leases are not recorded on the books of accounts, the amount of assets under lease and long-term cash commitments for lease payments are not revealed. Also, the effect on net income varies according to the method of acquiring and financing assets. Therefore, separate disclosure of noncapitalized leases in the financial statements becomes necessary to provide information for analysis and comparison of carriers which lease assets and those which purchase assets.

The disclosures we are requiring will enable the Commission and other users of carrier financial statements filed with us to determine and evaluate the following:

1. The extent to which a carrier leases its operating property;

2. The amount of long-term lease commitments;

3. The present value of noncapitalized leases to reflect debt and asset values equivalent to purchased property.

4. The effect on net income had the leases been capitalized.

We do not believe that rulemaking proceedings under section 553 of the Administrative Procedures Act (5 U.S.C. 553) are necessary. These disclosures will align our reporting requirements with generally accepted accounting principles and reporting rules of the SEC. Therefore, many carriers which presently disclose this information in annual financial statements prepared for stockholders and others, will file the same information in reports to the Commission. Also, we are limiting these disclosures to carriers having $10.0 million or more in carrier operating revenues. Smaller companies, which are less likely to prepare this information for stockholder reports, will not be required to construct it for our reports.

Five schedules are included with this report. They contain the detailed information we are requiring. For the 1975 annual report to the Commission, we encourage carriers to file this information in footnotes to the balance sheet using the schedules as a guide. The actual format of the schedules need not be followed. The schedules will appear in the 1976 annual reports.

FINDINGS

We find that parts 1241, 1249, 1250, and 1251 of Chapter X of Title 49 of the Code of Federal Regulations, effective immediately upon adoption by the Commission, should be amended to reflect the modifications as set forth in the appendix to this report; that such

rule changes are reasonable and necessary to the effective enforcement of the Interstate Commerce Act, as amended; that such rules, as modified, are otherwise lawful and consistent with the public interest and the national transportation policy; and that this is not a major Federal action significantly affecting the quality of the human environment within the meaning of the National Environmental Policy Act of 1969.

An appropriate order will be entered.

APPENDIX

Explanatory notes of noncapitalized lease commitments

The notes listed below are for the purpose of disclosing requirements of noncapitalized lease commitments by carrier lessees (schedules XXA through XXE). For the purpose of this disclosure, a financing lease is defined as a lease which, during the noncancelable lease period either (a) covers 75 percent or more of the economic life of the property or (b) has terms which assure the lessor a full recovery of the fair market value (which would normally be represented by his investment) of the property at the inception of the lease plus a reasonable return on the use of the assets invested subject only to limited risk in the realization of the residual interest in the property and the credit risks generally associated with secured loans.

SCHEDULE XXA-RENTAL EXPENSE OF LESSEE

Report below total rental expense (reduced by rentals from subleases) entering into the determination of results of operations for each period for which an income statement is presented. Rental payments under short-term leases for a month or less which are expected to be renewed need not be included. Contingent rentals, such as those based upon usage or sales, shall be reported separately from the basic or minimum rentals. The disclosure set forth herein need only be reported if gross rental expense in the most recent fiscal year exceeds 1 percent of operating revenue.

SCHEDULE XXB-MINIMUM RENTAL COMMITMENTS

Report below the minimum rental commitments under all noncancelable leases, as of the date of the latest balance sheet presented, in the aggregate (with disclosure of the amounts applicable to noncapitalized financing leases) for (a) each of the 5 succeeding fiscal years; (b) each of the next 3- 5-year periods; and (c) the remainder as a single amount. The amounts so determined should be reduced by rentals to be received from existing noncancelable subleases (with disclosure of the amounts of such rentals). For purposes of this rule, a noncancelable lease is defined as one that has an initial or remaining term of more than 1 year and is noncancelable, or is cancelable only upon the occurrence of some remote contingency or upon the payment of a substantial penalty. The disclosure set forth herein need only be reported if gross rental expense in the most recent fiscal year exceeds 1 percent of operating revenue.

'The rental commitments reported in part A of this schedule have been reduced by these

amounts.

SCHEDULE XXC-LESSEE DISCLOSURE

Report below in general terms: (a) the basis for calculating rental payments if dependent upon factors other than the lapse of time; (b) existence and terms of renewal or purchase options, escalation clauses, et cetera; (c) the nature and amount of related guarantees made or obligations assumed; (d) restrictions on paying dividends, incurring additional debt, further leasing, et cetera; and (e) any other information necessary to assess the effect of lease commitments upon the financial position, results of operations, and changes in financial position of the lessee.

SCHEDULE XXD-LEASE COMMITMENTS-PRESENT VALUE

Report below, for all noncapitalized financing leases, the present value of the minimum lease commitments in the aggregate and by major categories of properties. Present values shall be computed by discounting net lease payments (after substracting, if practicable, estimated, or actual amounts, if any, applicable to taxes, insurance, maintenance, and other operating expenses) at the interest rate implicit in the terms of each lease at the time of entering into the lease. If the present value of the minimum lease commitments is less than 5 percent of the sum of the long-term debt, stockholders' equity and the present value of the minimum lease commitments, or if the impact on net income (as computed in schedule XXE-Income Impact—Lease) is less than 3 percent of the average net income for the most recent 3 years, this disclosure is not required. Also, please disclose either the weighted average interest rate (based on present value) and range of rates or specific interest rates for all lease commitments.

Report below the impact upon net income for each period for which an income statement is presented if all noncapitalized financing leases were capitalized, related assets were amortized on a straight-line basis and interest cost was accured on the basis of the outstanding lease liability. The amounts of amortization and interest cost shall be separately identified. If the impact on net income is less than 3 percent of the average net income for the most recent 3 years, that fact may be stated in lieu of this disclosure. In calculating average net income, loss years should be excluded. If losses were incurred in each of the most recent 3 years, the average loss shall be used for purposes of this test.

TRANSPORTATION

CHAPTER X INTERSTATE COMMERCE COMMISSION SUBCHAPTER C ACCOUNTS, RECORDS, AND REPORTS ANNUAL,

PART 1241

RE

SPECIAL OR PERIODIC
PORTS-CARRIERS SUBJECT TO PART I OF
THE INTERSTATE COMMERCE ACT

PART 1249 - REPORTS OF MOTOR CARRIERS
PART 1250 - REPORTS OF WATER CARRIERS

PART 1251 REPORTS OF FREIGHT FORWARDERS

At a General Session of the INTERSTATE COMMERCE COMMISSION held at its office in Washington, D.C., on the 27th day of February 1976.

No. 36176

DISCLOSURE OF NONCAPITALIZED LEASE
COMMITMENTS BY LESSEES

Consideration having been given to the matters and things involved in this proceeding, and the said Commission, on the date hereof, having made and filed a report herein containing its findings and conclusions, which report is hereby made a part hereof:

It is ordered, That Parts 1241, 1249, 1250, and 1251 of Title 49 of the Code of Federal Regulations be, and they are hereby, revised to read as shown in the appendix to the above mentioned report.

It is further ordered, That the prescribed amendments shall be effective immediately upon adoption by the Commission, and reflected in the annual reports to this Commission for the accounting year ending December 31, 1976.

And it is further ordered, That service of the order shall be made on all affected carriers; and to the Governor of every State and to the Public Utilities Commissions or Board of each State having jurisdiction over transportation; and that notice of this order shall be given to the general public by depositing a copy in the Office of the Secretary, Interstate Commerce Commission, Washington, D.C., and by filing a copy with the Director, Office of the Federal Register for publication in the Federal Register.

This decision is not a major Federal action significantly affecting the quality of the human environment within the meaning of the National Environmental Policy Act of 1969.

(Authority: 49 U.S.C. 12, 20, 304, 913, and 1012.)

357 I.C.C.