[Code of Federal Regulations]
[Title 7, Volume 7, Parts 700 to 899]
[Revised as of January 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR735.5]

[Page 216-218]
 
                          TITLE 7--AGRICULTURE
 
                            CHAPTER VII--FARM
                SERVICE AGENCY, DEPARTMENT OF AGRICULTURE
 
PART 735--COTTON WAREHOUSES--Table of Contents
 
Sec. 735.5  Financial requirements.

    (a) Each warehouseman conducting a warehouse licensed under the Act 
or for which application for a license

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under the Act has been made must maintain complete, accurate, and 
current financial records which shall be available to the Secretary for 
review or audit at the Secretary's request.
    (b) Each warehouseman conducting a warehouse for which application 
for license under the Act is made shall provide with the application and 
each licensed warehouseman: shall annually, or more frequently if 
required, furnish to the Secretary, financial statements from the 
records required in paragraph (a) of this section, prepared according to 
generally accepted accounting principles. Such statements shall include 
but not be limited to: (1) Balance sheet, (2) statement of income 
(profit and loss), (3) statement of retained earnings, and (4) statement 
of changes in financial position. The chief executive officer for the 
warehouseman shall certify under penalty of perjury that the statements, 
as prepared, accurately reflect the financial condition of the 
warehouseman as of the date designated and fairly represent the results 
of operations for the period designated.
    (c) Each warehouseman conducting a warehouse licensed under these 
regulations shall have the financial statements required in paragraph 
(b) of this section audited or reviewed by an independent public 
accountant. The Secretary may, at his discretion, require an audited 
financial statement prepared by an independent certified public 
accountant. He may also, at his discretion, require an on-site 
examination and an audit by USDA personnel. Audits and reviews by 
independent certified public accountants and independent public 
accountants specified in this section must be made in accordance with 
standards established by the American Institute of Certified Public 
Accountants. The accountant's certification, assurances, opinion, 
comments, and notes on such statements, if any, must be furnished along 
with the financial statements. Licensees who cannot immediately meet 
these requirements may apply to the Secretary for a temporary waiver of 
this provision. The Secretary may grant such waiver for a period not to 
exceed 180 days if the licensee can furnish evidence of good and 
substantial reasons therefor.
    (d) Each warehouseman conducting a warehouse which is licensed under 
this part, or for which application for such a license has been made, 
must have and maintain:
    (1) Total net assets liable and available for the payment of any 
indebtedness arising from the conduct of the warehouse of at least the 
amount obtained by multiplying $10.00 by the warehouse capacity in bales 
to a maximum of $250,000 in each State; however, no person may be 
licensed or remain licensed as a warehouseman under this part unless 
that person has allowable net assets of at least $25,000 in each State, 
(Any deficiency in net assets above the $25,000 minimum may be supplied 
by an increase in the amount of the warehouseman's bond in accordance 
with Sec. 735.12(c) of this part); and
    (2) Total current assets equal to or exceeding total current 
liabilities or evidence acceptable to the Secretary that funds will be 
and remain available to meet current obligations.
    (e) If a warehouseman is licensed or is applying for licenses to 
operate two or more warehouses under this part, the maximum number of 
bales which all such warehouses will accommodate when stored in the 
manner customary to the warehouses, as determined by the Secretary, 
shall be considered in determining whether the warehouseman meets the 
net asset requirements specified in paragraph (d) of this section.
    (f) Subject to such terms and conditions as the Secretary may 
prescribe and for the purposes of determining allowable assets and 
liabilities under paragraphs (d) and (e) of this section:
    (1) Capital stock will not be considered a liability;
    (2) Appraisals of the value of fixed assets in excess of the book 
value claimed in the financial statement submitted by a warehouseman to 
conform with paragraphs (b) and (c) of this section may be allowed if 
(i) prepared by independent appraisers acceptable to the Secretary and 
(ii) the assets are fully insured against casualty loss;
    (3) Financial statements of a parent company which separately 
identifies the financial position of the warehouse as a wholly owned 
subsidiary and

[[Page 218]]

which meets the requirements of paragraphs (b), (c), and (d) of this 
section may be accepted by the Secretary in lieu of the warehouseman 
meeting such requirements; and
    (4) Guaranty agreements from a parent company submitted on behalf of 
a wholly owned subsidiary may be accepted by the Secretary as meeting 
the requirements of paragraphs (b), (c), and (d) of this section, if the 
parent company submits a financial statement which qualifies under this 
section.
    (g) If a State agency is licensed or applying for a license as 
provided in section 9 of the Act has funds of not less than $500,000 
guaranteeing the performance of obligations of the agency as a 
warehouseman, such funds shall be considered sufficient to meet the net 
asset requirements of this section.
    (h) If a warehouseman files a bond in the form of a certification of 
participation in an indemnity or insurance fund as provided for in 
Sec. 735.11(b), the certification may only be used to satisfy any 
deficiencies in assets above $25,000.
    (i) When a warehouseman files a bond in the form of either a deposit 
of public debt obligations of the United States or other obligations 
which are unconditionally guaranteed as to both interest and principal 
by the United States as provided for in Sec. 735.11(c):
    (1) The obligation deposited shall not be considered a part of the 
warehouseman's assets for purposes of Sec. 735.5(d), (1) and (2);
    (2) A deficiency in total allowable net and current assets as 
computed for Sec. 735.5(d), (1) and (2) may be offset by the licensed 
warehouseman furnishing a corporate surety bond for the difference;
    (3) The deposit may be replaced or continued in the required amount 
from year to year; and
    (4) The deposit shall not be released until one year after 
termination (cancellation or revocation) of the license which it 
supports or until satisfaction of any claim against the deposit, 
whichever is later.

Nothing in these regulations shall prohibit a person other than the 
licensed warehouseman from furnishing such bond or additions thereto on 
behalf of and in the name of the licensed warehouseman subject to 
provisions of Sec. 735.11(c).

[Amdt. 2, 53 FR 27148, July 19, 1988]