The purpose of this amendment to Part 150 of the Cost of Living Council Regulations is to add Subparts A through K, and P.

On July 19, 1973, the Cost of Living Council established Part 150 and issued Subpart N in final form, 38 F.R. 19462 (July 20, 1973). On the same day the Council issued a notice of Proposed Rulemaking, 38 F.R. 19464 (July 20, 1973) setting out proposed Phase IV regulations, and inviting interested persons to submit written data, views or arguments.

The Council stated in the Notice of Proposed Rulemaking that all comments received before July 31, 1973, would be considered by the Council before taking action on the proposed regulations. Six hundred and seventy-one comments were received before July 31, 1973.

Copies of each comment went to the attorney and the operations specialist or economic analyst who was responsible for the subpart with which the comment dealt. Many comments dealt with several subparts and thus were divided among Council personnel with responsibility for the different subparts. In addition, numerous consultations were held with affected groups of businessmen, consumers, attorneys, accountants, and others in Washington, D.C., Atlanta, New York City, San Francisco, Detroit and Chicago. Staff officials of the Council conducted an intensive reexamination of the regulations, independently as well as in light of the comments, in order to assure the maximum degree of clarity and consistency of the policy decisions that were made and of the regulations written to reflect these decisions. As a result of these efforts the final regulations contain numerous changes from the proposals that were published in proposed form on July 19, 1973.

SUBPART A-GENERAL

Subpart A provides the scope and general rules of Part 150. It specifies which of the prior regulations are superseded and which temporarily remain in effect.

Subpart A provides that reports due under the Phase III regulations continue to be required for any reporting period ending before August 13, 1973, even though Phase III has ended for most firms.

Subpart A also reiterates the Phase III rule that contract renegotiation provisions which depend for their operation upon the modification or termination of the Economic Stabilization Program are rendered inoperative as inconsistent with the goals of that program.

Subpart A differs from the proposed version primarily in that it now contains general rules formerly set out in Subpart E. This change in location is designed to provide a clearer and more logical grouping of Phase IV provisions. The general price rule is added to subpart A and clarified by the addition of the concept of an "adjusted freeze price" which is defined in §§ 150.72 and 150.302.

A new section on profit margin limitation is added which explains that a single profit margin is used for all manufacturing, service, retailing and wholesaling activities of a firm except where particular regulations under this part (such as Subpart N Construction) require separate computation of a profit margain. The profit margain rules which were formerly located in subparts E (for manufacturing and service activities) and K (for retailing and wholesaling activities) are continued in general but modified in several important respects. A firm which does not charge a price in excess of an adjusted freeze price is not subject to

a profit margain limitation with respect to the first fiscal year ending after August 12, 1973. Also, charging a price pursuant to a contract entered into before the freeze does not subject a firm to a profit margin limitation. Finally, charging a price for a custom product or service will not subject that firm to a profit margain test if the revenues derived from the sale of the custom product or service amount to less than $10 million or less than 1% of its annual sales or revenues for the fiscal year, whichever is greater.

A new exclusion is provided which relieves from the profit margin test for a firm which, during its most recent fiscal year, derived both (1) 90% or more of its annual sales or revenues from the sales of exempt items or from exempt sales, and (2) less than $50 million of its annual sales or revenues from the sales of nonexempt items. Also, a profit margin overage will be excused by the Council to the extent that it can be demonstrated as being attributable to the sale of exempt items.

Subpart A adds two other new sections. The first permits a firm which has been authorized to adjust its base period profit margin pursuant to an exception granted before Phase IV to continue to calculate its base period profit margin pursuant to that exception. The second section explicitly retains the right of the Council to challenge Phase III price increases and to impose sanctions under the freeze regulations.

Finally, subpart A is changed by the addition of three sections, providing for criminal fines, civil penalties and injunctions. These sections continue the same general sanctions which were in force during the Phase III freeze.

SUBPART B-DEFINITIONS

Subpart B contains the definitions of general applicability to this part. Definitions which are applicable only to one subpart are placed at the beginning of that subpart.

Subpart B differs from the proposed version primarily in that it includes definitions of "Base period profit margin", "Parent", "Price adjustment", and "Unconsolidated entity"; deletes definitions of "Controlled group", "Mass transportation system" (which is defined in Subpart P), "Pooling of interests", "Regulatory agency", "Spin-off", and "Split-off"; and makes substantial changes in the definitions of "Base period", "Firm", "Product line", "Profit margin", "Service line", and "Transactions".

The definition of "Base period" has been amended to separate the computation of base period profit margin from the definition of base period. A definition of "Base period profit margin" has been added. The base period profit margin must be computed in accordance with the firm's financial statement for the years used, but adjustments to those financial statements may be required to reflect changes in the firm's activities in accordance with the provisions of Subpart I. In addition, if in computing its basc period profit margin, a firm uses a year ending during Phase II, in which the firm exceeded the applicable Phase II profit margin restrictions, the firm must reduce the operating income used in the computation to a level that would have been permitted had it been in compliance with the Phase II profit margin limitation. Consistent with Form CLC-22, a firm must deduct interest expenses on long and short-term debt in computing its operating income. Also, the phrase "cost of sales" has been changed to "cost of goods sold".

The definition of "profit margin" has been changed to reflect the changes in the definition of base period profit margin. Both definitions explicitly provide that for purposes of computing base period profit margin, a firm excludes revenues and costs attributable to items exempt under §§ 150.52, 150.53 (b), 150.54 (d)(3), 150.54(d)(4), and 150.56, and revenues and costs of insurance transactions subject to Subpart M.

The definition of "Firm" has been changed, and is designed to achieve the same results reached in Phase II. The language is also changed to reflect the fact that the Council uses different aggregations for purposes of applying the term "firm" in differing contexts in the forms and regulations. For example, for profit margin purposes, a "firm" is a parent and consolidated entities, while for determining price categories, the Council uses "firm" to mean parent and consolidated and unconsolidated entities.

"Item" has been changed to include not only sale but lease, and not only something offered for sale but something sold. The term "Manufacturer" has been changed to "Manufacturing" with no change in the definition, to be consistent with the change in usage from Phase III. Similar changes in terminology occur with "service activities", "retailing" and "wholesaling".

The definitions of "Pooling of interests," "Spinoff" and "Split-off" have been deleted since these