[Simpson Thacher & Bartlett LLP letterhead]
VIA EDGAR AND FEDERAL EXPRESS
Lesli Sheppard
Senior Staff Attorney
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington, DC 20549
Ladies and Gentlemen:
On behalf of Rockwood Holdings, Inc. (the "Company"), we hereby submit for your review Amendment No. 2 ("Amendment No. 2") to the above-referenced registration statement (the "Registration Statement") of the Company originally filed with the Securities and Exchange Commission (the "Commission") on February 11, 2005, pursuant to the Securities Act of 1933, as amended. An electronic version of Amendment No. 2 has been concurrently filed with the Commission through the Commission's electronic data gathering, analysis and retrieval ("EDGAR") system. We have enclosed four copies of Amendment No. 2, which have been marked to show changes made to the Registration Statement.
In addition, we are providing the following responses to the comments contained in the comment letter of the staff of the Commission (the "Staff") to the Company, dated June 2, 2005, relating to the Registration Statement. For convenience of reference, the text of the comments in the Staff's letter has been reproduced in bold herein. Please note that all page numbers in our responses are references to the page numbers of Amendment No. 2, unless otherwise noted.
FORM S-1 AMENDMENT NUMBER ONE FILED MAY 13, 2005
Comments applicable to your overall filing
The Company understands the Staff's comments are applicable to Dynamit Nobel as well as Rockwood Holdings. In response to the Staff's comment, the Company has made corresponding changes where appropriate to the Dynamit Nobel disclosure.
In response to the Staff's comment, the Company respectfully informs the Staff of the following:
Three of its subsidiaries, all non-U.S. persons, sold to customers and distributors in Iran: Chemetall GmbH, which is organized under the laws of Germany, Chemetall Italia s.r.l., which is
organized under the laws of Italy, and Chemetall plc, which is organized under the laws of the United Kingdom. These wholly owned subsidiaries are indirectly owned through several foreign and domestic holding companies and were acquired in connection with the acquisition of the Dynamit Nobel businesses in July 2004. The products sold are degreasing and phosphating chemicals used for cleaning, corrosion prevention and paint adhesion, primarily for the automotive industry. These subsidiaries have not sold, and are not now selling, to the Iranian government; however, three of the customers are entities owned by the Iranian government.
These subsidiaries had aggregate sales into Iran in 2004 and 2003 of approximately €0.8 million and €2.9 million, respectively. These subsidiaries also had sales into Iran in years prior to 2003. In 2005, Chemetall GmbH has budgeted sales into Iran of €639,271, while Chemetall Italia s.r.l. has budgeted sales of €160,000. Chemetall plc has no budgeted sales with Iranian companies in 2005, but expects sales of approximately £5,000.
Chemetall GmbH is also party to two license agreements with Iranian entities, one with Goharfam Manufacturing Company and the other with Puyarang Co. Both of these entities are privately-owned. Chemetall GmbH licenses to these entities certain surface treatment technology for metal surfaces. In particular, the products are used as pre-treatment chemicals to facilitate painting and cleaning of metal surfaces. The scope of the license agreements is limited in that they do not provide these entities with the formulas for our end-products. Instead, Chemetall GmbH delivers some formulated components and provides the technology regarding additional components and concentrations the entities must add to make the end product.
The Goharfam license agreement is terminable each year at its anniversary date upon Chemetall's giving notice of such termination three months prior to the anniversary date; if a termination notice is not given, the agreement automatically extends for an additional year. The Puyarang license agreement contains similar termination provisions, except that it is terminable every two years rather than annually. Under the Puyarang license agreement, Puyarang may manufacture and sell products only to the automotive group of S.A.I.P.A. Co. Under the Goharfam license agreement, Goharfam may manufacture and sell products to any customer other than the automotive group of S.A.I.P.A. Co; these customers would also operate in the automotive industry.
In addition, another wholly owned, indirect subsidiary, also a non-U.S. person, has, in the past, sold to customers and distributors in Iran as well: Rockwood Additives Limited, which is organized under the laws of the United Kingdom. The products sold were mainly paint thickeners for decorative paint, although this subsidiary sold drilling mud thickeners in 2002. Sales by Rockwood Additives Limited into Iran in 2004, 2003 and 2002 were approximately £0.4 million each year. None of those sales were made to the government of Iran or any government owned businesses. Rockwood Additives Limited has not made any sales to Iranian companies since September 2004 and does not intend to make any such sales in the future.
In response to the Staff's comment, the Company respectfully informs the Staff that its conclusion that its subsidiaries' sales into Iran do not present sufficient risk of harm to its reputation and share value as to make such sales material to it or cause such sales to pose a material investment risk to its security holders is based on several factors.
2
Most important, it does not believe that its subsidiaries' sales into Iran violate any United States or foreign law. Generally, the Iranian Transaction Regulations prohibit a U.S. person from doing business in Iran or, directly or indirectly, approving, financing, facilitating or guaranteeing any transaction by a foreign person where the transaction would be prohibited if performed by a U.S. person. The Company does not engage in any of such prohibited conduct. There is no involvement, directly or indirectly, in terms of approval, financing, facilitation or guarantee by any U.S. person employed by the company or any of its U.S. affiliates. No goods produced in the United States are sold into Iran, and no raw materials of U.S. origin are used in producing the products sold into Iran. Rather, the Company's non-U.S. subsidiaries make sales into Iran as part of their ordinary course of business—as they have done for many years—without seeking authorization from the Company or any of its U.S. affiliates, and in compliance with applicable foreign law.
The Company's conclusion is further based on the fact that its subsidiaries' highly limited sales volume into Iran represents a de minimis portion of its net sales, that its customers are commercial enterprises and that the applications for which the products are used are non-military.
Prospectus Summary, page 1
In response to the Staff's comment, the Company has revised the "Prospectus Summary—Our Company—Risks Related to Our Business Strategy" section accordingly to add disclosure relating to its history of net losses.
Risks Relating to our Business Strategy, page 3
In response to the Staff's comment, the Company has revised the "Prospectus Summary—Our Company—Risks Related to Our Business Strategy" section accordingly to disclose our leveraged position without giving effect to the offering.
In response to the Staff's comment, the Company added disclosure under "Risk Factors—Risk Factors Relating to Our Business—Control—Affiliates of KKR and DLJMB control us and may have conflicts of interest with us or you." In addition, the Company expanded the disclosure in the "Prospectus Summary—The Offering" and "Use of Proceeds" sections by, among other things, adding the total percentage of net proceeds that will be paid to affiliates. Finally, the Company respectfully notes that extensive disclosure relating to these payments has been made elsewhere in the "Prospectus Summary—The Offering," "Use of Proceeds" and "Related Party Transactions—Agreements with KKR, DLJMB and/or Management" sections of the prospectus.
The Company further respectfully informs the Staff that it believes that its decision to use a portion of the net proceeds to repay such indebtedness and to redeem such dividend-accruing preferred stock will benefit its stockholders by improving its financial position.
3
Acquisitions, page 4
In response to the Staff's comment, the Company has revised the "Prospectus Summary" section accordingly.
Unaudited Pro Forma Condensed Combined Information
The Company respectfully informs the Staff that, in connection with the Dynamit Nobel acquisition, it incurred approximately $3.3 billion in debt, approximately $1.0 billion of which was used to repay outstanding debt. Accordingly, the Company incurred $2.3 billion of additional debt in connection with the acquisition financing. The Company revised the disclosure under "Unaudited Pro Forma Condensed Combined Information" accordingly to clarify this difference.
In response to the Staff's comment, the Company revised the pro forma calculation of interest expense to take into account the average debt balances outstanding during the year at the applicable average currency exchange rates on a pro forma basis. The revised interest expense decreased $10.3 million for the year ended December 31, 2004 from $200.2 million to $189.9 million and the pro forma net loss for the year ended December 31, 2004 decreased by $6.5 million from $160.6 million to $154.1 million. The Company revised the disclosure under "Unaudited Pro Forma Condensed Combined Information" accordingly.
Management's Discussion and Analysis
Results of Operations, page 65
4
between periods in your GAAP financial statement line items. Amounts that are a business reason for the change between periods should be discussed as one of the business reasons for the change in the applicable GAAP financial statement line item between periods. Please make the appropriate revisions. Refer to Question 17 of our FAQ Regarding the Use of Non-GAAP Financial Measures.
In response to the Staff's comment, the Company has revised the disclosure under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" accordingly.
Dynamit Nobel
Year ended December 31, 2003 compared to year ended September 30, 2002, page 81
The Company respectfully informs the Staff that it concluded that the items included in the $14.7 million of Dynamit Nobel's non-recurring operating expenses described as primarily related to "net closure costs/costs of discontinuing businesses/operations" in 2003 did not meet the conditions in accordance with SFAS 144 for presentation as "discontinued operations" because none of the related assets represented a component of an entity, as defined in paragraph 41 of SFAS 144, except a majority interest in one subsidiary that was sold. The operation of such majority interest represented less than 1% of Dynamit Nobel's revenues, net income and/or total assets; as such it was not reported as a "discontinued operation" because it does not significantly affect the comparability of combined financial statements of Dynamit Nobel.
To more appropriately characterize the components of the $14.7 million, the Company has revised the disclosure under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" to state the costs are "primarily related to net closure costs and net costs related to divested assets of $14.7 million." The Company has made similar changes within the rest of that paragraph as well.
Commitments and Contingencies, page 100
In response to the Staff's comment, the Company has revised the disclosure under the "Management's Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—Liquidity—Commitments and Contingencies" section and related notes to the financial statements by deleting the term "long-term" throughout.
In response to the Staff's comment, the Company has revised the "Management's Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital
5
Resources—Liquidity—Commitments and Contingencies—Environmental Matters" section and related notes to the financial statements to clarify this disclosure.
Critical Accounting Policies
Deferred Taxes, page 107
The Company respectfully informs the Staff that the valuation allowance of $120.7 million disclosed under "Risk Factors—Risks Relating to Our Business—Net Loss—We have a history of losses and may experience losses in the future and we cannot be certain that our net operating loss carryforwards will continue to be available to offset our tax liability" on page 19 included the deferred tax assets related to interest on the pay-in-kind loans and notes and senior discount notes as well as the deferred tax assets related to the United States federal net operating loss carryforwards. The valuation allowance recorded during the fourth quarter included $48.2 million related to the deferred tax assets on United States federal net operating loss carryforwards (including acquired net operating loss carryforwards) of $137.8 million, $34.1 million on the remaining net United States deferred tax assets including interest on the pay-in-kind loans and notes and senior discount notes, and $22.0 million related to certain foreign and state net operating losses (including $10.2 million for acquired foreign and state losses). The total valuation allowance as of December 31, 2004 consisted of $86.6 million on the $136.4 million of worldwide net operating loss carryforwards and $34.1 million for the net U.S. deferred tax assets including interest on the pay-in-kind loans and notes and senior discount notes. The disclosure under "Risk Factors—Risks Relating to Our Business—Net Loss—We have a history of losses and may experience losses in the future and we cannot be certain that our net operating loss carryforwards will continue to be available to offset our tax liability" on page 19 and "Critical Accounting Policies and Estimates" on page 120 have been expanded to clarify this point.
Business, page 118
In response to the Staff's comment, the Company has revised the "Business" section to add disclosure relating to the geographic breakdown of net sales and long-lived assets for the last three years under a new subsection entitled "—International Operations."
6
Rockwood Financial Statements
The Company respectfully informs the Staff that it has updated the financial statements and corresponding financial information included in compliance with Rule 3-12 of Regulation S-X.
Note 3. Segment Information, page F-21
In response to the Staff's comment, the Company has added disclosure with respect to the allocation of these amounts to the Company's business segments and the calculation of the identifiable assets to Note 3 to the Company's financial statements for the year ended December 31, 2004. The Company also reclassified the cash amounts within the Company's cash management programs previously reflected as cash and cash equivalents within Identifiable Assets in the operating segments to the Corporate segment to reflect more appropriately the legal ownership status of this cash within the Company's cash management programs in the periods presented.
7
Note 16. Business Restructurings and Asset Sales
2004 Restructuring Actions, page F-47
The Company respectfully informs the Staff that the $31.4 million restructuring charge recorded in purchase accounting as of December 31, 2004 consists of the following (dollars in millions):
| Activity | Severance Costs | Relocation Costs | Facility Closure Costs | Total Restructuring Charges | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Troisdorf (Corporate Offices): Closure | $ | 8.0 | $ | 0.6 | $ | 4.6 | $ | 13.2 | |||||
| Custom Synthesis & Legacy: Closure and Involuntary Termination | 2.9 | 0.5 | 0.4 | 3.8 | |||||||||
| Advanced Ceramics: Closure of New Lebanon, NY facility | 0.6 | 1.9 | 0.2 | 2.7 | |||||||||
| Advanced Ceramics: Closure of Ebersbach, Germany facility (and Related Relocation) | 0.5 | 1.2 | 1.7 | ||||||||||
| Advanced Ceramics: Involuntary Termination | 0.5 | 0.5 | |||||||||||
| Specialty Chemicals: Elimination of Services Business | 6.2 | 0.2 | 6.4 | ||||||||||
| Specialty Chemicals: Oakite: Involuntary Termination | 0.5 | 0.5 | |||||||||||
| Specialty Chemicals: Involuntary Termination | 0.4 | 0.4 | |||||||||||
| Titanium Dioxide Pigments: Involuntary Termination | 1.4 | 1.4 | |||||||||||
| Johnson Matthey | 0.9 | 0.9 | |||||||||||
| Revisions pre year-end financial closing process | (0.5 | ) | 0.4 | (0.1 | ) | ||||||||
| Total purchase accounting restructuring charges in 2004 from the Acquisitions | $ | 21.9 | $ | 2.7 | $ | 6.8 | $ | 31.4 | |||||
| Historical (pre-Rockwood acquisition) Dynamit Nobel restructuring program(1) | 3.6 | 3.6 | |||||||||||
| Total purchase accounting restructuring charges including pre Acquisition amounts | $ | 21.9 | $ | 2.7 | $ | 10.4 | $ | 35.0 | |||||
The Company believes these changes meet the criteria in EITF 95-3 based on the following:
In January 2004, the Company started performing due diligence as part of an auction for the purchase of the specialty chemical businesses of Dynamit Nobel from mg technologies ag. The due diligence was performed through April 19, 2004 when the Company signed a sale and purchase agreement. This transaction was consummated on July 31, 2004 (the "Consummation Date"). In addition, in March 2004, the Company started performing due
8
diligence in connection with its potential acquisition of the Johnson Matthey pigments and dispersions business. This transaction was consummated on September 1, 2004.
As part of the due diligence process related to the acquisitions, senior management (consisting of Seifi Ghasemi, the Company's Chairman and Chief Executive Officer, Bob Zatta, the Company's Senior Vice President and Chief Financial Officer, and Tom Riordan, the Company's Senior Vice President, Law & Administration) and the Company's Board of Directors agreed that the following restructuring actions would be finalized and implemented shortly after the closing of the acquisitions:
Legacy represents the remaining assets and liabilities of the various Dynamit Nobel businesses that were sold prior to the Dynamit Nobel acquisition, including land, buildings and pension obligations, and employed 35 persons. Of the 35, management planned to terminate 20 who appeared to be redundant.
In total, management planned to terminate 34 employees.
In addition, one of the businesses in the Custom Synthesis segment, Rohner, had lost a major customer prior to the Dynamit Nobel acquisition. Dynamit Nobel management had initiated a restructuring plan to reduce costs to offset the significant loss in revenue. Rockwood
9
management identified this facility as potentially requiring additional restructuring efforts in order to return the facility to profitability.
The foregoing planned actions with respect to the Dynamit Nobel acquisition were discussed and approved by the Company's Board of Directors at a meeting of the Board of Directors in August 2004 and the status of these restructuring actions has been reviewed by the Board of Directors at each subsequent meeting.
Pursuant to the plan approved in August 2004, subsequent to the consummation of the Dynamit Nobel acquisition and the Johnson Matthey pigments and dispersions business acquisition, the following actions were taken:
On April 11, 2005, in accordance with management's restructuring plan, Bob Zatta, Tom Riordan and Udo Pinger, the Company's General Counsel—Europe, communicated the additional termination of seven employees from the corporate offices at Troisdorf (consisting of the Dynamit Nobel chief financial officer, the accounting director, the chief information officer and his two staff and the individual running the public relations department and a Treasury staffperson). As planned, subsequent to the initial integration process, these individuals had become redundant. The total estimated costs associated with the severance of these seven corporate employees was $5.0 million.
In total, severance costs associated with the termination of these 44 employees equaled $8.0 million.
10
The Advanced Ceramics management also determined at the time of the Dynamit Nobel acquisition that there was an opportunity to reduce the number of Advanced Ceramics selling, general and administrative personnel. As part of the 2005 budget planning process, such management finalized this plan by identifying 17 individuals for termination at an estimated severance cost of $0.5 million. This plan was reviewed with and approved by Seifi Ghasemi as a part of Advanced Ceramics' budget presentation in Plochingen, Germany in November 2004 and communicated to those terminated shortly thereafter.
11
This plan was initially developed by Dynamit Nobel management and included in the EITF 95-3 plan and approved by Rockwood management. The detail plan was approved by Rockwood management, local management and the workers council and communicated to employees, such communication meeting the requirements of EITF 95-3, in November 2004.
Titanium Dioxide Pigments management completed a reorganization plan of its operating and reporting structure in the Fall of 2004 that was initiated immediately following the Consummation Date. This reorganization plan resulted in the consolidation of two of its business lines with the executive in charge of the eliminated business line and his top sales people becoming redundant. As a result, the Titanium Dioxide Pigments segment eliminated four high level sales personnel, incurring $1.4 million of severance charges. This restructuring plan was:
12
discussions. In total, severance costs associated with the termination of these 37 employees totaled $0.9 million. Between the end of January and March 31, 2005, all of the severed employees left the company.
Management is in the process of evaluating the remaining balance and the estimates as part of the second quarter closing process. Management will update the estimates as necessary during the second and third quarters. In accordance with EITF 95-3, if the ultimate amount of a cost expended is less than the amount recorded as a liability assumed in a purchase business combination, the excess will be recorded against goodwill. If the amount of a cost exceeds the amount recorded as a liability determined within one year of the acquisition date, the amount will be recorded against goodwill. If the amount is determined after one year, the amount will be recorded in net income in the period in which the adjustment is determined.
Note 19. Commitments and Contingencies, page F-48
In response to the Staff's comment, the Company has added disclosure relating to its product liability matters to Note 19 to the Company's financial statements for the year ended December 31, 2004.
ROCKWOOD SPECIALTIES GROUP'S
FORM 10-K/A#1 FOR THE YEAR ENDED DECEMBER 31, 2004
Comments applicable to your overall filing
The Company respectfully informs the Staff that it will address the above comments in the future filings of Rockwood Specialties Group, as applicable.
In response the Staff's comment, the Company has filed an amendment to its Form 10-K containing additional disclosure relating to the Company's controls and procedures.
13
ROCKWOOD SPECIALTIES GROUP'S
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2005
Comment applicable to your overall filing
The Company respectfully informs the Staff that it will address the above comments in the interim filings of Rockwood Specialties Group, as applicable, as well.
Item 4. Controls and Procedures
In response the Staff's comment, the Company has filed an amendment to its Form 10-Q containing additional disclosure relating to the Company's controls and procedures.
Please note that the Company has included certain changes to the Registration Statement other than those in response to the Staff's comments.
Please call me (212-455-2758) or Anette Somosi (212-455-2485) of this firm with any questions you may have regarding this filing or if you wish to discuss the above responses.
| Very truly yours, | ||
/s/ ROXANE F. REARDON | ||
Roxane F. Reardon |
14
