Federal Register / Vol. 60, No. 45 / Wednesday, March 8, 1995 / Proposed Rules 12725

FOR FURTHER INFORMATION CONTACT:

Leslie K. Shapiro, Mass Media Bureau,

(202) 418–2180.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Commission’s Notice of

Proposed Rule Making, MM Docket No.

95–30, adopted February 21, 1995, and

released March 3, 1995. The full text of

this Commission decision is available

for inspection and copying during

normal business hours in the FCC

Reference Center (Room 239), 1919 M

Street, NW, Washington, D.C. The

complete text of this decision may also

be purchased from the Commission’s

copy contractor, International

Transcription Services, Inc., (202) 857–

3800, 2100 M Street, NW, Suite 140,

Washington, D.C. 20037.

Provisions of the Regulatory

Flexibility Act of 1980 do not apply to

this proceeding.

Members of the public should note

that from the time a Notice of Proposed

Rule Making is issued until the matter

is no longer subject to Commission

consideration or court review, all ex

parte contacts are prohibited in

Commission proceedings, such as this

one, which involve channel allotments.

See 47 CFR 1.1204(b) for rules

governing permissible ex parte contacts.

For information regarding proper

filing procedures for comments, see 47

CFR 1.415 and 1.420.

List of Subjects in 47 CFR Part 73

Radio broadcasting.

Federal Communications Commission.

John A Karousos,

Chief, Allocations Branch, Policy and Rules

Division, Mass Media Bureau.

[FR Doc. 95–5618 Filed 3–7–95; 8:45 am]

BILLING CODE 6712–01–F

47 CFR Part 73

[MM Docket No. 95–28; RM–8593]

Radio Broadcasting Services;

Stamping Ground, Kentucky

AGENCY: Federal Communications

Commission.

ACTION: Proposed rule.

SUMMARY: The Commission requests

comments on a petition filed by Scott

County Broadcasting, Inc., proposing

the substitution of Channel 241A for

Channel 256A at Stamping Ground,

Kentucky, to enable Station WKYI(FM)

to increase its power to six kilowatts

and eliminate interference within its

protected contour. An engineering

analysis has determined that Channel

241A can be allotted to Stamping

Ground in compliance with the

Commission’s minimum distance

separation requirements at petitioner’s

requested site with a site restriction of

12.0 kilometers (7.5 miles) east to avoid

short-spacings to the application and

allotment site of Channel 242C3,

Stanford, Kentucky, and Station

WKID(FM), Channel 240A, Vevay,

Indiana. The coordinates for Channel

241A at Stamping Ground are North

Latitude 38–17–43 and West Longitude

84–33–10.

DATES: Comments must be filed on or

before April 24, 1995 and reply

comments on or before May 10, 1995.

ADDRESSES: Federal Communications

Commission, Washington, D.C. 20554.

In addition to filing comments with the

FCC, interested parties should serve the

petitioner, or its counsel or consultant,

as follows: James P. Gray, President,

Scott County Broadcasting, Inc., 10

Trinity Place, Fort Thomas, Kentucky

41075 (Petitioner).

FOR FURTHER INFORMATION CONTACT:

Sharon P. McDonald, Mass Media

Bureau, (202) 418–2180.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Commission’s Notice of

Proposed Rule Making, MM Docket No.

95–28, adopted February 21, 1995, and

released March 3, 1995. The full text of

this Commission decision is available

for inspection and copying during

normal business hours in the FCC

Reference Center (Room 239), 1919 M

Street, NW, Washington, D.C. The

complete text of this decision may also

be purchased from the Commission’s

copy contractor, International

Transcription Service, Inc., (202) 857–

3800, 2100 M Street, NW, Suite 140,

Washington, D.C. 20037.

Provisions of the Regulatory

Flexibility Act of 1980 do not apply to

this proceeding.

Members of the public should note

that from the time a Notice of Proposed

Rule Making is issued until the matter

is no longer subject to Commission

consideration or court review, all ex

parte contacts are prohibited in

Commission proceedings, such as this

one, which involve channel allotments.

See 47 CFR 1.1204(b) for rules

governing permissible ex parte contacts.

For information regarding proper

filing procedures for comments, see 47

CFR 1.415 and 1.420.

List of Subjects in 47 CFR Part 73

Radio broadcasting.

Federal Communications Commission.

John A. Karousos,

Chief, Allocations Branch, Policy and Rules

Division, Mass Media Bureau.

[FR Doc. 95–5617 Filed 3–7–95; 8:45 am]

BILLING CODE 6712–01–F

OFFICE OF MANAGEMENT AND

BUDGET

Office of Federal Procurement Policy

48 CFR Part 9904

Cost Accounting Standards Board;

Treatment of Gains or Losses

Subsequent to Mergers or Business

Combinations by Government

Contractors

AGENCY: Cost Accounting Standards

Board, Office of Federal Procurement

Policy, OMB.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Office of Federal

Procurement Policy, Cost Accounting

Standards Board (CASB), proposes to

amend the Cost Accounting Standards

(CAS) relating to treatment of gains or

losses attributable to tangible capital

assets subsequent to mergers or business

combinations by government

contractors.

To resolve the problems that have

been identified in this area, the Board

proposes to amend CAS 9904.404,

‘‘Capitalization of Tangible Assets’’ and

CAS 9904.409, ‘‘Depreciation of

Tangible Capital Assets’’. The proposed

amendments are based on an approach

involving a ‘‘no step-up, no step-down’’

of asset bases and no recognition of gain

or loss on a transfer of assets following

a business combination by contractors

subject to CAS.

Section 26(g)(1) of the Office of

Federal Procurement Policy Act requires

that the Board, prior to the

promulgation of any new or revised Cost

Accounting Standard, publish a Notice

of Proposed Rulemaking (NPRM). This

NPRM addresses the Board’s proposal to

amend CAS 9904.404 and CAS 9904.409

to deal with the issue of gains and losses

subsequent to a merger or business

combination.

DATES: Comments should be received by

May 8, 1995.

ADDRESSES: Comments should be

addressed to Dr. Rein Abel, Director of

Research, Cost Accounting Standards

Board, Office of Federal Procurement

Policy, 725 17th Street, NW., room

9001, Washington, DC 20503. Attn:

CASB Docket No. 91–06N.

FOR FURTHER INFORMATION CONTACT: Dr.

Rein Abel, Director of Research, Cost

Accounting Standards Board (telephone

202–395–3254).

SUPPLEMENTARY INFORMATION:

A. Regulatory Process

The Cost Accounting Standards

Board’s rules and regulations are

codified at 48 CFR Chapter 99. Section
12726 Federal Register / Vol. 60, No. 45 / Wednesday, March 8, 1995 / Proposed Rules

26(g)(1) of the Office of Federal

Procurement Policy Act, 41 U.S.C.

§ 422(g)(1), requires that the Board, prior

to the establishment of any new or

revised Cost Accounting Standard,

complete a prescribed rulemaking

process. This process consists of the

following four steps:

1. Consult with interested persons

concerning the advantages,

disadvantages and improvements

anticipated in the pricing and

administration of government contracts

as a result of a proposed Standard.

2. Promulgate an Advance Notice of

Proposed Rulemaking.

3. Promulgate a Notice of Proposed

Rulemaking.

4. Promulgate a Final Rule.

This proposal is step three in the four

step process.

B. Background

Prior Promulgations

The issues addressed in this proposal

were first identified by commenters in

response to the Board’s request for

suggested agenda topics in November

1990. Subsequently two Staff Discussion

Papers (SDPs) were issued.

The first, dated August 26, 1991 and

titled ‘‘Recognition and Pricing of

Changing Capital Asset Values Resulting

from Mergers and Business Combination

by Government Contractors.’’ (56 FR

42079) raised broad issues such as the

scope of the proposed project, the basis

for any Government claim to gains or

losses resulting from a business

combination and the likely economic

consequences of a policy that would

prohibit revaluation of assets following

a merger.

The responses to this SDP were used

by the Board as the basis for discussing

the basic issues involved in this case. As

a result of this discussion, the Board

decided to issue a second SDP dealing

with a series of questions concerning

the specific procedures needed to deal

effectively with the recognition,

allocation and recovery of the gain or

loss subsequent to a merger or business

combination. The second SDP, entitled

‘‘Treatment of Gains or Losses

Subsequent to Mergers or Business

Combinations by Government

Contractors,’’ was issued on November

4, 1993 (58 FR 58882). On the basis of

comments received to the SDP, an

Advance Notice of Proposed

Rulemaking (ANPRM) was developed

and published in the Federal Register

on August 24, 1994 (59 FR 26774). The

responses to the ANPRM were of

significant assistance to the Board in

developing this NPRM.

Public Comments

Fourteen sets of public comments

were received from government

contractors, professional and industrial

associations, Federal agencies, and

accounting and consulting firms.

All three Government commenters

supported the basic approach and

format incorporated in the ANPRM. All

the other commenters, with one

exception, were clearly opposed to the

basic approach adopted in the ANPRM.,

i.e., the no step-up, no step-down

approach. One industry commenter,

although critical of the ANPRM, did not

reject its basic approach out of hand and

reserved his most critical comments to

the current FAR provision that, in effect,

sanctions the use of ‘‘historical cost or

fair value, whichever is lower’’

principle in cases of mergers or business

combinations.

Irrespective of their support or

opposition to the basic approach

incorporated in the ANPRM, a number

of commenters offered additional,

detailed comments on the various

specific provisions of the document.

Some of these comments were clearly

editorial while others were more

substantive in nature.

These comments are discussed below

in greater detail, under Section E.,

Public Comments. The Board and the

CASB staff express their appreciation

for the generally constructive and

thoughtful responses provided by the

commenters.

Benefits

After consideration of all the

comments received in response to the

ANPRM, the Board continues to believe

that amendments to CAS 9904.404,

‘‘Capitalization of Tangible Assets,’’ and

CAS 9904.409, ‘‘Depreciation of

Tangible Capital Assets,’’ as set forth in

the ANPRM and essentially restated in

this NPRM, will significantly improve

and clarify the implementation of CAS

and related procurement regulations in

accounting for tangible capital assets

after completion of a merger or business

combination. In particular, the Board

continues to believe that the proposal

embodied in this NPRM will clarify the

current ambiguities in this area and thus

should lead to reductions in

negotiations and litigation. This point is

of particular significance in the current

economic and budgetary environment

where further reductions in the defense

budget can be expected to lead to

additional mergers and business

combinations among defense

contractors. The Board believes that the

potential benefit to the audit,

negotiation, and general contract

administration processes accruing from

the added clarity and uniformity in the

measurement of the cost of depreciation

and cost of money subsequent to a

business combination will be

substantial and will greatly outweigh

any added costs.

Summary of Proposed Amendments

A brief description of the proposed

amendments follows:

a. The current subsection 9904.404–

50(d) is deleted and is replaced by an

amended section that prescribes:

(1) That for Federal contract costing

purposes tangible capital assets

following a business combination shall

retain their net book value recognized

prior to the business combination

provided that the assets had previously

generated costs that were charged either

as direct or indirect costs to Federal

government contracts subject to CAS.

(2) That the cost of tangible capital

assets shall be restated after the business

combination at a figure not to exceed

the fair value at the date of the

acquisition pursuant to a business

combination where the assets prior to

the business combination did not

generate costs that were charged either

as direct or indirect costs to Federal

contracts subject to CAS.

b. A new subparagraph 9904.409–

50(j)(5), is added to current subsection

9904.409–50(j). The purpose of this new

subparagraph is to make it clear that the

CAS 9904.409 provisions dealing with

the recapture of gains and losses on

disposition of tangible capital assets

should not apply when assets are

transferred subsequent to a business

combination.

C. Paperwork Reduction Act

The Paperwork Reduction Act, Public

Law 96–511, does not apply to this

proposal, and any associated

rulemaking, because this proposal

would impose no paperwork burden on

offerors, affected contractors and

subcontractors, or members of the

public which require the approval of

OMB under 44 U.S.C. 3501, et seq.

D. Executive Order 12866 and the

Regulatory Flexibility Act

The economic impact of this proposal

on contractors and subcontractors is

expected to be minor. As a result, the

Board has determined that this ANPRM

will not result in the promulgation of a

‘‘major rule’’ under the provisions of

Executive Order 12866, and that a

regulatory impact analysis will not be

required. Furthermore, this proposal

will not have a significant effect on a

substantial number of small entities

because small businesses are exempt
Federal Register / Vol. 60, No. 45 / Wednesday, March 8, 1995 / Proposed Rules 12727

from the application of the Cost

Accounting Standards. Therefore, this

proposed rule does not require a

regulatory flexibility analysis under the

Regulatory Flexibility Act of 1980.

E. Public Comments

This NPRM was developed after

consideration of the public comments

received in response to the Board’s

ANPRM published on May 24, 1994 (59

FR 26774). The comments have

provided valuable input to the Board’s

rulemaking process. The comments

received and the action taken by the

Board are summarized in the paragraphs

that follow:

Comment: Most non-Government

commenters disagreed with the Board’s

proposed ‘‘no step-up, no step-down’’

approach. They opposed the exception

from generally accepted accounting

principles (GAAP) and expressed the

opinion that the proposed approach

does not represent sound accounting.

They also pointed out that the proposed

approach would lead to inconsistencies

in the accounting practices applied in

cases of CAS-covered contracts as

contrasted with non-CAS-covered

contracts. In general, the alternative

approaches suggested involved either

continuation of the ‘‘status quo’’,

combined with proposals to rescind

FAR 31.205–52, or suggestions to

explore ways to insure that the

government participates, when

appropriate, in gains and losses

recognized from assets involved in

mergers or business combinations.

Response: The Board adopted the ‘‘no

step-up no step-down’’ approach after

extensive consideration of the possible

alternative approaches. In particular, the

issues associated with the recognition,

allocation and recovery of the gain or

loss subsequent to a merger or business

combination were extensively explored

in a Staff Discussion Paper (SDP)

entitled ‘‘Treatment of Gains or Losses

Subsequent to Mergers or Business

Combinations by Government

Contractors’’. It was only after careful

consideration of the responses to this

SDP that the Board decided to proceed

with the ‘‘no step-up, no step-down’’

approach.

The Board cannot agree with the

suggestions that the status quo should

be, in essence, maintained. The issues

addressed in this proposal were first

identified as significant issues by

commenters in responses to the Board’s

request for suggested agenda topics in

November 1990. Furthermore, the FAR

31.205–52 provisions, which are part of

the current regulatory environment in

this area, have been generally

recognized as leading to inequitable

consequences from the perspective of

contractors. One commenter stated:

‘‘* * * the FAR provision not only

suffers from implementation and

transition problems, but as written is

patently unfair by using historical costs

when the purchase method indicates

increased asset values and using the

purchase cost when it is lower than the

historical values. This allows the

government to choose the method of

accounting which is most cost beneficial

to it.’’ Given these circumstance, the

Board cannot agree that ‘‘no action’’ is

the proper course to follow in this

instance.

Comment: Several commenters

discussed the need to solve the apparent

conflict between the CAS allocability

provisions and the Federal Acquisition

Regulation (FAR) allowability

provisions in this area. In particular, it

was suggested the OFPP Administrator

address any continuing conflict between

the Cost Accounting Standards and FAR

31.205–52 pursuant to the authority

conferred on the Administrator by 41

U.S.C. 422(j)(3).

Response: The Board is aware of the

apparent conflict between the

provisions of CAS 9904.404 and FAR

31.205–52. Once the proposed

amendment to CAS has been

promulgated, the OFPP Administrator

will determine whether any changes

may be necessary in the FAR cost

principles to make them fully

compatible with the amended CAS

9904.404 and 9904.409.

Comment: Several commenters stated

that the proposed amendment is unfair

to contractors as it would prevent them

from recouping their investments

through future contract prices. In

particular, the contrast was drawn

between the acquisition of individual

assets through purchase and the

acquisition of assets as part of a

business combination. In one case, the

GAAP rules regarding acquisition cost

would be followed, whereas in the

other, the new CAS rule would mandate

adherence to historical cost.

Response: It is the intent of the Board

to apply the proposed amendments to

CAS 9904.404 and 9904.409 on a

prospective basis only. Therefore, any

assets acquired in business

combinations that have been concluded

prior to the promulgation of these

amendments will not be affected by the

proposed changes in CAS. As to

business combination taking place after

the promulgation of the amendments, it

is assumed that the parties involved will

take into account, while negotiating the

merger agreement, that any future

depreciation chargeable to Government

contracts and corresponding cash flow

projections, will be based on the

historical costs of the tangible capital

assets being transferred in the course of

the merger.

As to the treatment of purchased

assets in contrast to assets acquired

through a business combination, it

should be pointed out that in cases of

individual tangible capital assets

acquired from a CAS-covered

contractor, any gain or loss from such a

sale would be subject to recapture by

the Government in accordance with the

provisions of CAS 9904.409–50(j). It is

precisely because the Board concluded

that such a recapture would be

impractical in cases of business

combinations that it decided to proceed

with the ‘‘no step-up, no step-down’’

approach in the proposed amendments.

Comment: One commenter argued

that any Government claim to a share in

a gain resulting from changes in asset

values due to price level changes cannot

be justified on the basis of payment of

cost of money as a government contract

cost. The commenter argued that cost of

money was introduced as an offset to

profit and therefore should not have an

impact on cost measurement.

Response: At the time the CASB

separately recognized cost of money in

CAS 9904.414 as an imputed contract

cost, it clearly acknowledged that prior

to the promulgation of that Standard,

this cost element had been a

‘‘consideration in determining contract

profit compensation.’’ However, this

acknowledgement did not imply that

the Board regarded cost of money as

being part of, or having the

characteristics of profit. It clearly

recognized pre-CAS 9904.414 cost of

money as an element of cost that

implicitly was recognized as part of

profit. CAS 9904.414 merely turned an

implicitly recognized cost into an

explicitly recognized cost.

Comment: Several commenters

suggested that some type of materiality

or significance criterion should be

introduced to deal with those instances

where the acquired entity has allocated

only immaterial amounts of assets costs

to CAS-covered contracts prior to the

business combination or where such

allocations were not made during the

cost accounting period immediately

preceding the business combination

although they may have been made in

the course of earlier periods.

Response: CAS 9904.404 and

9904.409 apply only in the case of full

CAS coverage. Therefore, after the

recent changes in the applicability

criteria, the threshold for full CAS

coverage has been increased to $25

million in contract awards during a cost

accounting period. It is hard to conceive
12728 Federal Register / Vol. 60, No. 45 / Wednesday, March 8, 1995 / Proposed Rules

of circumstances where such an amount

in contract awards would result, on a

consistent basis, in insignificant

depreciation and/or cost of money

charges.

Comment: Some commenters believed

that the term ‘‘generated costs

chargeable’’ was too ambiguous.

Response: The word ‘‘chargeable’’ has

been replaced by ‘‘charged either as

direct cost or as indirect cost’’.

Comment: Several commenters were

concerned about the perceived potential

recordkeeping burden including

massive studies and protracted audits.

Response: When CAS has been

applied continuously, the proposed

amendments do not create any need for

new or additional data regarding

tangible capital assets. The only

requirement is that records regarding

the net book values that were

maintained prior to the business

combination should be retained and

kept up to date after the business

combination.

It is only when the contractor believes

that the historical costs used for CAS

purposes do not represent the fair value

to be used for financial reporting

purposes that the creation of additional

records (or at least additional entries on

existing records) becomes necessary.

Comment: One commenter stated that

an adequate definition of ‘‘business

combination’’ is required.

Response: ‘‘Business combination’’

and ‘‘purchase method’’ are financial

accounting terms that are already used

in the current version of CAS 9904.404.

CAS uses these terms in a derivative

sense, i.e., it prescribes certain courses

of action when events so described have

been recognized for financial reporting

purposes. The CASB is not an originator

of these terms.

Comment: One commenter suggested

that issues dealt with in the proposed

amendment also apply to intangible

assets and that these should also be

addressed in this proposal.

Response: The proposed amendments

are necessarily a part of CAS 9904.404

and 9904.409. Since the application of

these two Standards is limited to

tangible capital assets, the proposed

amendment is not a suitable vehicle for

extending the coverage to intangible

assets. A separate project on intangible

assets would be necessary for such a

purpose.

Comment: One commenter in

particular offered extensive editorial

comments on the proposed

amendments.

Response: Most of these editorial

comments were accepted.

List of Subjects in 48 CFR Part 9904

Cost accounting standards,

Government procurement.

Richard C. Loeb,

Executive Secretary, Cost Accounting

Standards Board.

For the reasons set forth in this

preamble, chapter 99 of title 48 of the

Code of Federal Regulations is proposed

to be amended as set forth below:

1. The authority citation for part 9904

continues to read as follows:

Authority: Public Law 100–679, 102 Stat.

4056, 41 U.S.C. 422.

PART 9904—COST ACCOUNTING

STANDARDS

9904.404 Capitalization of tangible assets.

2. Section 9904.404–50 is proposed to

be amended by revising paragraph (d) to

read as follows:

9904.404–50 Techniques for application.

* * * * *

(d) For Federal Government contract

costing purposes, acquisition costs of

tangible capital assets acquired in a

business combination and accounted for

under the ‘‘purchase method’’ of

accounting shall be assigned to these

assets as follows:

(1) Tangible capital assets that

generated costs charged either as direct

costs or as indirect costs to Federal

Government contracts prior to a

business combination shall retain the

same net book value(s) subsequent to a

business combination as if the business

combination had not taken place.

(2) Where acquired tangible capital

asset(s) did not generate costs that were

charged to Federal contracts subject to

CAS at the time of the business

combination, the asset(s) shall be

assigned a portion of the cost of the

acquired company not to exceed their

fair value(s) at the date of acquisition.

When the fair value of identifiable

acquired assets less liabilities assumed

exceeds the purchase price of the

acquired company in an acquisition

under the ‘‘purchase method,’’ the value

otherwise assignable to tangible capital

assets shall be reduced by a

proportionate part of the excess.

* * * * *

3. Section 9904.404–63 is proposed to

be amended by designating the existing

paragraph as (a) and by adding a new

paragraph (b) to read as follows:

9904.404–63 Effective date.

(a) * * *

(b) The effective date of 9904.404–

50(d) is [30 days after date of

publication of the final rule in the

Federal Register].

4. Section 9904.409–50 is proposed to

be amended by adding a new paragraph

(j)(5) to read as follows:

9904.409–50 Techniques for application.

* * * * *

(j) * * *

(5) The provisions of this subsection

9904.409–50(j) do not apply to business

combinations. The carrying values of

tangible capital assets subsequent to a

business combination shall be

established in accordance with the

provisions of 9904.404–50(d).

* * * * *

6. Section 9904.409–63 is proposed to

be amended by designating the existing

paragraph as (a) and by adding a new

paragraph (b) to read as follows:

9904.409–63 Effective date.

(a) * * *

(b) The effective date of 9904.409–

50(j)(5), is [30 days after date of

publication of the final rule in the

Federal Register].

[FR Doc. 95–5566 Filed 3–7–95; 8:45 am]

BILLING CODE 3110–01–M

DEPARTMENT OF THE INTERIOR

Fish and Wildlife Service

50 CFR Part 17

RIN 1018–AD02

Endangered and Threatened Wildlife

and Plants; Proposed Revisions for

Proposed Designation of Critical

Habitat for the Mexican Spotted Owl

AGENCY: Fish and Wildlife Service,

Interior.

ACTION: Supplemental proposed rule,

proposed revisions to proposed

designation of critical habitat.

SUMMARY: The U.S. Fish and Wildlife

Service (Service) announces proposed

exclusions from its previously

published proposal to designate critical

habitat for the Mexican spotted owl. The

draft economic analysis upon which the

exclusions are partly based has also

been made available.

DATES: The original comment period on

the proposed rule to designate critical

habitat extended from December 7,

1994, to March 7, 1995. The comment

period on the proposal and the

proposed exclusions extends through

May 8, 1995.

ADDRESSES: Requests for copies of the

Service’s Economic Analysis and

comments concerning that document

and the proposal to designate critical

habitat for the Mexican spotted owl or