April 27, 2005
Mail Stop 0510
By U.S. Mail and facsimile to (214)756-8623
Robert D. Graham
Vice President
Kronos International, Inc.
5430 LBJ Freeway
Dallas, TX 75240-2697
Re: Kronos International, Inc.
Form S-4 filed March 30, 2005
Form 10-K for the year ended December 31, 2004
File Nos. 333-123680 and 333-100047
Dear Mr. Graham:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
FORM S-4 FILED MARCH 30, 2005
General
1. Are you relying on the Exxon Capital Holdings Corp., SEC no-
action
letter (April 13, 1989)? If so, provide us a supplemental letter
with your next amendment that states you are registering the
exchange
offer in reliance upon this no-action letter and include the
representations substantially in the form found in the Morgan
Stanley
& Co., Inc., SEC no-action letter (June 5, 1991) and Shearman &
Sterling, SEC no-action letter (July 2, 1993).
2. We note that according to the post-effective amendment to your
earlier registration statement relating to the exchange offer for
the
initial notes, the holders of E5,585,000 of initial notes did not
tender in that exchange offer, which expired on November 18, 2002.
Please tell us supplementally how you will distinguish holders of
the
old notes from holders of the initial notes if those holders
attempt
to tender in this offer.
3. As currently represented, the offer could be open for less than
20
business days due to the 5:00 p.m. expiration time instead of an
expiration time of midnight on what ultimately may be the
twentieth
business day following commencement. See Question and Answer
Eight
in Exchange Act Release No. 16623 (March 5, 1980). Please confirm
that the offer will be open at least through midnight on the
twentieth business day. See Rule 14d-1(g)(3).
4. Please confirm that the expiration date will be included in the
final prospectus disseminated to security holders and filed
pursuant
to the applicable provisions of Rule 424.
5. Please consider adding to your summary an organizational chart
that shows your company structure.
Prospectus Summary, page 1
6. Please discuss your fixed charge coverage ratio. In this
connection, please note that as disclosure required by Item 503 of
Regulation S-K, your ratio of earnings to fixed charges should
appear
in the forepart of your prospectus, or at least under the caption,
Selected Financial And Other Data, found on page 27. See
introductory language in Item 3 of Form S-4.
7. It appears that some of your information is taken verbatim from
the disclosures in your parent`s Form 10-K for the year ended
December 31, 2004. For example, your parent states that it has
over
4,000 customers. Please confirm that no changes need be made with
respect to any information that repeats from your parent`s Form
10-K.
8. Your summary should inform readers that the majority of the
registrant`s operating cash flows are generated by your
subsidiaries,
and that no subsidiaries guarantee the repayment of the notes. We
note your risk factor on page 11 and your disclosure on page 57.
9. Please disclose your sales in 2004 so that readers may
appreciate
your disclosures concerning sales of TiO2, ilmenite sales, sales
of
iron-based chemical products and sales of titanyl sulfate
products.
Ranking, page 6
10. Please update your disclosures and quantify as of the most
recent
practicable date the amount of debt that is senior, equal and
junior
to these notes. Also quantify the extent to which you may incur
additional senior indebtedness through your revolving credit
facility.
Security, page 6
11. Please name the first-tier subsidiaries here or provide a
cross-
reference to where you name these subsidiaries later in your
document.
Optional Redemption, page 6
12. You indicate that at any time on or before June 30, 2005, you
can
choose to redeem up to 35% of the outstanding notes. Given that
it
is currently within 90 days of June 30, 2005, please disclose and
explain your current plans with regards to this optional
redemption.
We note that Kronos Worldwide has filed a $100 million shelf
registration statement that became effective March 3, 2005 that
would
permit an equity offering whose proceeds could be used to conduct
the
optional redemption.
Change of Control Offer, page 7
13. Please indicate that you may not have enough cash to redeem
the
notes at a premium.
Risk factors, page 8
14. Under distinct risk factor subheadings, please discuss the
risks
that:
* Investors may not be able to determine when a change of
control giving rise to their right have the exchange notes
repurchased by the company has occurred following a sale of
"substantially all" of the company`s assets; and
* The company can enter into transactions like
recapitalizations, reorganizations and other highly leveraged
transactions that do not constitute a change of control but that
could adversely affect the holders of the notes.
Servicing our debt requires a significant amount of cash, page 10
15. Please state your current annual debt service payment
obligations.
Covenant restriction under our subsidiaries` credit facility and
the
indenture may limit our ability to operate our business, page 10
16. Please confirm to us supplementally that you are in compliance
with all of the terms of your outstanding debt and required
ratios.
In the event you are not in compliance, please disclose the terms
you
do not meet and potential consequences.
17. Please briefly expand on the risks associated with your cross-
default provisions.
We may not have the ability to raise the funds necessary. . .
,page
11
18. Please clarify that if you fail to repurchase the notes
tendered
with a change of control, this also would constitute an event of
default under the indenture.
As a global business, we are exposed to local business risks. . .,
page 12
19. You list a variety of risks concerning your international
operations. Describe with greater specificity the risks that
arise
from your operations in specific foreign markets. What are the
company`s material risks?
Disclosure Regarding Forward-Looking Statements, 15
20. Please remove the reference to the Private Securities
Litigation
Reform Act, as it does not apply to statements made in connection
with a tender offer.
Terms of the Exchange Offer, page 17
21. You reserve the right "to delay the acceptance of any old
notes."
Clarify in what circumstances you will delay acceptance and
confirm
that any such delay will be consistent with Rule 14e-1(c). For
example, if you are referring to the right to delay acceptance
only
due to an extension of the exchange offer, so state.
22. We also note your reservation of the right to amend the terms
of
the offer. Please revise to indicate that, in the event of a
material change in the offer, including the waiver of a material
condition, you will extend the offer period necessary so that at
least five business days remain in the offer following notice of
the
material change.
23. We note the disclosure on page 18 indicating that you will
issue
new notes or return any old notes not accepted for exchanges "as
promptly as practicable" after expiration or termination of the
exchange offer. Rule 14e-1(c) requires that you exchange the
notes
or return the old notes "promptly" upon expiration or termination
of
the offer, as applicable. Please revise here and throughout the
document, as necessary.
24. Please advise us as to how oral notice of an extension is
reasonably calculated to reach registered holders of the
outstanding
notes or otherwise satisfies the requirements of Rule 14e-1(d).
Conditions to the Exchange Offer, page 18
25. All offer conditions, except those related to the receipt of
government regulatory approvals necessary to consummate the offer,
must be satisfied or waived at or before the expiration of the
offer,
not merely before acceptance of the outstanding notes for
exchange.
Please revise the language that precedes the bullets accordingly.
26. Please revise to explain what governmental approvals are
necessary in order to consummate the exchange offer.
Procedures for Tendering, page 19
27. Waivers of conditions must apply equally to all noteholders.
Accordingly, please revise your disclosure on page 20 in the
paragraph that carries over onto page 21. This comment also
applies
to your Instruction 10 in your transmittal letter.
28. We note your disclosure in the fourth bullet point of the top
set
of bullets on page 21. This gives the impression that affiliates
of
the company may participate in the exchange offer, but would not
be
able to rely on the Exxon Capital line of letters and therefore
would
have to comply with applicable registration and prospectus
delivery
requirements. There is similar language in the letter of
transmittal. Based on historical no-action positions, it does not
appear that affiliates can participate in the exchange offer.
Please
revise accordingly.
Management`s Discussion and Analysis, page 28
Executive Summary, page 29
29. Please revise to explain why you "currently expect income from
operations will be higher in 2005 compared to 2004."
Outlook, page 32
30. Please revise to describe your "debottlenecking programs."
31. Update the disclosure under the above caption, if applicable,
to
discuss price increases which become effective April 1, 2005 as
disclosed in the Kronos Worldwide Form 8-K for March 15, 2005. In
general, and as applicable, discuss the reasonably expected impact
of
know events. With regard, to past recent price increases, discuss
the
impact of these increases on historical results.
Cash, Cash Equivalents, Restricted Cash and Restricted Marketable
Debt, page 39
32. Please update your disclosure here as to whether you have
received a renewal on your European Credit Facility that expires
June
2005.
33. Please revise to disclose your liquidity on a short term and
long
term basis. We note your disclosure on page 39, but do not see
where
you have given readers any time estimates. Refer to Item 303(a)
of
Regulation S-K, instruction 5.
Contractual Commitments, page 40
34. The table does not appear to reflect contractual purchase
commitments. Please revise or advise, as appropriate. We note that
contractual commitments are mentioned in the paragraphs that
precede
and following the table, but the table does not appear to reflect
the
contractual purchase commitments.
Business, page 43
35. Please state the date of your incorporation.
Manufacturing Process and Raw Materials, page 44
36. The second paragraph on this page discloses that raw materials
were purchased for the various plants. Disclose a table, as
requested for the 2004 10-K filing, listing the quantities of raw
materials procured or mined to supply the Sulfate and Chloride
operations. Segregate these raw materials in the table as slag,
beach sands concentrate, or mined materials (internal and
external)
and list general specifications.
Management, page 48
37. If one or more of the directors serves as a director or
officer
of other similar companies involved in mineral processing and
these
other companies participate in the same or similar properties as
those in which Kronos has an interest, one or more of the
directors
may have a conflict of interest or be a party to communications
that
affect pricing. Disclose how these potential conflicts of
interest
and communication issues are resolved, and provide a risk factor
that
outlines possible conflicts of interests and the possible adverse
consequences.
Legal Matters, page 48
38. Please revise your disclosures here to describe briefly any
material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the registrant or
any
of its subsidiaries is a party or of which any of their property
is
the subject. You may then delete the cross-reference.
Description of the New Notes, page 55
39. Under Rule 421(b) of Regulation C, you must avoid copying
complex
information directly from the underlying indenture without any
clear
and concise explanation of this information. It appears that you
took much of the language here directly from the underlying
indenture. Rewrite this disclosure to comply with Rule 421(b) of
Regulation C. See the sample prospectus Latham & Watkins prepared
for high-yield debt offerings. Latham & Watkins worked on this
sample with the staff for compliance with Rule 421(b). In your
prospectus, comply with Rule 421(b) to the same extent this sample
prospectus does.
Certain Covenants, page 59
40. Please revise to state, if true, that you have described the
material financial and other restrictive covenants.
Certain Definitions, page 74
41. Please review this section and delete terms whose meanings are
generally understood or are obvious from context. A few examples
include "Common Stock," "GAAP" and "Person."
Book-Entry, Delivery and Form, page 90
Global Note, page 90
42. Revise the first sentence under this subheading to delete the
language "solely as a matter of convenience" and to otherwise
remove
the implication that you do not have responsibility for the
information in this section.
Certain Tax Considerations, page 93
43. Please delete the term "certain" in this subheading. You are
required to disclose all material tax consequences. Please make
corresponding changes in your table of contents.
44. We note your use of the terms "summary" and "summarized"
throughout this tax discussion. If you file a short-form tax
opinion, you will need to revise to delete these terms and state
here
that this discussion is Locke Liddell & Sapp`s opinion.
45. Please delete the word "some" in the first sentence. You are
required to disclose all material tax consequences.
46. Please also delete the phrase "of a general nature" in the
first
sentence of the first paragraph on page 94, as it may suggest to
investors that they cannot rely on this disclosure in making their
investment decision.
Exchange of Notes, page 94
47. We note your use of "should" in the first three bullets under
this subheading. Is there doubt concerning these tax
consequences?
If so, please explain why counsel cannot give a "will" opinion,
describe the degree of uncertainty in this discussion and provide
risk factor disclosure setting forth the risks to investors.
Legal Matters, page 102
48. Please state that Locke Liddell & Sapp has passed on the
enforceability of the company`s obligations under the exchange
notes.
Undertakings
49. Please revise your undertakings (a)(1)(ii) and (iii) to mirror
the language in Item 512 of Regulation S-K. You are missing the
word
"offered" in the parenthetical in (ii) and the word "not" in
(iii).
Exhibit 5.1 - Legal Opinion
50. Please obtain a revised legality opinion that includes the
file
number for the registration statement.
51. We note that you are incorporated in Delaware and the
governing
law of your Indenture is New York. Please have counsel revise the
legal opinion so that it does not exclude Delaware or New York law
and deletes the penultimate paragraph.
52. Please have counsel delete from the fourth to last paragraph
the
assumption in (ii)(B) as to the enforceability of the waiver
included
in Section 4.6 of the indenture.
Exhibit 8.1 - Tax Opinion
53. If you wish to use a short form tax opinion, please delete
your
statement "a fair and accurate summary" in the carry-over
paragraph
on page 2. A short-form legal opinion must state that the
discussion
in the prospectus is counsel`s opinion.
Exhibit 12.1
54. Please file exhibit 12 showing the computation. We note that
exhibit 12.1 shows the computation of the ratio of earnings to
combined fixed charges and preferred dividends.
Exhibit 21.1 - Subsidiaries of the Registrant
55. Your Annual Report on Form 10-K for the period ended December
31,
2004 does not contain an Exhibit 12.1 or a list of subsidiaries.
Please revise to file this required exhibit. We note your Form
10-K
cover page disclosure that you meet the conditions of General
Instruction I to Form 10-K.
Exhibit 99.1 - Letter of Transmittal
56. Delete the language in the letter of transmittal requiring the
note holder to acknowledge that it has "reviewed" the Prospectus.
Signatures
57. Please revise to identify your principal executive officer.
FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2004
58. Please apply the following comments to your filing on Form S-
4,
as appropriate.
Financial Statements
59. We note that the notes being registered will be secured by
pledges in favor of 65% of the stock or other interests of certain
of
your first-tier subsidiaries. These subsidiaries are not
specifically identified on pages 6, 9 or page 57. Although it is
our
understanding that the subsidiaries are, Kronos Titan GmbH (TG)
and
Kronos Demark Aps (KDK). Please clarify your disclosure to
specifically identify the first tier subsidiaries whose stock is
pledged as collateral. You have included the financial statements
of
Kronos Titan GMBH and Subsidiary and Kronos Denmark APS and
Subsidiaries as required by Rule 3-16 of Regulation S-X. For each
of
your first tier subsidiaries, please provide us with your
significance tests under Rule 3-16 of Regulation S-X demonstrating
that your first tier subsidiaries are not significant in excess of
the 20% level. If you determine that one or more additional first
tier subsidiaries exceed the 20% level, please amend your Form 10-
K
to include the required separate financial statements for each
entity. See Rule 3-16(a) and (b) of Regulation S-X. Based upon
the
information found in Note 2 of Schedule I, we assume no additional
financial statements are required.
General
60. Insert a small-scale map showing the location and
transportation
access to the property. Illustrate the processing facility
locations
and loading terminals. Note that SEC`s EDGAR program now accepts
digital maps, so please include these in any future amendments
that
are uploaded to EDGAR. It is relatively easy to include automatic
links at the appropriate locations within the document to GIF or
JPEG
files, which will allow the figures and/or diagrams to appear in
the
right location when the document is viewed on the Internet. For
more
information, please consult the EDGAR manual, and if you need
addition assistance, please call Filer Support at 202-942-8900.
Otherwise, provide the map to the staff for review.
Business, page 2
61. The first paragraph on page 5 of the filing discloses that
Kronos
International Inc has sufficient reserves at the Hauge i Dalane
mine
for 20 years production. Industry Guide 7 requires that
disclosure
of information concerning production, reserves, locations and
nature
of the mineral interests. Reserves are defined as that part of a
mineral deposit that can be economically and legally extracted or
produced at a profit at the time of reserve determination.
Industry
Guide 7 can be reviewed on the Internet at
http://www.sec.gov/divisions/corpfin/forms/industry.htm#secguide7.
Disclose the following information in a table in the document for
each mine or quarry:
* Site name and location.
* Land ownership or lease status - date lease expires.
* Conditions that must meet in order to obtain or retain title to
the
property.
* Proven & Probable reserves, three years annual production
(tonnage
and grade).
* A brief description of the rock formations and mineralization of
existing or potential economic significance on the property.
Exploration program development.
* Provide a description of the mining operation, equipment,
transportation access, and other infrastructure or processing
facilities.
* Provide the age, details as to modernization & physical
condition
of the plants and equipment, including subsurface improvements and
equipment, if any.
* Number of years until reserve depletion at current production
rates.
* The total cost of the property incurred to date and planned
future
costs.
* The source of power that can be utilized at the property.
Include only material that can be produced during the life of the
lease for reserves that are leased. Also include only those
materials with environmental permits for extraction.
62. The second paragraph of page 6 refers to Kronos US, Inc.
("KUS")
a wholly-owned subsidiary of Kronos. Provide a diagram of the
ownership structure, within the filing, of Kronos International
Inc.
Include all subsidiaries of Kronos Worldwide Inc., Kronos US Inc.,
Kronos Canada, Inc., Kronos Titan GmbH, Rheox, Unterstutzungskasse
Kronos Titan, BmbH, Kronos Chemie, Kronos World Services, Valhi,
Inc,
NL Industries, and Contran Corporation.
Management`s Discussion and Analysis, page 12
63. The last paragraph on page 14 discussed the selling prices of
TiO2 and how these prices changed over the last three years.
Disclose a generalized, weighted-average by sales, unit price of
the
TiO2 product line and explain in detail the factors that affected
the
price changes.
Outlook, page 18
64. The second paragraph of the section discloses the efforts made
to
de-bottleneck production at the facilities and increase
production.
Disclose in a table, the original name plate production capacities
of
the facilities, indicate the present production levels in both
sulfate and chloride operations, and future production goals or
anticipated increased production levels.
Note 8 - Common stock and notes receivable from affiliates
65. Please disclose the specific terms of the notes receivable
including but not limited to the original maturity date (December
31,
2010), payment terms for principal and interest, events of default
and acceleration.
66. Please explain to the staff and include in the filing, the
substantive business purpose, reason and rationale for the
promissory
note transaction with Kronos Worldwide. Please explain in view of
the
stated maturity date why you believe and assert, "...settlement of
the intercompany notes receivable is not contemplated within the
foreseeable future...". In additional, tell us whether the
company
reasonably expects, at this time, to receive all required interest
and principal payments based upon the terms of the promissory
notes
and how the company intends to account for interest received. If
the
company reasonably expects to receive all required payments and in
view of the stated maturity date of December 31, 2010, please
explain
why the company states that settlement of the notes receivable is
not
contemplated within the foreseeable future. If the company does
not
expect to receive all required payments that point should be made
clearer in both the financial statements and in managements
discussion and analysis. If the company does not expect to
receive
all required payments, use of the cost recovery method for any
payments received, whether principal or interest, would seem to be
appropriate. Notwithstanding, the presentation as a contra equity
account, the carrying amount of the notes receivable should be
evaluated in the same manner as if presented in the balance sheet
as
an asset.
Note 12 - Commitments and contingencies
67. Please clarify whether you lease both the land and the
Leverkusen
facility. It appears that you lease the land under an
approximately
99 year lease expiring in 2050, but may own the facilities located
on
the land. Also, please clarify whether you rent the Leverkusen
facility from Bayer AG. Please disclose the terms of the land
lease
and the payment terms including any escalation clauses. You
indicate
that rent for the Leverkusen facility is periodically established
by
agreement with the lessor for periods of at least two years at a
time. Please explain the terms of this arrangement and state
specifically which lease this arrangement relates to. It is
unclear
whether the lease contains a formula for the determination of the
lease payments beyond initial determination period or whether the
lease payments beyond the initial determination period are purely
a
matter of negotiation between the parties. Please tell us how
you
are accounting for all of the leases mentioned above and provide
supporting accounting literature. Explain to the staff how you
accounting is in accordance with SFAS 13 and other relevant
accounting literature.
68. You indicate that the minimum commitment amounts for the land
lease are based on the current annual rental rate as of December
31,
2004 projected to 2050. Please tell us why you believe it is
appropriate to project the minimum commitment for years beyond
2004
to 2050 on the basis of the current year rental rate when the
subsequently negotiated rate is likely to be greater. We assume
the
current rental rates are in excess of the rates contained in the
original lease dated June 21, 1952. We note that state the
aggregate
minimum lease payments for the currently remaining 46 year term
of
the lease are $25.5 million. Please tell us why this disclosure
does
not consider the remaining payment terms of the original lease
agreement in projecting the future minimum commitment. Please
tell
us why you have not considered future rent increases for this
lease.
Updating
69. Update the financial statements, if necessary, to comply with
Rule 3-12 of Regulation S-X at the effective date of the
registration
statement.
70. Each amendment to the registration statement should include a
currently dated consent of the independent registered accountants.
* * *
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
Please direct questions regarding accounting comments to
Ernest
Greene, Staff Accountant, at (202) 942-8091, or in his absence, to
Nathan Cheney, Assistant Chief Accountant, at (202) 942-1804.
Direct
questions on other disclosure issues to Lesli Sheppard, Senior
Staff
Attorney, at (202) 942-1887 or the undersigned at
(202) 942-1850.
Sincerely,
Pamela A. Long
Assistant Director
cc: Don M. Glendenning, Esq.
Locke Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, TX 75201
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Robert D. Graham
Kronos International
Page 14
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0404
DIVISION OF
CORPORATION FINANCE