Source: https://www.stb.gov/decisions/readingroom.nsf/9855c1fb354da09b85257f1f000b5f79/393258bcdc9e4a6185257f8c0051504a?OpenDocument
Timestamp: 2018-02-24 04:30:55
Document Index: 664271507

Matched Legal Cases: ['§ 11142', '§ 11161', 'art 1201', '§ 11145', '§ 1241', '§ 11142', '§ 3501', '§ 1320', '§ 3507', '§ 1320', '§ 1241', '§ 605', '§ 11142', 'art 1201', 'ART 1201']

44779 - Decision
EP_720_0
ACCOUNTING AND REPORTING OF BUSINESS COMBINATIONS, SECURITY INVESTMENTS, COMPREHENSIVE INCOME, DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
DECISION PROVIDED NOTICE THAT THE BOARD ADOPTED FINAL RULES THAT UPDATE THE ACCOUNTING AND REPORTING REQUIREMENTS UNDER ITS UNIFORM SYSTEM OF ACCOUNTS FOR CLASS I RAILROADS. THE BOARD ALSO REVISED THE SCHEDULES AND INSTRUCTIONS FOR THE ANNUAL REPORT FOR CLASS I RAILROADS.
44779.pdf
44779 SERVICE DATE – APRIL 6, 2016
ACCOUNTING AND REPORTING OF BUSINESS COMBINATIONS,
SECURITY INVESTMENTS, COMPREHENSIVE INCOME,
SUMMARY: The Surface Transportation Board (STB or Board) is adopting final rules that update the accounting and reporting requirements in its Uniform System of Accounts (USOA) for Class I Railroads so that they are more consistent with current generally accepted accounting principles (GAAP). The Board is also revising the schedules and instructions for the Annual Report for Class I Railroads (R-1 or Form R-1) to better meet regulatory requirements and industry needs. The final rules are set forth in the Appendix.
DATES: These rules are effective on May 6, 2016.
FOR FURTHER INFORMATION CONTACT: Pedro Ramirez at (202) 245-0333. Assistance for the hearing impaired is available through the Federal Information Relay Service (FIRS) at 1-800-877-8339.
SUPPLEMENTAL INFORMATION: The Interstate Commerce Act, as amended by the ICC Termination Act of 1995 (ICCTA), Pub. L. No. 104-88, 109 Stat. 803, authorizes the Board, in 49 U.S.C § 11142, to prescribe a uniform accounting system for rail carriers subject to our jurisdiction and, in 49 U.S.C. § 11161, to maintain cost accounting rules for rail carriers.[1] Sections 11142 and 11161 both require the Board to conform its accounting rules to GAAP “[t]o the maximum extent practicable.” The USOA is set forth in the Board’s regulations at 49 C.F.R. Part 1201—Subpart A. The USOA is used by the Class I Railroads[2] to comply with their statutory requirement to provide the Board an annual report, known as the R-1 report, that contains information about their finances and operating statistics. 49 U.S.C. § 11145(b)(1) & 49 C.F.R. § 1241.11.
The Board proposed these revisions based on the GAAP promulgated by the Financial Accounting Standards Board (FASB)[3] in the following Accounting Standards Codifications (ASC): ASC 320 Investments – Debt and Equity Securities; ASC 220 Comprehensive Income; ASC 815 Derivatives and Hedging; and ASC 805 Business Combinations.[4] The Board stated that the purpose of the proposed revisions is to provide consistent accounting and reporting of changes in the fair value of security investments, derivative instruments, and hedging activities. The Board further stated that the proposed changes would minimize the accounting and reporting burden on railroads under the Board’s jurisdiction, assist the Board in its overall monitoring effort, and improve transparency.
The proposed rules were published in the Federal Register, 80 Fed. Reg. 39,021 (July 8, 2015). The Board received comments from the Association of American Railroads (AAR); no reply comments were filed.
The Board has reviewed the issues raised in AAR’s comments and addresses them below, along with any revisions made in response. The final rules in full are appended to this decision.
339 Accrued Liability - Leased Property
340 Depreciation Base and Rates - Improvements to Road and Equipment Leased from Others
350 Depreciation Base and Rates - Road and Equipment Leased to Others
351 Accumulated Depreciation - Road and Equipment Leased to Others
416 Supporting Schedule - Road
418 Supporting Schedule - Capital Leases
460 Items in Selected Income and Retained Earnings Accounts for the Year
702 Miles of Road at Close of Year - By States and Territories (Single Track)
In its comments, AAR states that it supports the Board’s proposal to eliminate these schedules from the Form R-1, with the exception of Schedule 702, Miles of Road at Close of Year-By States and Territories (Single Track). According to AAR, Schedule 702 should be retained because this schedule is used to calculate state tax rates in the Revenue Shortfall Allocation Method.[6]
In addition to the schedules proposed for elimination in the NPR, AAR requests, consistent with its comments previously filed in Improving Regulation & Regulatory Review, Docket No. EP 712, that the Board eliminate Schedule 220, Retained Earnings; Schedule 342, Accumulated Depreciation-Improvements to Road and Equipment Leased from Others; Schedule 501, Guarantees and Suretyships; and Schedule 502, Compensating Balances and Short-Term Borrowing Arrangements. AAR further requests that the Board eliminate Schedule 310, Investments and Advances Affiliated Companies and Schedule 310A, Investments in Common Stocks of Affiliated Companies. According to AAR, these schedules are unnecessary because they capture data that is neither used nor usable to support the Board’s regulatory objectives.
The Board will not adopt AAR’s proposals to eliminate these other schedules. Schedule 220, Retained Earnings, will be retained because it is a significant financial disclosure for stakeholders interested in changes in the retained earnings account during the reporting period and gives important insight into the rail carrier’s financial performance. Schedule 342, Accumulated Depreciation-Improvements to Road and Equipment Leased from Others, will be retained because it is used in the Board’s Uniform Rail Costing System (URCS) and review of depreciation studies. In addition, eliminating Schedule 342 would limit the Board’s ability to collect sufficient detail for R-1 reporting regarding rail carriers’ implementation of the updated GAAP standard for leases. Finally, Schedules 501 (Guarantees and Suretyships), 502 (Compensating Balances and Short-Term Borrowing Arrangements), 310 (Investments and Advances Affiliated Companies), and 310A (Investments in Common Stocks of Affiliated Companies), are currently used by the Board’s Office of Economics in intercompany audits, as they provide detailed information related to the railroads’ financial arrangements with affiliated companies and financial agreements with borrowers and lenders. Those schedules therefore will be retained.
While the Board will not adopt AAR’s suggestions that the Board make certain other changes to either conform Form R-1 schedules to GAAP or otherwise harmonize Form R-1 reporting requirements, the Board will provide clarifying instructions with respect to one of AAR’s proposals.
First, we will not adopt AAR’s requested changes to Schedule 210, Results of Operations. Although AAR’s proposal would simplify the reporting presentation in the Form R-1, the Board’s current practice of presenting premiums and discounts of funded debt separately is preferable because it allows for transparent financial reporting by showing both interest income and expense.
Additionally, AAR’s suggestion that the Board combine owned and capitalized leases in Schedule 415 (Supporting Schedule—Equipment) will not be adopted because this change would limit the Board’s ability to collect sufficient detail for R-1 reporting regarding railroads’ implementation of the updated GAAP standards for leases. This change would also require a modification in how Schedule 415 is inputted in URCS. In addition, although AAR suggests that lines pertaining to “Machinery” be eliminated in Schedule 415 because, according to AAR, such data is not in or supported by Schedule 410 (Equipment Accounts), the Board will not do so because Schedule 415, Lines 38-40 reconcile to Schedule 410, Lines 203, 222, and 306.
In Schedule 755 (Railroad Operating Statistics), the Board will retain Line 89–Caboose Miles. While reporting carriers have been reducing the use of cabooses over time, a level of use still exists. Further, removing Line 89 would eliminate an operating statistic from the URCS calculation.
While AAR suggests adding a separate line for “Shop Machinery” in Schedule 412 (Way and Structures) to reconcile the amortization expenses and depreciation for road accounts required in Schedules 412 (Way and Structures) and 335 (Accumulated Depreciation—Road and Equipment Owned and Used), the Board notes that Schedule 412 reports a railroad’s fixed roadway facilities; “Shop Machinery” does not fall into such a category, but should be recorded in equipment accounts. The Board, however, will clarify instruction 4 in Schedule 412 to read as follows: “Amortization adjustment of each road property type which is included in column (b) shall be repeated in column (d) as a debit or credit to the appropriate line item. The net adjustment on line 29 shall equal the adjustment reported on line 29 of Schedule 335, excluding Account 44, Shop Machinery.”
Instruction 2-15.
In response to the NPR, AAR also suggests that the Board adopt ASC 410, Asset Retirement and Environmental Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. AAR, however, does not explain why it believes ASC 410 should be adopted. The Board has already determined in an Accounting Series Circular served on June 11, 2003, and sent to all accounting officers of Class I railroads, that the Board would not adopt Financial Accounting Standard (FAS) 143, Accounting for Asset Retirement Obligations, now codified as ASC 410, because to do so would be inconsistent with the Board’s accounting rules.[10] Nothing in AAR’s comments suggests any reason for altering the Board’s 2003 determination. Accordingly, we will not adopt ASC 410 as suggested by AAR.
As noted above, 49 U.S.C. §§ 11142 and 11161 require the Board to conform its accounting rules to GAAP “[t]o the maximum extent practicable.” Therefore, in keeping with this requirement, the Board will conduct a periodic review of its accounting standards not less than every five years.
In the NPR the Board sought comments pursuant to the Paperwork Reduction Act (PRA), 44 U.S.C. §§ 3501-3549, and Office of Management and Budget (OMB) regulations at 5 C.F.R. § 1320.11, regarding: (1) whether the revisions to the collection of information proposed here are necessary for the proper performance of the functions of the Board, including whether the collection has practical utility; (2) the accuracy of the Board’s burden assessment; (3) ways to enhance the quality, utility, and clarity of the information collected; and (4) ways to minimize the burdens of the collections of information on the respondents, including the use of automated collection techniques or other forms of information technology, when appropriate. Comments regarding the necessity, utility, and clarity of the information collection were received and are addressed above. No comments concerning the Board’s burden estimates were received.
The proposed collection was submitted to OMB for review as required under the PRA, 44 U.S.C. § 3507(d), and 5 C.F.R. § 1320.11. OMB withheld approval pending submission of the final rule. We are today submitting the collection contained in this final rule to OMB for approval. Once approval is received, we will post a copy of the revised Form R-1 on the Board’s website. Unless renewed, OMB approval of this collection expires three years after the date that OMB approves the collection.
The rule changes adopted here will not have a significant economic impact upon a substantial number of small entities, within the meaning of the RFA. The reporting requirements are applicable only to entities that are required to file Form R-1 reports, i.e., the Class I carriers. 49 C.F.R § 1241.1. Class I carriers are large railroads; accordingly, there will be no impact on small railroads (small entities).[11] Therefore, the Board certifies under 5 U.S.C. § 605(b) that this rule will not have a significant economic impact on a substantial number of small entities within the meaning of the RFA.
Authority. 49 U.S.C. §§ 11142 and 11164.
List of Subjects in 49 C.F.R. Part 1201.
1. The final rules set forth in the Appendix to this decision are adopted and will be effective on May 6, 2016. Notice of the rules adopted here will be published in the Federal Register.
PART 1201 – RAILROAD COMPANIES
1-19 Accounting for Other Comprehensive Income. (a) Railroads will record items of Other Comprehensive Income in account 799.1, Other comprehensive income. Amounts included in this account will be maintained by each category of Other Comprehensive Income. Examples of categories of Other Comprehensive Income include foreign currency items, minimum pension liability adjustments, unrealized gains and losses on available-for-sale type securities and cash-flow hedge amounts.
(c) When an item of Other Comprehensive Income enters into the determination of earnings in the current or subsequent periods, a reclassification adjustment will be recorded in account 799 to avoid double counting of when an item included in net income was also included in Other Comprehensive Income in the same or prior period.
1-20 Accounting for derivative instruments and hedging activities. (a) A carrier will recognize derivative instruments as either assets or liabilities in the financial statements and measure those instruments at fair value. A derivative instrument is a financial instrument or other contract with all three of the following characteristics:
(3) The derivative instrument’s terms require or permit net settlement; the derivative instrument can readily be settled net by a means outside the contract; or the derivative instrument’s terms provide for delivery of an asset that puts the recipient in a position not substantially different from net settlement.
(d) If the carrier designates the derivative instrument as a fair-value hedge against exposure to changes in the fair value of a recognized asset, liability, or a firm commitment, it will record the change in fair value of the derivative instrument designated as a fair-value hedge to account 713.6, Derivative instruments assets–hedges, or account 763.6, Derivative instrument liabilities–hedges, as appropriate, with a corresponding adjustment to the sub-account of the item being hedged. The ineffective portion of the hedge transaction will be reflected in the same income or expense account that would have been used if the hedged item had been disposed of or settled. In the case of a fair-value hedge of a firm commitment, a new asset or liability is created. As a result of the hedge relationship, the new asset or liability will become part of the carrying amount of the item being hedged.
(e) If the carrier designates the derivative instrument as a cash-flow hedge against exposure to variable cash flows of a probable forecasted transaction, it will record changes in the fair value of the derivative instrument in account 713.6, Derivative instrument assets–hedges, or account 763.6, Derivative instrument liabilities–hedges, as appropriate, with a corresponding amount in account 799.1, Other comprehensive income, for the effective portion of the hedge. The ineffective portion of the hedge transaction will be reflected in the same income or expense account that would have been used if the hedged item had been disposed of or settled. Amounts recorded in Other Comprehensive Income will be reclassified into earnings in the same period or periods that the hedged forecasted item affects earnings.
6. Amend Income Accounts – Ordinary Items by adding a sentence at the end of the list of inclusions for account 551 "Miscellaneous income charges," paragraph (a) to read as follows:
551 Miscellaneous income charges.
7. Amend General Balance Sheet Accounts Explanations – Assets, Current Assets by:
a. Adding a sentence to the end of the first paragraph in account 702 "Temporary cash investment”;
b. Adding accounts 713.5 "Derivative instrument assets” and 713.6 "Derivative instrument assets–hedges."
702 Temporary cash investments.
713.6 Derivative instrument assets–hedges.
(b) When a carrier designates a derivative instrument asset as a cash-flow hedge, it will record the change in the fair value of the derivative instrument in this account with a concurrent charge to account 799.1, Other comprehensive income, with the effective portion of the derivative’s gain or loss. The ineffective portion of the cash-flow hedge will be charged to the same income or expense account that would have been used if the hedged item had been disposed of or otherwise settled.
8. Amend General Balance Sheet Accounts Explanations – Assets, Special Funds by:
a. In account 715 "Sinking funds," adding two sentences to the end of paragraph (b);
b. In account 716 "Capital funds," adding a sentence to the end of paragraph (a); and
c. In account 717 "Other funds," adding Note E.
715 Sinking funds.
716 Capital funds.
717 Other funds.
9. Amend General Balance Sheet Accounts Explanations – Assets, Investments by:
a. In account 722 "Other investments and advances," adding two sentences to the end of paragraph (a); and
b. Removing account 724 "Allowance for net unrealized loss on noncurrent marketable equity securities—Cr."
722 Other investments and advances.
10. Amend General Balance Sheet Accounts Explanations – Liabilities and Shareholders’ Equity, Current Liabilities by adding accounts 763.5 "Derivative instrument liabilities" and 763.6 "Derivative instrument liabilities–hedges", to read as follows:
763.6 Derivative instrument liabilities–hedges.
(b) A carrier will record the change in the fair value of a derivative instrument liability related to a cash-flow hedge in this account, with a concurrent charge to account 799.1, Other comprehensive income, with the effective portion of the derivative instrument’s gain or loss. The ineffective portion of the cash-flow hedge will be charged to the same income or expense account that would have been used if the hedged item had been disposed of or otherwise settled.
11. Amend General Balance Sheet Accounts Explanations – Liabilities and Shareholders’ Equity, Shareholders’ Equity by:
a. Removing account 798.1 "Net unrealized loss on noncurrent marketable securities"; and
b. Adding account 799 "Accumulated Other Comprehensive Income."
Loans and notes receivable.
Accounts receivable; Interline and other balances.
Accounts receivable; Customers.
Accounts receivable; Other.
Receivables from affiliated companies.
Accrued accounts receivable.
Working funds.
Derivative instrument assets-hedges
Deferred income tax debits.
Investments and advances; affiliated companies.
Adjustments; investments and advances—affiliated companies.
Adjustments; Other investments and advances.
Road and equipment property.
Accumulated depreciation; Road and equipment property.
Accumulated amortization; Road and equipment property—Defense projects.
Improvements on leased property.
Accumulated depreciation; Improvements on leased property.
Accumulated amortization; Improvements on leased property—Defense projects.
Property used in other than carrier operations.
Accumulated depreciation; Property used in other than carrier operations.
Other deferred debits.
Accumulated deferred income tax debits.
Loans and notes payable.
Accounts payable; Interline and other balances.
Audited accounts and wages payable.
Accounts payable; Other.
Payables to affiliated companies.
Accrued accounts payable.
Federal income taxes accrued.
State and other income taxes accrued.
Other taxes accrued.
Deferred income tax credits.
Derivative instrument liabilities-hedges
Equipment obligations and other long-term debt due within one year.
Long-term debt due after one year:1
Equipment obligations.
Receivers' and trustees' securities.
Debt in default.
Accounts payable; Affiliated companies.
Unamortized premium on debt.
Accrued liability; Pension and welfare.
Accrued liability; Leased property.
Accrued liability; Casualty and other claims.
Interest in default.
Deferred revenues—transfers from government authorities.
Other deferred credits.
Accumulated deferred income tax credits.
Liability for conversion of capital stock.
Discount on capital stock.
Premiums and assessments on capital stock.
Retained earnings; Appropriated.
Retained earnings; Unappropriated.
1To be divided as to “Total issued” and “Held by or for company.”
Traffic, car service and other balances—dr
Allowances for uncollectible accounts.
Net balance receivable from agents and conductors
Capital and other reserve funds
Insurance and other funds
Reserve for adjustment of investment in securities—cr
Road and equipment property
Accrued depreciation; improvements on leased property
Accrued depreciation; road and equipment
Amortization of defense projects; road and equipment
Miscellaneous physical property
Accrued depreciation; miscellaneous physical property
Accumulated deferred income tax charges
Traffic, car service and other balances—cr
Audited accounts and wages payable
Interest matured unpaid
Dividends matured unpaid
Unmatured interest accrued
Unmatured dividends declared
Federal income taxes accrued
Deferred income tax credits
Equipment obligations and other debt due within one year
Equipment obligations and other long-term debt due within 1 year.
Receivers' and trustees' securities
Amounts payable to affiliated companies
Pension and welfare reserves
Casualty and other reserves
Interest in default
Deferred revenues-transfers from government authorities
Unamortized premium on long-term debt
Accrued liability; leased property
Accumulated deferred income tax credits
Stock liability for conversion
Premiums and assessment on capital stock
Retained income; appropriated
Retained income; unappropriated
Road Initials:
200. COMPARATIVE STATEMENT OF FINANCIAL POSITION – ASSETS
Balance at begin-
ing of year
- Loan and notes
- Interline and other balances
709, 708
- Accrued accounts receivables
- Receivables from affiliated companies
- Less: Allowance for uncollectible accounts
710, 711, 714
Working funds prepayments deferred income tax debits
713, 713.5,
715, 716, 717
721, 721.5
Investments and advances affiliated companies
(Schs. 310 and 310A)
Property used in other than carrier operation
(Less depreciation) $
Accumulated deferred income tax debits
Road (Sch. 330) L-30 Col h & b
Equipment (Sch 330) L-39 Col h & b
(Schs. 335, 342)
Net Road and Equipment
Railroad Annual Report R-1
200. COMPARATIVE STATEMENT OF FINANCIAL POSITION - LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable: interline and other balances
Audited accounts and wages
760, 761, 761.5
763, 763.5,
Equipment obligations and other long-term debt due within one year
Accounts payable: affiliated companies
770.1, 770.2
Deferred revenues - transfers from govt. authorities
771, 772, 774,
775, 782, 784
Accumulated Other Comprehensive Income or (loss)
Total equity (Lines 61 + 62)
200. COMPARATIVE STATEMENT OF FINANCIAL POSITION - EXPLANATORY NOTES
The notes listed below are provided to disclose supplementary information on matters which have an important effect on the financial
condition of the carrier. The carrier shall give the particulars called for herein and where there is nothing to report, insert the word "none"; and
in addition thereto shall enter in separate notes with suitable particulars other matters involving material amounts of the character commonly
disclosed in financial statements under generally accepted accounting principles, except as shown in other schedules. This includes statements
explaining (1) service interruption insurance policies and indicating the amount of indemnity to which respondent will be entitled for work
stoppage losses and the maximum amount of additional premium respondent may be obligated to pay in the event such losses are sustained by
other railroads; (2) particulars concerning obligations for stock purchase options granted to officers and employees; and (3) what entries
have been made for net income or retained income restricted under provisions of mortgages and other arrangements.
1. Amount (estimated, if necessary) of net income or retained income which has to be provided for capital expenditures, and for sinking funds,
pursuant to provisions of reorganization plans, mortgages, deeds of trust, or other contracts. _________________ $_____________
2. Estimated amount of future earnings which can be realized before paying Federal income taxes because of unused and available net
operating loss carryover on January 1 of the year following that for which the report is made. ___________________ $______________
3. (a) Explain the procedure in accounting for pension funds and recording in the accounts the current and past service pension costs,
indicating whether or not consistent with the prior year. ______________________________________________________________
(b) State amount, if any, representing the excess of the actuarially computed value of vested benefits over the total of the pension fund.
_____________________________________________________________________________$_________________________
(c) Is any part of the pension plan funded? Specify. Yes _____ No _____
If funding is by insurance, give name of insuring company ______________________________________________________
If funding is by trust agreement, list trustee(s) ________________________________________________________________
Date of trust agreement or latest amendment ________________________________________________________
If respondent is affiliated in any way with the trustee(s), explain affiliation. _________________________________
(d) List affiliated companies which are included in the pension plan funding agreement and describe basis for allocating charges under the
agreement. _____________________________________________________________________________________________
(e) Is any part of the pension plan fund invested in stock or other securities of the respondent or its affiliates? Specify Yes ___ No ___
If yes, give number of the shares for each class of stock or other security. ___________________________________
Are voting rights attached to any securities held by the pension plan? Specify Yes ___ No ___ If yes, who determines how stock
is voted? _________________________________________________________________________________________
4. State whether a segregated political fund has been established as provided by the Federal Election Campaign Act of 1971 (18 U.S.C. 610).
5. (a) The amount of employer's contribution to employee stock ownership plans for the current year was $_______________________
(b) The amount of investment tax credit used to reduce current income tax expense resulting from contributions to qualified employee
stock ownership plans for the current year was $____________________
6. In reference to Docket 37465, specify the total amount of business entertainment expenditures charged to the non-operating expense
account. $___________________
200. COMPARATIVE STATEMENT OF FINANCIAL POSITION - EXPLANATORY NOTES – Continued
7. Give particulars with respect to contingent assets and liabilities at the close of the year, in accordance with instruction 5-6 in the Uniform
System of Accounts for Railroad Companies, that are not reflected in the amounts of the respondent.
Disclose the nature and amount of contingency that is material.
Examples of contingent liabilities are items which may become obligations as a result of pending or threatened litigation, assessments or
possible assessments of additional taxes, and agreements or obligations to repurchase securities or property. Additional pages may be
added if more space is needed. (Explain and/or reference to the following pages.)
(a) Changes in valuation accounts.
8. Marketable equity securities.
Dr. (Cr.) to
(Current Yr.)
(Previous Yr.)
At / / , gross unrealized gains and losses pertaining to marketable equity securities were as follows:
A net unrealized gain (loss) of $___________________ on the sale of marketable securities was included in net income for _____ (year)
The cost of securities was based on the _______________________ (method) cost of all the shares of each security held at time of sale.
Significant net realized and net unrealized gains and losses arising after date of the financial statements but prior to the filing, applicable to
marketable equity securities owned at balance sheet date shall be disclosed below:
NOTE: / / (date) Balance sheet date of reported year unless specified as previous year.
200. COMPARATIVE STATEMENT OF FINANCIAL POSITION - EXPLANATORY NOTES - Continued