terms are no longer used in the new provisions of subpart I relating to comparability of financial data.

Because of the change in the definition of firm, there are now definitions of "Parent," "Parent and consolidated entities" and "Unconsolidated entities."

Definitions of "Product line" and "Service line" are added which are consistent with the CLC-22 definition of product line.

"Retail firm" was deleted and incorporated into the subpart D exemption for small retail firms.

"Transaction" was changed to mean date of shipment in the case of products and date of performance in the case of service. This is consistent with the freeze rules.

This change reflects the fact that for purposes of calculating actual prices as of January 11, 1973, for the first CLC-2 required under Phase III rules, firms generally made their calculations on the basis of shipment prices as reflected on invoices. The change enables firms to use these calculations for determining base prices in Phase IV, and relieves them of the burden of performing new calculations. In addition, prices specified in contracts entered into prior to the freeze are declared allowable under § 150.76 of the final regulations.

SUBPART C-CLASSIFICATIONS

Subpart C classifies all firms as price category I, II or III, based upon the firm's annual sales or revenues. Specifically, a price category I firm is a firm with annual sales or revenues of $100 million or more. A price category II firm is one with annual sales or revenues of at least $50 million but less than $100 million. All others are price category III firms.

Subpart C has been changed to specify that, for determining price category, a firm includes a parent and the consolidated and unconsolidated entities which are directly or indirectly controlled by the firm.

SUBPART D-EXEMPTIONS

Subpart D sets forth a list of the items, transactions, and firms which are exempt from various provisions of the Economic Stabilization Program. Certain clarifying and substantive changes have been made in the proposed regulations as follows.

In § 150.52(a), raw peanuts, shelled or unshelled, have been added to the list of those agricultural products the sale of which is exempt until processing occurs. The Council during the course of the Economic Stabilization Program has treated raw peanuts as subject to the general rule of § 150.52 (a) since virtually all peanut products in the United States are processed in some form before being consumed. The omission of raw peanuts from the list of exempt products contained in the proposed regulation was inadvertent.

In § 150.52 (a) milled lumber has been deleted from the listing of nonexempt items to remove any confusion which might arise as to the scope of the exemption for lumber under § 150.54 (o). Millwork has been added as an example of a nonexempt lumber item.

Section 150.54 (n) concerning long-term contracts has been broadened to apply to any contract to provide coal over a period of at least five years to a public untility. The proposed provision required that a coal contract be entered into after August 1, 1973, have a term of at least eight years, and be for the provision of coal to a public utility under the jurisdiction of a regulatory agency.

Section 150.54 (o) concerning lumber has been amended to include tempered or untempered hardboard.

A new § 150.54 (p) has been added to continue the exemption for prices charged for copper scrap and copper based alloy scrap which became effective during the latter part of the Phase III freeze.

With regard to the small business exemption in § 150.60, it should be noted that as a consequence of the shift forward in the time period for determining applicability, a firm which qualified for the exemption in Phases II and III may not qualify for the exemption as now formulated as a result of a change in its circumstances, such as growth in employment or sales.

Certain technical changes, e.g., to correct erroneous cross references, have also been made.

SUBPART E-MANUFACTURING AND SERVICE ACTIVITIES

Subpart E has been modified in several respects. Since the rules of general applicability have been removed to Subpart A, Subpart E now applies only to manufacturing and service activities. A "Scope" section has been added that makes clear that Subpart E does not apply to those activities

governed by particular regulations under this part (such as Subpart M-Insurance). However, a firm which is subject to Subpart E and which is also engaged in wholesaling and retailing activities governed by Subpart K may treat those activities as manufacturing and service activities, if the firm's revenues from wholesaling and retailing amounts to both (1) less than $50 million, and (2) less than 10% of that part the firm's total revenues which were subject to Subpart E in its most recently ended fiscal year.

A definition of "adjusted freeze price" has been included specifying those Phase III prices which may be charged in Phase IV without application of the Phase IV rules. This is a modification of the notion embodied in § 150.76(d) of the proposed regulations. The "adjusted freeze price" is, essentially, the maximum price permitted under the freeze regulations, modified to exclude from the freeze price temporary special sales, deals, and allowances which were required to be included under the freeze regulations. The "adjusted freeze price" takes into account exceptions granted during the freeze and the special freeze rules which allowed for seasonal pricing and higher prices on imported items. The general rule for price increases under subpart E, as now stated, is that any price may be charged for an item which does not exceed the adjusted freeze price of that item or the base price of that item, whichever is higher. Where the base price is higher than the adjusted freeze price, a price above the base price may be charged only to recover on a dollar-for-dollar basis those net increases in allowable costs that have been incurred with respect to the product line or service line concerned since the base cost period and which the firm concerned continues to incur, subject to the productivity offset, the price reduction rule, and the profit margin limitation.

Where the adjusted freeze price is in excess of the base price, a price increase may be placed in effect only if the full extent of all price increases above the base price is cost-justified and is otherwise permissible under the Phase IV rules. This rule permits firms both to increase prices up to the adjusted freeze price level and to continue to charge prices at the adjusted freeze price level without application of the Phase IV rules.

A price category 1 firm which prenotifies its intent to apply a percentage price increase to a product line or service line, and any other firm which qualifies, by virtue of cost justification, to

charge a percentage price increase to a product line or service line, must apply the percentage price increase on a weighted average basis so that, for any fiscal quarter, the weighted average of all price increases and price decreases in that product line or service line does not exceed the percentage price increase prenotified or otherwise permissible.

A new rule has been formulated for limiting the maximum price increase for any one item in applying the percentage price increase to the product line or service line on a weighted average basis. The item maximum is 110% of the adjusted freeze price or 110% of the base price of the item, whichever is greater, plus the percentage of cost justification times the adjusted freeze price or the base price, whichever is greater.

The price reduction rule, which requires price reductions when and to the extent that Phase IV price increases are no longer supported by increased costs (i.e., when costs decrease), remains essentially unchanged.

The rule in the proposed regulations concerning contracts entered into during the freeze has been altered with respect to the periods of time applied under that rule and has been moved to subpart H (Prenotification and Reporting) since that rule provided a temporary waiver of the prenotification requirement. The new contracts rule in subpart E applies to the price specified in a contract for the sale of an item entered into before 9:00 p.m., e.s.t., June 13, 1973, with respect to delivery or performance occurring after the beginning of Phase IV and before January 1, 1974. The new rule states that that contract price is allowable without regard to the Phase IV rules and without regard to profit margin limitation.

Subpart E concludes with the rule requiring that increases in allowable costs be reduced to reflect productivity gains. This rule remains essentially unchanged from Phase II.

The profit margin rule, previously set forth in subpart E, has been expanded and restated in subpart A.

SUBPART F-BASE PRICE

Subpart F provides the rules for calculating base prices, including base prices for new items and custom products and custom services. These rules remain essentially unchanged. In general, the base price with respect to an item is the average price at which the item was lawfully priced in transactions with the class of purchaser concerned

during the base price period. The average price is determined by dividing the net sales of that item by the quantity of the item sold or leased to the class of purchaser concerned during the base price period. The base price period is the last fiscal quarter which ended before January 11, 1973, in which transactions occurred with respect to the item and class of purchaser concerned. A provision has been added for using an accepted sampling method for calculating the base price of an item in certain circumstances.

Temporary special deals or temporary special allowances may now be excluded in computing the base price of an item. Along with this change, "temporary" has been defined to mean in effect for 31 days or less.

With respect to determining a base price for a new item, the rule as applied to firms engaged in wholesaling and retailing has been modified to provide that the product shall be priced within the merchandise or customer category into which the new product falls in accordance with subpart K.

The prenotification requirement provided in the proposed Phase IV rules with respect to new items has been eliminated. Subpart F now provides for quarterly reporting of new items when projected sales for all new items in the current fiscal year amount to $10 million or more. The requirement applies with respect to each new item with projected annual sales of $1 million or more. This regulation is designed to permit the Council to review whether items qualify as "new items" and whether the base price of new items has been determined in accordance with subpart F.

SUBPART G-BASE COST AND CURRENT COST

Subpart G establishes the rules for determining base costs and current costs.

Previously, the base cost of direct material and labor was the rate at which these costs were incurred on the last full day of business in the base cost period. The base cost period remains unchanged (the last fiscal quarter which ended before January 11, 1973, in which costs were incurred with respect to the product line or service line concerned). However, the base cost of labor is now the rate at which those costs were incurred on the first full day of business in the base cost period. With respect to all costs (including cost of direct labor) other than labor costs, the base cost now is

also the rate at which those costs were incurred on the first full day of business in the base cost period. Unchanged is the rule that if base cost for all costs other than labor costs cannot reasonably be determined as stated above, the base cost is the average cost incurred throughout the base cost period.

Under the Phase IV rules as proposed, the current cost period was the fiscal quarter for which a quarterly report is required. For prenotification purposes, the current cost period was any representative period in which normal, recurring costs were incurred prior to the date of the prenotification document.

The current cost period for quarterly reporting purposes is now the last accounting month in the current fiscal quarter for which a quarterly report is required. The current cost period for price category III firms is the last accounting month in the current fiscal quarter for which compliance is being measured. The current cost period for prenotification firms is the last accounting month preceding the date of signature of the prenotification document except that with respect to labor and other costs which may be calculated as of a date certain, the rate at which these costs are incurred on the day which is the date of signature of the prenotification document may be considered as the rate on the last full day of the current cost period.

Except as indicated above, the rules for current costs for labor and all other costs continue unchanged. The rate on the last full day of business in the current cost period is used, except that, with respect to all costs other than labor costs, the average cost incurred throughout the current cost period may be used if current costs cannot reasonably be determined by the method prescribed.

SUBPART H-PRENOTIFICATION AND REPORTING

The general prenotification rule, found in § 150.51 (a), has been modified to require that a price category I firm may not increase the price for any item above the adjusted freeze price for that item or above its base price for that item, whichever is higher, until it has filed a notice of the proposed price increase with the Council and 30 days have elapsed since the filing of that notice. The section, as proposed, made reference only to increases above base price and a waiver of prenotification was provided for prices established pursuant to § 150.76 (d) of the proposed regula

tions. The change is designed to eliminate ambiguity. It recognizes that for many firms, the adjusted freeze price will be higher than the base price and it is intended to make clear that the prenotification requirement applies only to increases above the higher of those two prices. In addition, § 150.151 (a) has been amended to make clear that a notice of proposed price increase may be filed not only with respect to an item as to which a price increase is sought but also with respect to a product line which includes that item. This provision had been inadvertently omitted from the proposed regulations.

Section 150.151 (b) has been modified in three respects. First, § 150.151 (b) (2) (ii) as published in the notice of proposed rulemaking has been deleted. The purpose of that section has been accomplished in the first change of § 150.151 (a) referred to above. A new section has been substituted which provides for waiver of prenotification with respect to prices specified in contracts which were entered into before the freeze began and which call for delivery or performance after the beginning of Phase IV and before January 1, 1974. Section 150.76 establishes the validity of these contract prices, and amended § 150.151 (b) (2) (ii) makes clear that that they are not subject to prenotification.

Second, a new § 150.151 (b) (2) (iii) has been inserted which is similar in its basic purpose to § 150.92 of the proposed regulations but which has been modified in several respects. This provision is designed to waive prenotification with respect to the charging of a price specified in a contract entered into after the freeze began and before publication of these final regulations. Prices charged under these contracts must comply with Phase IV rules, but this provision waives the requirement of prenotification with respect to price increases charged for delivery or performance occurring after August 12 and prior to October 12, 1973. This establishes a 60 day period in which performance under these contracts may take place without prenotification.

Third, a new § 150.151 (b) (2) (iv) has been added which is virtually identical to the PC-5 procedure or the so-called "multi-industry firm waiver" which was available during Phase II. The provision waives the prenotification requirement for any price category I firm which had annual sales or revenues of less than $100 million within any industrial group in its most recently completed

fiscal year, when the Council grants approval for such a procedure. The provision defines industrial groups as two-digit standard industrial classification (SIC) codes and specifies that a firm whose prenotification requirements are modified by operation of this provision remains subject to all the other rules of this part. To qualify, the firm must also show that each activity for which waiver is sought does not account for more than 5% of the market covered by the 4-digit SIC code applicable to that activity. Subsection (B) provides that, for a period of 60 days or until October 12, 1973, a firm which had received approval from the Price Commission under the predecessor rule and which has reason to believe it still qualifies for such treatment may avail itself of this procedure. Thereafter it may use the provision only if it has received authorization from the Council to do so.

Section 150.152 has been modified to make clear that a notice of price increase is considered to be filed with the Cost of Living Council when it is stamped and dated by the Council. Use of the term "accepted" in the proposed regulation caused concern among many persons commenting on the proposal that the Council would delay the start of the 30 day waiting period until it had reviewed the filing and determined that it was acceptable in a substantive sense. The amendment is intended to make it clear that this is not the case and that the ministerial act of date-stamping starts the running of the 30 day period.

Section 150.156 dealing with volatility is modified to provide in subsection (d), that preexisting volatility authorizations will be valid for a period of 60 days until October 12, 1973 rather than the 30 day period that was provided for in the notice of proposed rulemaking.

Section 150.161 has been changed in two respects. First, § 150.161 (a) has been modified to make reference to the forms and instructions issued by the Council which will set out more detail as to those matters which will be required to be filed in connection with the quarterly report. Second, a new § 150.161 (b) (4) has been added to provide that a firm which has not charged a price for any item above the base price of that item or above the adjusted freeze price for that item whichever is higher, may file a "certificate of no price increase" in lieu of a quarterly report.

Section 150.162 of the proposed regulations requiring an annual report to be filed by each price category III firm has been deleted. The Council

concluded that the burden of compliance posed by such a requirement would significantly outweigh the benefits to be achieved. Moreover, price category III firms continue to be subject to all the rules of the Economic Stabiliaztion Program and are required to maintain such records as may be necessary to demonstrate to a representative of the Economic Stabilization Program that they are in compliance with these rules.

SUBPART I-ACCOUNTING AND FINANCIAL REPORTING REQUIREMENTS

Subpart I provides information on accounting and financial reporting requirements. It has been wholly changed from the proposed version. On the basis of comments received and its own experience, the council concluded that a restriction on a firm's profit margin that is tied to its profit margin in an earlier period, gives rise to distortions and unintended results when the firm's present operations are not comparable to its past operations because of intervening acquisitions, divestitures, liquidations or new operations.

The Council determined that if profit margin computations are to provide a meaningful comparison between the current period and the base period, it is necessary to restate the financial data on which the computations are based, whenever there is a pooling of interests, or other acquisition, divestiture, or discontinuation of operation. To reflect these decisions subpart I now provides, in essence, that a firm must adjust its financial data to reflect acquisitions of divestitures of separate accounting entities whenever these changes require restatement of disclosure in a filing with the SEC. Adjustments must also be made when the changes would require restatement or disclosure in a filing with the SEC were it not for the fact that the firm does not file reports with the SEC, or that there is a lack of materiality.

Subpart I also provides that when a firm's operations have substantially changed in nature, in ways other than acquisitions or divestitures, the firm may request an exception to allow it to adjust its profit margins.

Finally, the requirement in proposed § 150.172 that certain firms must obtain the services of an independent public accountant to perform certain procedures set out in Part 105, has been deleted

as unnecessary.

SUBPART J-SPECIAL RULES

The former provision governing loss and low profit relief has been divided into two sections. Section 150.201 deals with exemptions from the requirements of prenotification and cost justification, while § 150.202 provides relief for firms with a loss, or a low base period profit margin.

Section 150.201 sets forth a special pricing rule for any firm which, in its current fiscal year, projects that its profit margin will be less than a minimum profit margin. This represents a change from the proposed regulations which allowed only those firms which had 90% or more of their revenues derived from manufacturing, retail or wholesale activities or 90% derived from service activities to qualify for the low profit rule.

The minimum profit margin allowed is similar to that set forth in the proposed regulations. A firm with at least 90% service activity has a minimum profit margin allowed of 1%. All other firms, including any firm with less than 90% in service activities have a minmum profit margin allowed which is between 3% and .2% depending upon the firm's capital turnover ratio.

To qualify for this section, a Price Category I or Price Category II firm must submit to the Council sufficient financial data to support its position as a loss-low profit firm. Thirty days after the Council has received such data, the firm may price pursuant to this section. During the 30-day time period, the Council may suspend, modify or disapprove a firm's submission for such reasons as insufficient or inaccurate financial data. A Price Category III firm must prepare sufficient financial data to support its position as a loss and low profit firm and must maintain the data at its principal place of business. However, a Price Category III firm need not submit this information to the Council nor wait the 30 days prior to pricing under this section. This waiver of the 30-day time period for Price Category III firms reflects a change from the proposed regulations.

A firm which qualifies for this rule may price without respect to the cost justification requirements in subparts E and K and without respect to the prenotification requirements of subpart H. However, if the firm increases the wages or salaries of any of its officers or employees or owners or relatives of an owner in excess of general wage and salary standard as computed in accordance with economic stabilization regulations, authority to use this section terminates.