Question
From: (Redacted)
Sent: Monday, January 23, 2012 3:51 PM
To: Verne, B. Michael
Cc: (Redacted)
Subject: "engaged in manufacturing"
DearMichael,
Thanksfor speaking with us on Friday, January 20. This his email is to confirm ourdiscussion.
Aswe explained, our client is considering purchasing another company("Target"). Whether the transaction is reportable under theHart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the"Act") depends upon whether Target is "engaged inmanufacturing" for purposes of the size-of-person test in Section 7A(a)(2)of the Act. Target sells products that would be classified as a manufacturedproduct under the North American Industry Classification System("NAICS") product codes. Seller does not, however, own or operate anymanufacturing facilities. Rather, it utilizes contract manufacturers to producethe products to the Target's specifications. The contract manufacturers procurethe bulk of inputs for the product on their own, though Target doesoccasionally supply the contract manufacturers with some raw materials(primarily packaging materials, which are also purchased from third parties).Target has previously made filings with the IRS under which it classifies itsbusiness using the NAICS manufacturing code for the products in question.
Weunderstand that you agree with our view that Target is not "engaged inmanufacturing" for purposes of the size-of-person test under the Act. Thisis consistent with interpretation 2 of the Premerger Notification PracticeManual, Fourth Edition, which, you explained, continues to represent the viewsof the FTC Premerger Notification Office ("PNO"). We furtherunderstand from our discussion that the fact that Target has classified itsbusiness using NAICS manufacturing codes in IRS filings would not change thisconclusion. You explained that while the Census Bureau may consider a companyto be engaged in manufacturing if it uses a contract manufacturer, the PNO doesnot.
Wewould greatly appreciate it if you could confirm that this email accuratelysummarizes our discussion, or let us know if you have any comments. Thank youfor your assistance.