revenues and the dollar value of the profit margin excess that the firm's sales of custom products and custom services bears to total sales.

(b) For purposes of computing the ratio which sales of custom products or services bear to total sales pursuant to paragraph (a) of this section, a firm shall exclude from sales of custom products or services, for its first fiscal year ending after August 12, 1973, and before January 1, 1974, any sales of a custom product or service, after August 12, 1973, under a contract entered into before August 13, 1973.

SUBPART K-PROFIT MARGIN REPURIFICATION

§ 155.191 Scope.

The subpart applies to any firm subject to a profit margin limitation imposed by Part 150 of this chapter.

§ 155.192 Definitions.

For the purposes of this subpart:

"Base level" of an item means the greater of the base price of that item as determined in accordance with Subpart F of Part 150 of this chapter or the adjusted freeze price of that item as defined in Subparts E or K of Part 150 of this chapter.

"Internal Revenue Service" means the District Director of the key IRS District Office which serves the district in which the corporate headquarters of the firm concerned are domiciled.

"Price Category I or II firm" means a price category I firm or a price category II firm as defined in Subpart C of Part 150 of this chapter.

"Price Category III firm" means a price category III firm as defined in Subpart C of Part 150 of this chapter.

§ 155.193 General rule.

Any firm subject to a profit margin limitation under Part 150 of this chapter is not subject to that limitation if, before the end of the fiscal year in which it charged a price above the base level, the firm (a) rescinds all price increases above base levels, and (b) in conformity with §§ 155.194, 155.195 and 155.196 of this subpart, remits to customers in the form of refunds, or future sales at prices below base levels of the same goods and services previously sold at prices above base levels, or

both, an amount equal to or greater than the revenues derived in the fiscal year from charging a price or prices in excess of base price levels.

§ 155.194 Price Category I and II Firms.

(a) A price category I or II firm may take setion to reduce prices to base levels at any time.

(b) Before remitting revenues derived from charging prices above base levels, each firm shall submit, for the approval of the Internal Revenue Service, a letter of intent to remit revenues under this regulation. If the firm receives no written response to its letter of intent within 20 days after the date it was received by the Internal Revenue Service, the firm may assume approval and proceed to remit revenues in accordance with § 155.196 of this part.

(c) To be eligible for Internal Revenue Service approval under this subpart, a letter of intent must be received at such a time before the end of the firm's fiscal year as will allow Internal Revenue Service review thereof in accordance with pars. graph (b) of this section and as will allow the firm to fully execute the plan for remission, of revenues before the end of that fiscal year. In any event, a letter of intent must be received at least 30 days before the end of that fiscal year.

(d) Each letter of intent to remit revenues shall include a revenue remission plan presenting the following information:

(1) The amount of revenue the firm has received as a result of having increased the price of property or services, or both, above base levels, indicated by product, product line, service, or service line;

(2) The above-base-level selling price, the base level, and the proposed below-base-level selling price of each product, product line, service or serv ice line;

(3) The sales figures and other information which demonstrates that the proposed prices below base level will result in remission of revenues derived from charging prices above the base level;

(4) The period of time during which the remis sion of revenues will take place;

(5) The anticipated effect of the firm's price reductions on competition and the manner in which the firm's revenue remission plan will minimize disruption of competitive pricing patterns; and

(6) The amount of revenues which can be refunded to customers.

§ 155.195 Price Category III Firms.

A price category III firm which intends to make price reductions and refunds pursuant to this subpart shall, before remitting revenues derived from charging prices above base levels, record its intent in a notarized statement.

§ 155.196 Remission of Revenues.

(a) Remission of revenues derived from charging prices above base levels shall be made first in the form of refunds to individual customers who purchased goods and services at prices in excess of base levels, to the extent that those customers are reasonably identifiable. For the purpose of making refunds pursuant to this subpart, "customer" means, so far as possible, the ultimate consumer. To the extent that customers are not reasonably identifiable, remission of the balance of revenues derived from charging prices above base levels shall be made to customers of the same class as those charged the increased prices through the reduction of the price of those items which were raised above base levels to below base levels, so that the difference between the revenues realized at the reduced prices and the revenues which would have been realized if the sales had been made at base levels is equal to or greater than the revenues (net of any refunds) derived from charging prices above base levels.

(b) Each firm that remits revenues shall make such arrangements with its immediate customers, purchasers, dealers, employees or agents as are necessary to obtain and maintain records of the names and addresses of ultimate consumers who are reasonably identifiable in accordance with normal business practices and to assure that refunds are in fact made to such ultimate consumers.

§ 155.197 Reporting Requirements.

No firm is considered to be restored to the position of a firm which has not raised any prices above base levels until it has carried out its revenue remission plan and complied with all of the applicable requirements of §§ 155.193 through 155.196 of this part. Upon meeting these requirements, a price category I or II firm may submit the certification of no price increase which, pursuant to the instructions to the Form CLC-22, certain firms which have not charged any price above the base level may use in lieu of reporting on price increases. However, the first certification of no

price increase submitted after remission of revenues pursuant to this regulation shall be accompanied by a report which includes:

(a) A statement signed by that firm's chief executive officer (or other authorized officer) certifying that all selling prices of those items which were previously raised above base levels have been reduced to base levels; and

(b) The following information, set forth in detail, showing that all other curative actions have been completed:

(1) The dollar amount of the revenues which the firm received as a result of having charged a price for items above base levels during the current fiscal year;

(2) The names and addresses of all customers, if any, to whom the firm has made refunds pursuant to this subpart, together with the amounts refunded in each case and the date of each refund;

(3) The nature, type, and extent of price reductions below base levels which the firm did, in fact, institute pursuant to this subpart including the dollar amount of the revenues realized from sales at below base levels compared with the dollar amount of the revenues which would have been received if those sales had been made at base levels.

§ 155.198 Effect of Price Reductions.

This subpart does not relieve any firm of its obligations under the Clayton Act, the Federal Trade Commission Act, or any law with a similar purpose; nor does it permit or obligate any firm to do any act or engage in any practice which would violate any of those laws.

APPENDIX

Example 1. Firm A, a price category I firm which operates on a calendar-year basis, raised a few prices above base levels early in Phase IV. The firm finds it is exceeding its base period profit margin on the basis of its third quarter's performance and believes it will be unable to demonstrate that it will not exceed its base period profit margin for its full fiscal year. Consequently, before December 31, 1973, Firm A returns all prices to base levels and either makes refunds or reduces the prices on the same items to below base levels to the extent necessary to remit all revenues derived from charging prices above base levels as provided in this subpart. Firm A is no longer subject to a profit margin limitation and will remain free

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there from until it again raises a price above the base level.

Example 2. A remedial order was issued to Firm B because it raised prices above base levels in Phase IV and exceeded its base period profit margin for the third quarter of its fiscal year. The order, among other things, directed Firm B to (1) reduce all prices to base levels and (2) at the firm's option, to either (a) remit revenues derived from charging prices in excess of base levels or (b) further reduce prices by an amount sufficient to assure that by the end of the firm's fourth quarter the firm's profit margin will not exceed its base period profit margin.

Firm B wishes to conform to the requirements of this subpart. It therefore reduces all prices to base price levels and selects option 2(a) in the order. In carrying out option 2(a) it follows all applicable requirements of this subpart, including the submission of a letter of intent (§ 155.195) and the making of refunds to identifiable customers (§ 155.196). The decision of Firm B to meet the requirements of this subpart does not, however, relieve it of any additional requirements placed upon it by the remedial order.

Example 3. Firm C raised the price of its one product above the base level during its 1973 fiscal year but did not exceed its base period profit margin for fiscal year 1973. During the first month of its 1974 fiscal year, Firm D's profit margin appears to be rising substantially due in large measure to greatly increased demand for its product and related decreases in cost per unit. Firm C continues to charge the same increased price for its product in FY 1974 as it did last year.

Anticipating a profit margin excess for fiscal year 1974, Firm C elects to return to base levels and to remit all revenues derived in fiscal year

1974 from the price increase above base levels which was instituted in 1973. Having no identifiable customers, the firm determines that it would have to reduce the price of its product to a level below the base level for a period of three months in order to remit revenues (in the form of reduced prices) equal to or greater than the revenues derived in FY 1974 from the price charged in excess of the base price. With a price per unit at $2.00 above the base level and 20,000 units sold to date in FY 1974, Firm C determines that a total price decrease of $2.50 (50 cents below base level) with projected sales of at least 80,000 units over the next 3 months will result in remission of the $40,000 in revenues derived in FY 1974 from the price charged in excess of the base level.

After five months of sales as anticipated at prices below the base level, Firm C finds that it has met the requirements of this subpart with respect to remission of revenues and thereupon increases the price of the product to the base level. There are no price increases above base levels during the 1974 fiscal year, and Firm C exceeds its base period profit margin for FY 1974. Under the facts presented, there is no profit margin violation.

Example 4. Firm C, under the same facts as example 3 except that some customers are identifiable, works through its dealers (independent contractors) to identify and to refund directly to consumers who purchased its product in FY 1974 a total of $20,000. This leaves a balance of $20,000 which must be remitted in the form of sales at prices below the base level. Firm C lowers its price to 25 cents below base level and sells 80,000 units at that price over a three-month period. This results in a remission of an additional $20,000, and Firm C has met the requirements of this subpart with respect to remission of revenues.