1207011 Informal Interpretation

Form Item 5
Michael Verne

  – Refer to
comments below.


From: (Redacted)
Sent: Thursday, July 26, 2012 10:43 AM
To: Walsh, Kathryn; Verne, B. Michael
Subject: Questions Regarding Item 5

DearKate or Mike,

Iwould like to confirm with you the proper method of handling Item 5 revenuereporting for an HSR notification I'm working on for a foreign client (theacquiring person). Here are the relevant facts:

UPE is a foreigncompany, with factories abroad. It has a U.S. sub (controlled entity) thatmanufactures and sells finished product to third parties. The foreign entityalso sells some finished product direct to third-party customers in the U.S.

U.S. sub assemblessome products using components manufactured by the parent abroad and sells thefinished product in the U.S.

U.S. sub alsosells some product completely manufactured by the parent abroad.

U.S. sub alsosells some product purchased from third parties.

U.S. sub alsoderives some revenue from the sale of spare parts for repair. In some cases,these parts are provided under warranty free of cost to the consumer, but inthe majority of the cases, the original product is out of warranty andtherefore the consumer pays for repair parts.

Hereare the rules we would like to confirm:

1.For finishedproducts manufactured by the acquiring person abroad and sold to a controlledsubsidiary in the U.S., which sells the products to third-party customers, weuse the 10-digit manufacturing code, but use the transfer price if necessary.We do not count the revenue derived from the subsequent sale by the U.S. sub.

2.For componentswhich are manufactured by the acquiring person abroad and sold to a controlledsubsidiary in the U.S. (which will use those components for manufacturing intothe finished product, and which will then sell its finished products tothird-party customers), we do not count the revenue from the componentsmanufactured abroad, because this is not finished product.

a.For spare partsmanufactured abroad and sold to the U.S. sub, intended to be sold without anychange to end-users (these are used in repair), this would be considered afinished product and counted as revenue as in #1.

b.For spare partsmanufactured abroad and sold to the U.S.. sub, if the reporting person cannotdistinguish between spare parts meant for onward sale and those meant to beincluded in manufacturing, should we count these as in #1, as it is better tobe slightly over-inclusive than under-inclusive? (These numbers are notlarge.) (YES MV)

c.For spare parts manufactured abroad, intended for onwardsale as repair parts by U.S. sub to consumers, where we cannot distinguishwhether these products are provided under warranty (free of cost to theconsumer) or paid for, should we include the transfer price of thosecomponents? (YES MV)

3.For finishedproducts manufactured abroad and sold direct to third-party customers, we usethe 6-digit wholesale code. (NO use 10 digit - MV)

4.For products whichthe U.S. sub purchases from third parties, we use the 6-digit wholesale code.

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

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