Question
From: (redacted)
Sent: Friday, June 22, 2007 2:06 PM
To: Verne, B. Michael
Cc: (redacted)
Subject: HSR - 802.4 and 802.50 analysis question
HiMike,
I'm working through an exemptionanalysis involving 802.4 (the "look-through") and 802.50 (the foreignassets exemption) and hope that you can provide a bit of clarity on "salesin or into the US" (and the"attribution" language in the examples to 802.50) for purposes of theforeign assets exemption. The transaction I'm being asked to analyze isactually a stock deal, but it doesn't meet the strict terms of 802.51 and, so,we are assessing the availability of the foreign assets exemption by virtue ofthe look-through.
The buyer (my firm's client) is a US issuer and the target is a foreign issuer("S"). The majority of S's assets (manufacturing/processingfacilities) are located outside of the US. S also has a some US assets (same general types of facilities).
Regarding the calculation of salesfrom S's non-US operations "in or into the US," our question relates to how to value intracompanysales. Some of S's sales into the US are made by S to a wholly owned US subsidiary of S ("SUSA"). S accounts for these salesin its regularly kept accounting records at a transfer price (based on S's costof production) paid by SUSA atthe time of the intracompany sale. The majority of the products S sells to SUSA are raw materials that SUSA further processes before resale,and the remainder are goods for which little or no additional processingoccurs. In either case, SUSAtypically holds these products in inventory for some period of time before theyare resold in the US.
There is no express agreementbetween S and SUSA on where title to the productstransfers, but we are assuming for purposes of our analysis that it transfersin the US.
In calculating the value of sales byS to SUSA, it appears to us that the salesshould be valued at the intracompany transfer price paid by SUSA at the time of sale, and that thevaluation should not be dependent on the price at which SUSA later sells the products to itscustomers. Among the reasons for this are: (a) some of the products sold intracompanyare further processed in the US prior to resale; (b) SUSA holds most of theseproducts in inventory, meaning that intracompany sales in one fiscal year donot necessarily result in resales in the same fiscal year; and (c) this is howS records the sales on its books and records.
I would appreciate it if you couldconfirm the above analysis is correct. If you'd like to discuss any of thesepoints, please call either my colleague (redacted) or, if he's not available,me (redacted). Thanks in advance for your help,
(redacted)