cally available to the contractor, and then, only to the extent of the ratio that the depreciated cost of the portion of the asset actually required and used by the contractor in the operation of the subsidized vessels bears to the full depreciated cost of the asset, and the ratio that the time the asset is required and used by the contractor in connection with the operation of the subsidized vessels during the accounting period bears to the full accounting period.

(6) Assets of a wholly owned subsidiary. The assets of a wholly owned subsidiary may be included, in whole or in part, only if and to the extent the Administration determines that such assets are essential to and are used in the operation of the subsidized vessels.

(7) Certain deposits in the Special Reserve Fund. Amounts required to be retained in the Special Reserve Fund of the contractor, pursuant to clause 3 of section 607 (c) of the Merchant Marine Act, 1936, as amended (46 U. S. C. 1177 (c) (3)), less deferred recapture liability, if any, shall be included to the extent remaining on deposit from and after the end of the recapture period last preceding, or current on the day preceding, the effective date of this section, and at the end of each subsequent recapture period computed, however, on the basis of 5 percent of capital necessarily employed as determined under all the other provisions of this section. Such Special Reserve deposits shall only be allowed if and to the extent the same continue under deposit, but if the amount of such deposit becomes depleted in whole or in part by reason of withdrawals authorized by said Act and if the contractor makes, with the approval of the Administration, deposits in its Special Reserve Fund not required by statute, such voluntary deposits shall be deemed to have replenished the amounts required to be retained, up to but not to exceed in amount the extent of such withdrawals.

(8) Certain deposits in the Capital Reserve Fund. If the contractor shall have entered into a contract for the purchase or the improvement (including betterment) of a vessel required to be operated in the subsidized routes, lines, or services, under the provisions of the contractor's operating-differential subsidy contract, or shall have been directed by Administration action to make or reserve deposits in its Capital Reserve Fund, in excess of funded depreciation as determined pursuant to paragraph

(a) (4) of this section, for the purpose of entering into a construction program as provided for in title V of the Merchant Marine Act, 1936, as amended (46 U. S. C., Ch. 27, Subch. V), the amounts required to make or complete the down payment on the purchase price of the vessel or vessels, or the improvements, or the required deposits (but not in excess of 25 percent of the purchase price of the vessel or vessels, unless otherwise determined by the Administration, or 100 percent of the cost of the improvements, or 100 percent of the required deposits) shall be included as and from the effective date of the contract for the purchase or improvement of the vessel or vessels, or of the required deposit, to the extent of amounts then on deposit in the Capital Reserve Fund other than those representing "limited funded depreciation": Provided, however, That the Administration reserves the right to require, as a condition to the granting of such allowance, that the contractor, concurrently with the execution of the purchase or improvements contract or within ninety days from the publication date of this section, whichever date shall last occur, shall establish a construction fund under an agreement satisfactory to the Administration, or make the required deposits: And provided further, That, for the period between December 31, 1946, and the termination of the recapture period which was current on December 31, 1946, only, there shall be included in "capital necessarily employed in the business" amounts (excluding mortgage payments) actually disbursed from the Capital Reserve Fund, or from other funds to the extent that the Administrator determines that such disbursements from other funds would have been payable or reimbursable from the Capital Reserve Fund upon proper application, between January 1, 1947, and December 31, 1949, for the purchase or reconstruction (including capitalizable expenditures for reconditioning, betterment, and improvement) of a vessel or vessels required to be operated in the subsidized services, routes, or lines under the provisions of the respective operating-differential subsidy agreements and all addenda thereto, to the extent that such amounts are not otherwise so includable under the provisions of this section: And provided further, That in no event shall there be so included any funds, prior to the date of the availability thereof for such use.

(9) Capital investments; progress payments. To the extent not otherwise provided for in subparagraph (8) of this paragraph, the amounts of progress payments made by the contractor with respect to vessels being constructed for operation in the subsidized routes, lines, or services, under the provisions of the contractor's operating-differential subsidy contract may be included to the extent determined by the Administration to constitute capital investments.

(d) Capital employed in the operation of certain unsubsidized vessels. The amount determined by the Administration as capital necessarily employed in the operation of unsubsidized vessels, with respect to which vessels the Administration specifically imposes the requirement that the financial results of the operations of such unsubsidized vessels shall be taken into account under the reserve and recapture provisions of the contractor's operating-differential subsidy contract, may be included in determining "capital necessarily employed in the business" and such vessels shall be considered "subsidized vessels" for the purposes of paragraph (b) (1) of this section.

(e) Interim additions and deductions. In addition to the adjustments otherwise provided in this section, interim adjustments shall be made in accordance with subparagraphs (1) through (3) of this paragraph.

(1) Additions to and withdrawals of capital. Additions to capital, such as cash realized from the sale of stock, paid in surplus, etc., and withdrawals of capital, if and to the extent that such additions and withdrawals involve assets taken into account in the determination of "capital necessarily employed in the business" pursuant to the other provisions of this section, shall be included or deducted (as the case may be) in the computation of "capital necessarily employed in the business", pro rata, on the basis of the proportion of such additions or withdrawals represented by the relation that the number of days from the date thereof to the end of the accounting period bears to the total number of days within such period, this proportion to be allocated to or between "capital necessarily employed in the business" in subsidized and in unsubsidized operations in the manner prescribed in this section. (2) Capital gains and capital losses. Capital gains and capital losses (except as otherwise provided in this section with

respect to the acquisition, loss, sale, or other disposition of vessels) and earnings (or losses) for any accounting period with respect to which this section is effective shall be included in the computation of "capital necessarily employed in the business" only from the end of the accounting period in which realized (or sustained). Dividends paid out of earnings that have not been included in "capital necessarily employed in the business" shall not be deducted from "capital necessarily employed in the business."

(3) Increases in indebtedness. If, during the accounting period, the contractor increases his indebtedness and the consideration received therefor is not reflected as an element of capital necessarily employed otherwise allowable under this section, there shall be an interim adjustment on account of the net decrease in capital necessarily employed resulting from such increase in indebtedness to be applied against ship equities if the indebtedness is secured by a mortgage on the subsidized vessels, or against working capital limitations if otherwise secured or not secured. Indebtedness, for the purposes of this section, means any indebtedness secured by any fixed asset of the contractor or any unsecured indebtedness other than routine trade indebtedness incurred in the ordinary conduct of business.

(f) Description of terms. (1) All terms used in this section, where applicable, shall have the meaning described in the instructions embodied in the form of "General Financial Statement" prescribed by the Administration.1

(2) The term "accounting period", as used in this section, shall have the meaning of "accounting year", or applicable portion thereof, with respect to which a determination of "capital necessarily employed in the business" is required to be made pursuant to sections 603 (c), 607 (a), 607 (b), and 607 (e) of the Merchant Marine Act, 1936, as amended (46 U. S. C. 1173 (c), 1177 (a), 1177 (b), and 1177 (e)), as said sections are construed by the Administration.

(3) The term "recapture period", as used in this section, shall have the meaning of "any ten year period", or applicable portion thereof, with respect to which recapture of excessive profits is required

1 Copies of the "General Financial Statement" may, upon request, be obtained by persons having a proper interest, upon application at the Office of the Secretary, Maritime Administration, Washington 25, D. C.

pursuant to section 606 (5) of the Merchant Marine Act, 1936, as amended (46 U.S. C. 1176 (5)), as said section is construed by the Administration.

(g) Effective date.

The effective date of this section, as amended, shall be as follows:

(1) The day next following the termination of the recapture period which was current on December 31, 1946, with respect to an operating-differential subsidy resumption addendum executed prior to May 1, 1951;

(2) January 1, 1947, with respect to an operating-differential subsidy resumption addendum executed after April 30, 1951; and

(3) The effective date of the contract, with respect to an operating-differential subsidy contract executed after December 31, 1946.

Effective as of January 1, 1958, the definition in this part shall not be applicable with respect to capital necessarily employed determinations required to be made for accounting periods commencing on or after said date, but shall be superseded by the definition contained in Part 286 of this chapter.

(Sec. 607, 49 Stat. 2005, as amended; 46 U. S. C. 1177) [G. O. 71, 14 F. R. 7936, Dec. 31, 1949, as amended by Amdt. 1, 17 F. R. 8691, Oct. 1, 1952; Amdt. 2, 18 F. R. 8809, Dec. 29, 1953; Amdt. 3, 23 F.R. 5308, July 12, 1958]

§ 292.1

Annual and final accountings by operators under operating-differential subsidy agreements; procedure. Every holder of an operating-differential subsidy agreement executed with the Maritime Commission or the Federal Maritime Board shall (a) within ninety (90) days after publication of this part in the FEDERAL REGISTER, prepare and submit to the Maritime Administration, in the form and manner prescribed in §§ 292.2 to 292.8, inclusive, a separate accounting of its operations for each accounting period commencing with the resumption or commencement of its subsidized operations on or after January 1, 1947 through December 31, 1950: Provided, That such accounting shall not be required with respect to any accounting period included in a terminated "recapture period" (as defined in § 291.5 (f) of this chapter (General Order 71 of the United States Maritime Commission)) with respect to which all accrued operating-differential subsidy was recaptured or is recapturable by the Administration: Provided further, That upon application of the Operator the Administration may extend, for such further period as in its judgment is warranted by the circumstances in any instance, the time limit prescribed in this section for the submission of such accountings, and (b) within one hundred and eighty (180) days after termination of each subsequent accounting period (as defined in the said annexed procedure) prepare and submit to the Maritime Administration a similar accounting for such accounting period: Provided, however, That upon application of the Operator the Administration may extend, for such further period as in its judgment is warranted by the circumstances in any instance, the time limit prescribed in this section for the submission of such accountings.

§ 292.2 Definitions.

Except where the context clearly indicates otherwise, as used in this part:

(a) "Commission" or "Administration" refers to the United States of America acting by and through the Maritime Administration, as successor to the United States Maritime Commission.

(b) "Operator" refers to the holder of an Operating-Differential Subsidy Agreement with the Federal Maritime Board.

(c) "Agreement" refers to an Agreement providing for the payment of an operating-differential subsidy pursuant to Title VI or to section 708 of Title VII of the Merchant Marine Act, 1936, as amended. (References in this part to particular articles of the Agreement relate to such articles of Part II-General Provisions of the standard form of Operating-Differential Subsidy Agreement adopted by the United States Maritime Commission on December 21, 1949.)

(d) "Uniform System of Accounts" refers to the "Uniform System of Accounts for Operating-Differential Subsidy Contractors" (1) prescribed by the United States Maritime Commission in General Order No. 22, January 1, 1938, as supplemented, with respect to accountings for periods through December 31, 1950, and (2) prescribed by the Maritime Administration in Part 282 of this chapter (General Order 22, revised October 16, 1950), with respect to accountings for periods commencing on or after January 1, 1951.

(e) "Accounting period" refers to the calendar year, or applicable portion thereof, with respect to which a separate determination of "capital necessarily employed in the business" is required to be made.

§ 292.3

Accounting requirements.

(a) Contract provisions. (1) Article II-24 of the Agreement provides, among other things, that there shall be a final accounting thereunder between the Operator and the Commission as soon as practicable after the end of each calendar year and upon termination of the Agreement (whether such termination shall occur by expiration of the stated period thereof or otherwise).

(2) Article II-20 of the Agreement provides, among other things, that:

(i) The Operator and every affiliate, domestic agent, subsidiary, or holding company connected with, or directly or indirectly controlling or controlled by, the Operator (a) shall keep its books, records, and accounts relating to the property and to the maintenance, operation, and servicing of the vessel(s), service(s), route (s), and line(s) covered by the Agreement in such form and under such rules and regulations as may be prescribed by the Commission, but the Commission shall not require the duplication of books, records, and accounts

required to be kept in some other form by the Interstate Commerce Commission; and (b) shall file, upon notice from the Commission, balance sheets, profit and loss statements, and such other statements of financial operations, special reports, memoranda of any facts and transactions, as in the opinion of the Commission affect the financial results in, the performance of, or transactions or operations under, the Agreement. The Commission reserves the right to require that all or any of such statements, reports and memoranda shall be certified by independent certified public accountants acceptable to the Commission.

(ii) The Commission is authorized to examine and audit the books, records, and accounts of all persons referred to above in this Article whenever it may deem it necessary or desirable, including but without limitation an analysis of the surplus and all supporting accounts. The Operator agrees that any and all auditors, inspectors, attorneys, and other employees designated by the Commission, shall have full, free and complete access at all reasonable times to all vessels owned by the Operator when in port or undergoing repairs and to all books, records, papers, memoranda or other documents of the Operator wherever located or of any holding company, subsidiary company or affiliated company of the Operator pertaining to any activities relating in any way to the vessel(s), service(s), route(s), or line(s) covered by the agreement, and further agrees to permit the making of photostatic or other copies of any such books, records, papers, memoranda or other documents and to furnish without charge adequate office space and other facilities reasonably required by such auditors, inspectors, attorneys and other employees in the performance of their duties.

(b) Annual and final accountings. Pursuant to the applicable provisions of the Agreement, the Administration hereby requires that each Operator submit a separate accounting of its operations for each accounting period commencing with the resumption or commencement of its subsidized operations on or after January 1, 1947, including, but not limited to, the Operator's determinations of:

(1) Profits in excess of ten percentum per annum on “capital necessarily employed" which are subject to recapture by the Administration;

(2) Requirements with respect to deposits in the statutory Capital and Special Reserve Funds of the Operator;

(3) The amount, if any, of unpaid subsidy accrued with respect to operations after December 31, 1946, during the then current recapture period in excess of any amount of the recapture accrual required by law to be withheld by the Administration;

(4) The amount, if any, of subsidy payments theretofore made to the Operator with respect to operations under the Agreement after December 31, 1946, during the then current recapture period (and not previously repaid) in excess of the sum by which the cumulative amount of subsidy then estimated to have accrued to the Operator on account of such operations is greater than any amount of the then estimated recapture accrual required by law to be withheld by the Administration;

Provided, That, such accounting shall not be required with respect to any accounting period included in a terminated "recapture period" (as defined in § 291.5 (f) of this chapter (General Order 71 of the United States Maritime Commission)) with respect to which all accrued operating-differential subsidy was recaptured or is recapturable by the Administration.

The accounting comprising the statements prescribed in § 292.6 (Statements required by the Administration) shall be submitted in sextuplicate to the Administration through the local District Comptroller, or Area or Port Auditor in the district, area, or port in which the home office of the Operator is located, or (if there be no such Comptroller, or Auditor of the Administration in the district, area, or port in which the home office of the Operator is located) to the Comptroller, Maritime Administration, Washington 25, D.C. While it is preferable that the required statements be typewritten, completely legible original handwritten statements accompanied by five photostatic copies thereof (which likewise must be completely legible) will be acceptable.

(c) Subsequent adjustments. (1) At the time of the submission of the accounting for each accounting period as required under this part, the Operator shall determine whether adjustments during such period affecting any preceding accounting period or periods would, if carried back to such preceding

period or periods, operate to increase or decrease to the extent of $10,000 or more, (i) the amount otherwise recapturable and/or (ii) the amount otherwise required to be deposited in the Special Reserve Fund and, if so, the Operator shall either (a) submit a revised accounting for such preceding accounting period or periods taking such adjustments into account or (b) include in the current accounting an adjustment of amounts recapturable and/or required to be deposited in the Special Reserve Fund with respect to such prior period or periods that will produce the same result as though a revised accounting were submitted for such prior period or periods: Provided, That, except as otherwise provided herein, adjustments applicable to a preceding accounting period shall be taken into account in the year in which recorded; And provided further, That, notwithstanding the foregoing, any subsidy payable must be calculated at the rates established for the voyages on which the subsidizable expense involved was incurred.

(2) If, in any instance, at the time of the submission of an accounting, no such adjustment affecting any preceding accounting period has occurred subsequent to the submission of the accounting for such period, the Operator shall submit to the Administration an appropriate certification to that effect over the signature of a duly authorized officer. The books, records and accounts referred to in this section shall be retained in accordance with the provisions of § 380.24 of this chapter.

[G.O. 74, 16 F.R. 6716, July 11, 1951, as amended at 21 F.R. 9408, Dec. 1, 1956; 30 F.R. 12356, Sept. 28, 1965]

§ 292.4 "Capital necessarily employed." (a) Article II-29 of the Agreement provides that, for the purposes thereof:

(1) Capital necessarily employed in the business" and "capital investment necessarily employed in the operation of the subsidized vessel(s), service(s), route(s), and line (s)" shall, with respect to all annual or other accounting periods which terminated concurrently with or prior to the termination of the recapture period which was current on December 31, 1946, be determined as provided in the applicable rules and regulations as adopted and prescribed by the United States Maritime Commission in Part 286 of this chapter (General Order 31, as amended), exclusive, however, of the