragraph there shall be deducted depreciation computed on the basis of that portion of a 20-year useful life of the vessel which remains unexpired at the end of the month during which the capitalizable items are completed, except that with respect to a wholly or partially reconstructed or reconditioned vessel the life expectancy of which has been determined to be otherwise jointly by the Secretary of the Treasury and the Administration, depreciation of amounts determined pursuant to subparagraphs (1) and (2) of this paragraph shall be computed on the life expectancy so determined. Such depreciation with respect to capital expenditures shall not be deducted in determining "capital necessarily employed in the business" for the accounting period in which falls the date of completion, but depreciation from the end of such month of completion to the beginning of the next accounting period shall be taken into account for the purposes of such succeeding accounting period and all subsequent accounting periods thereafter. (4) Funded depreciation. To the amount determined pursuant to subparagraphs (1), (2), and (3) of this paragraph there shall be added funded depreciation in an amount up to, but not to exceed, depreciation charges (within the limits of accrued depreciation computed pursuant to subparagraph (3) of this paragraph) which at the beginning of the accounting period have been deposited (together with the amounts accrued for deposit) as of such date, in the Capital Reserve Fund of the contractor pursuant to law or contract (referred to in this section as "limited funded depreciation__), to the extent the same has not been reduced by withdrawals therefrom. Withdrawals for the purpose of this subparagraph (4) of this paragraph include those defined in subdivision (i) through (iii) of this subparagraph: (i) Withdrawals from the Capital Reserve Fund for the purpose of making payments of the maturities of mortgage indebtedness on subsidized vessels shall be deemed to have been made out of the "limited funded depreciation" to the extent of the aggregate of the "limited funded depreciation;" (ii) Withdrawals from the Capital Reserve Fund for the prepayment of mortgage notes or for other purposes shall be deemed to have been made from sources of deposit other than the "limited funded depreciation" provided and to the extent that the aggregate "limited funded depreciation" is not encroached upon, and out of the "limited funded depreciation," if and when and to the extent that the available funds in the Capital Reserve Fund, including accrued deposit requirements, are reduced below an amount equal to the then balance of the aggregate accrued depreciation charges (within the limits of accrued depreciation computed pursuant to subparagraph (3) of this paragraph); and (iii) If the "limited funded depreciation" in the aggregate shall have been depleted in whole or in part by reason of withdrawals therefrom, in accordance with the subdivisions (i) and (ii) of this subparagraph, and the contractor, with the approval of the Administration, makes or has made deposits in the contractor's Capital Reserve Fund not required by statute, or transfers from its Special Reserve Fund to its Capital Reserve Fund amounts theretofore deposited in the Special Reserve Fund but not required by statute, such voluntary deposits and transfers authorized by the Administration may be deemed to have replenished the "limited funded depreciation" in the aggregate up to but not to exceed in amount the extent of such prior withdrawals: Provided, That, for the purpose of this subdivision, amounts transferred from the Special Reserve Fund to the Capital Reserve Fund shall be deemed to have been transferred out of amounts voluntarily deposited in the Special Reserve Fund to the extent of the amounts so deposited and not previously transferred or withdrawn. (5) Mortgage indebtedness. From the amount ascertained pursuant to subparagraphs (1) through (4) of this paragraph, there shall be deducted the balance of principal mortgage indebtedness, if any, remaining unpaid with respect to the vessel. (6) Vessels subject to section 9 of the Merchant Ship Sales Act of 1946. If the acquisition cost of a vessel is adjusted pursuant to the provisions of section 9 of the Merchant Ship Sales Act of 1946 (50 U. S. C. App. 1742), the contractor's equity in such vessel shall be determined on the basis of the original acquisition cost for the period prior to the date of the adjustment agreement; for the period thereafter, the contractor's equity in such vessel shall be determined on the basis of the statutory sales price computed by the Administration in accordance with section 3 (d) of the said act (50 U. S. C. App. 1736 (d)). If the contractor, in connection with an adjustment under section 9 of the Merchant Ship Sales Act of 1946 (50 U. S. C. App. 1742), shall have received cash and have deposited such cash in its Capital Reserve Fund, it shall be deemed to be a voluntary deposit for the purpose of replenishing any deficiency in "limited funded depreciation" effective as of the date of the adjustment agreement. (7) Vessels covered during the accounting period. With respect to a vessel owned by the contractor which is covered by an effective operating-differential subsidy contract during the accounting period, the allowable financial equities of the contractor in such a vessel shall be included in determining capital necessarily employed for the pro rata portion of the accounting period that such a vessel is subject to the contractor's operating-differential subsidy contract; the measure of such equities shall be determined in accordance with subparagraphs (1) through (6) of this paragraph: Provided, That the measure of the equities shall be taken as of the date the vessel is placed under the operating-differential subsidy contract: And provided further, That in no case shall there be a duplication of allowances of sums under this section. (b) Working capital. The amount required to pay the expenses of operating and maintaining the subsidized vessels, covered by an effective operating-differential subsidy contract, in the most efficient and economical manner, to the extent of the use in relation to time that such vessels are employed under such operating-differential subsidy contract during the accounting period, including the time the vessels are in idle status incident to normal operations of the vessels or resulting from unavoidable causes, subject, however, in particular cases to the provisions of section 606 (2) of the Merchant Marine Act, 1936, as amended (46 U. S. C. 1176 (2)), shall be ascertained as set forth in subparagraphs (1) through (3) of this paragraph. (1) Average voyage expenses. Subject to the provisions of subparagraph (2) of this paragraph, working capital shall be determined on the basis of the actual expenses of operating and maintaining the subsidized vessels for a period represented by the average length of time of all round voyage calculated separately for each subsidized service. This determination shall be made in the following manner: First by dividing the sum of such expenses for the accounting period involved applicable to the subsidized vessels in each such service by the aggregate number of days consumed in all voyages of such vessels in each such service terminating during such period; second by multiplying the quotient thus obtained by the number of days in the average voyage in each such service; and third by multiplying the resulting product by the quotient of the total number of days consumed in voyages of subsidized vessels in each such service terminating during the accounting period divided by the number of calendar days within the accounting period. The expense of operating and maintaining the subsidized vessels shall include overhead allowed by the Administration, and wages, subsistence, stores, supplies, equipment, fuel, maintenance, repairs, insurance, other vessel expense (but excluding hire paid on chartered vessels), port expense, cargo expense, brokerage expense, and other voyage expense. For the purposes of this section, if, in any instance, the average subsidized voyage in any subsidized service is of less than ninety (90) days' duration, the expense of Hull and Machinery and P & I insurance shall be determined to be that for a period of ninety (90) days: Provided, That such allowance for insurance expense shall not, in the aggregate, exceed the total actual insurance expense for the accounting period. (2) Limitation of working capital. In no event shall the amount allowed under subparagraph (1) of this paragraph exceed the sum of the items listed in subdivision (i) of this subparagraph minus the sum of the items listed in subdivision (ii) of this subparagraph as of the beginning of the accounting period adjusted as provided in subdivision (iii) of this subparagraph. (1) The total of the following items shall be ascertained: (a) Total current working assets (less non-shipping inventories); (b) Unterminated voyage expense; (c) Deferred charges and prepaid expenses; (d) Amounts deposited to guarantee performance of statutory or contractual obligations relating to the operation of the subsidized vessels and services incident thereto; (e) Pending claims of a nature customarily covered by insurance with respect to which, pursuant to this section 291.5. working capital allocated to the operation of the subsidized vessels and services incident thereto is reduced by reason of the items constituting the basis of such claims having been paid or having been taken into account through the setting up of a corresponding liability in accordance with sound accounting practice. (i) The total of the following items shall be ascertained and subtracted from the total of the items in subdivision (1) of this subparagraph: (a) Total current working liabilities (less mortgage notes payable from the Capital Reserve Fund); (b) Borrowed capital in any form; (f) Sundry operating reserves (to the extent created by charges to income). (iii) From the amount determined under subdivisions (1) and (ii) of this subparagraph there shall be deducted the results determined pursuant to (a), (b), and (c) of this subdivision, as follows: (a) All accrued mandatory deposits and all accrued voluntary deposits which the Administration has authorized the contractor to make in the Capital Reserve Fund and Special Reserve Fund; (b) The amount of working capital, if any, which the Administration in its discretion determines to be fair and reasonable and employed in the business of operating unsubsidized vessels whose earnings are not subject to the reserve and recapture provisions of the operating subsidy contract computed as far as may be practicable on the same basis as is prescribed in this section with respect to working capital employed in the opera tion of subsidized vessels and services incident thereto; (c) The amount of working capital, if any, which the Administration in its discretion determines to be fair and reasonable and employed in any business activity other than the operation of vessels. (c) Miscellaneous items. There shall be included as "capital necessarily employed in the business" the amounts determined, as of the beginning of the accounting period, pursuant to subparagraphs (1) through (9) of this paragraph: (1) Spare parts. The acquisition cost (or other applicable acquistion base) of shoreside reserve spare parts and spare equipment (if the value thereof is not included among current working assets) held for the use of the subsidized vessels may be included as determined by the Administration, subject to subparagraph (3) of this paragraph. (2) Office furniture and fixtures. The depreciated cost of office furniture and fixtures properly allocated to the operation and maintenance of the subsidized vessels may be included as determined by the Administration, subject to subparagraph (3) of this paragraph. (3) Limitation. In no event shall the total of the sums allowed under subparagraphs (1) and (2) of this subparagraph exceed two and one-half percent (22%) of the aggregate acquisition cost (or other applicable acquisition base) of the subsidized vessels. (4) Other floating equipment. The portion of the equity in other floating equipment (the fair and reasonable cost as determined by the Administration, less depreciation, and less indebtedness, if any) may be included only if and to the extent that the Administration determines that such other floating equipment is essential to the efficient and economical operation and maintenance of the subsidized vessels. (5) Other physical assets. The portion of the equity in a physical asset (the fair and reasonable cost as determined by the Administration, less depreciation, and less indebtedness, if any), other than such assets as are specifiled in this section or included among current working assets, may be included if the Administration shall find and determine that such physical asset is essential to the efficient and economical operation of the subsidized vessels and is of a kind not otherwise economi |