NAICS Code Reporting Requirements Under HSR Rules

Overview of Requirement

The “Revenue and Overlaps” section of the revised HSR form requires filers to report their revenues using the 2022 North American Industry Classification System (NAICS). To complete this requirement:

1. Identify the six-digit NAICS code(s) that describe the U.S. operations of the filer; and
2. For each NAICS code selected, identify (i) the name of the filer’s operating business(es) that derive revenue in that code; (ii) estimate whether the filer’s U.S. revenue for that code in the past year represented <$10 million, $10 million to $100 million, $100 million to $1.0 billion, or >$1.0 billion; and (iii) if the other party to the transaction also reports revenue under the same NAICS code (based on coordination between the parties’ antitrust/legal teams).

For these purposes, an “operating business” means “a self-contained business within the filing person that holds itself out as and is recognized by the public and its customers as a distinct enterprise.” Many companies will only have one “operating business.” However, an “operating business” could be, for example, a portfolio company within a larger private equity fund or a discrete division within a larger conglomerate.

Acquiring persons (buyers) should report this information for their entire organization — i.e., for the “ultimate parent” entity and every legal entity controlled by that ultimate parent. The information should be current as of the date of the HSR filing.

Acquired persons (sellers) should report this information solely for the “target,” i.e., the business being sold. This information should reflect the target’s revenues as of the anticipated closing date, rather than the date of the HSR filing.

How This Information Gets Used

The Agencies use the NAICS codes information to determine if the parties are in the same broad lines of business as one another. Therefore, for transactions where both parties report a NAICS code “overlap,” additional information is required about these overlapping operations.

Illustration

Suppose that the filer is a diversified animal-supply company with four distinct divisions: “Fido’s Pet Food,” “Spot’s Pet Stores,” “Dr. Rover’s Veterinary Clinic,” and “Angus’s Livestock Feed.” An illustrative example of that company’s NAICS code report might be:

6-Digit Code	Code Description	Operating Business	Revenue Range				Overlap
			<$10MM	$10MM – $100MM	$100MM – $1B	>$1B
311111	Dog and Cat Food Manufacturing	Fido’s Pet Food			X		☒
311119	Other Animal Food Manufacturing	Fido’s Pet Food; and Angus’s Livestock Feed				X	☐
459910	Pet and Pet Supplies Retailers	Spot’s Pet Stores				X	☐
541940	Veterinary Services	Dr. Rover’s Veterinary Clinic			X		☐
812910	Pet Care (except Veterinary) Services	Spot’s Pet Stores		X			☐

Alternatively, the filer has the option to separate row 311119, to reflect the particular revenue ranges that are attributable to each of the operating businesses that derive revenue under that code. In that case, the NAICS code report might be:

6-Digit Code	Code Description	Operating Business	Revenue Range				Overlap
			<$10MM	$10MM – $100MM	$100MM – $1B	>$1B
311111	Dog and Cat Food Manufacturing	Fido’s Pet Food			X		☒
311119	Other Animal Food Manufacturing	Fido’s Pet Food	X				☐
311119	Other Animal Food Manufacturing	Angus’s Livestock Feed				X
459910	Pet and Pet Supplies Retailers	Spot’s Pet Stores				X	☐
541940	Veterinary Services	Dr. Rover’s Veterinary Clinic			X		☐
812910	Pet Care (except Veterinary) Services	Spot’s Pet Stores		X			☐

Either way, this response will inform the Agencies that the filer has a diversified pet-supply business, and the “Overlap” column will inform the Agencies that the filer overlaps with the other party in the manufacture of dog and/or cat food (but in no other lines of business).

Between the two permissible options, the second option (reporting separate revenue ranges for each operating business) requires a bit more effort for the filer than the first option, but the extra effort may be worth it. Here, for example, the second option makes clear that “Fido’s Pet Food” only has a small amount of revenue (under $10 million) in “Other Animal Food Manufacturing,” whereas the first option suggests that this operating business’s revenue in that line may be much higher (over $1 billion).

How to Find the Right NAICS Code(s)

Developed by the U.S. Office of Management and Budget, the NAICS system consists of a series of six-digit numeric codes that describe various lines of business that exist across the country. A searchable database of NAICS codes is available here: https://www.census.gov/naics/. You can use this database to identify relevant codes by search terms and illustrative examples. For example, there are NAICS codes for manufacturers (e.g., code 336110 “Automobile and Light Duty Motor Vehicle Manufacturing”), wholesalers (e.g., code 423120 “Motor Vehicle Supplies and New Parts Merchant Wholesalers”), retailers (e.g., code 441110, for “New Car Dealers”), and service providers (e.g., code 811111 “General Automotive Repair”).

For some businesses, NAICS codes can be incredibly broad, general codes (e.g., code 513210, for “Software Publishers”). In these cases, one or two NAICS codes might be enough to describe an entire company’s operations. But for other business — such as manufacturing or health care — NAICS codes can sometimes be very specific (e.g., code 335921, for “Fiber Optic Cable Manufacturing,” or code 621340, for “Offices of Physical, Occupational and Speech Therapists, and Audiologists”). In these cases, companies might need to list multiple codes to adequately describe their business.

In our experience, many businesses will be able to describe their operations with between one and five NAICS codes. However, companies like diversified manufacturers, integrated healthcare systems, or private equity firms with diverse portfolios might need ten or twenty (or more) NAICS codes.

Practical Tips

• Be sure to use six-digit NAICS codes, rather than the shorter, two-, three-, four-, or five-digit codes.

• For purposes of the HSR form, only identify NAICS codes that generate revenue from United States operations, whether the products or services are sold to a U.S. customer or a non-U.S. customer. For example, if a business line represented $50 million in revenue from global operations but $0 in revenue from U.S. operations, then the NAICS code for that business line should be omitted from the report. But if a business line represented $50 million in revenue from global operations and $1 million in revenue from U.S. operations, then the NAICS code for that business line should be identified and the revenue for that code should be reported as the “<$10MM” range.

• Because the NAICS code reporting requirement only seeks revenue from United States operations, the Agencies permit (but do not require) filers to omit revenues from the direct sale into the United States of products manufactured outside of the United States. This guidance can be tricky to apply, but there are basically four different scenarios to keep in mind:

• Suppose that the filer manufactures a widget in Mexico and then ships that widget from Mexico directly to an end-customer in Texas. In that case, the revenue from that sale can be omitted from the NAICS code report. (Alternatively, if it is easier for the filer to include that sale in its revenue report, then the filer can do so, but the filer is advised to include a note in the HSR form explaining the approach it took.)

• Now suppose that the filer manufactures a widget in Mexico and then ships that widget to a U.S. retail store, which the filer owns. That retail store then sells the widget to a third-party end-customer. In that case, the revenue from that sale (i.e., the retail sale price) should be reflected as revenue from retailing, not revenue from manufacturing. The HSR logic is that the filer is not engaged in the U.S. manufacture of widgets, but is engaged in the U.S. retailing of widgets.

• Finally, suppose that the filer manufactures a widget in Mexico and then ships that widget to a U.S. distribution facility in Texas, which the filer owns. That distribution facility then sells the widget to a third-party customer on a wholesale basis. In that case, the revenue from that sale (i.e., the wholesale sale price) should be reflected as revenue from wholesaling, not revenue from manufacturing. The HSR logic is that the filer is not engaged in the U.S. manufacture of widgets, but is engaged in the U.S. wholesaling of widgets.

• For filers that have made acquisitions or divestitures since their most recently completed year, adjustments to the revenue ranges must be made. For acquisitions, estimate revenue as if the acquisition had been part of the company for the entirety of the reported year. For divestitures, by contrast, exclude any revenue from the divested business from the revenue estimate.

• Filers may omit NAICS codes that generated less than $1 million in revenue, so long as (i) the code is not a manufacturing code (i.e., the code does not begin with a 31, 32, or 33); and (ii) the other party did not derive U.S. revenue from that same code. In practice, it is often easier to report all codes rather than try to take advantage of this exclusion.

Frequently Asked Questions

Q. What year’s NAICS codes should I use? 2012, 2017, 2022?

A. 2022. The NAICS system is revised every five years, and 2022 is the most recent update.

Q. For purposes of estimating the revenue range, what reporting year should I use?

A. Use the filer’s most recently completed calendar year, if that information is available. But if calendar-year data is not readily available, use the fiscal year that most closely fits the most recent calendar year.

Q. Are we still required to report manufacturing revenues using the separate, North American Product Classification System (NAPCS)?

A. No, the old NAPCS reporting requirement has been eliminated.

If you have an questions about NAICS code reporting requirements under HSR rules, contact the authors or your Foley & Lardner attorney. Click here to access all of the Foley Antitrust & Competition Practice Group’s HSR Primers.