Mail Stop 0510
June 7, 2005
Via U.S. mail and facsimile
Mr. David L. Hatcher
President and Chief Executive Officer, KMG Chemicals, Inc.
10611 Harwin Drive, Suite 402
Houston, TX 77036
RE: Form 10-K for the fiscal year ended July 31, 2004
File No. 0-29278
Dear Mr. Hatcher:
We have reviewed your letter dated May 6, 2005 in
response
to our prior comment letter and have the following comments. If
you
disagree with a comment, 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 10-K FOR THE YEAR ENDED JULY 31, 2004
Note 1. Summary of Significant Accounting Policies
Segment Reporting, page 31
1. We note your response to prior comment 10. We remind you that
paragraph 17 of SFAS 131 also requires that operating segments
have
similar economic characteristics in order to qualify for
aggregation.
Please tell us how you determined you met this criterion. Please
also provide us with the sales, gross profit, and operating profit
amounts, along with any other information you believe would be
useful, for your three operating segments for each of the quarters
in
the three years ended July 31, 2004, as well as the quarters ended
October 31, 2004 and January 31, 2005.
Note 2. Acquisitions, page 32
2. We note your response to prior comment 11. Given that you
recorded goodwill, it appears that you accounted for this
acquisition
using SFAS 141, which only applies when net assets that constitute
a
business are acquired or equity interests of an entity over which
you
obtain control are acquired. It is not clear how you determined
this
acquisition was a business in determining that SFAS 141 was the
applicable accounting literature, but not a business when
determining
whether financial statements were required pursuant to Rule 3-05
of
Regulation S-X. Please advise.
3. We note your response to prior comment 12. For each
acquisition
accounted for as a business combination pursuant to SFAS 141,
including the WPP acquisition, please provide us with a detailed
explanation of how you determined each acquisition qualified as a
business in accordance with EITF 98-3. Please demonstrate how the
acquired assets alone represent a self-sustaining set of
activities
and assets that contain all of the inputs and processes necessary
for
it to continue to conduct normal operations after the transferred
set
is separated from the transferor, which includes the ability to
sustain a revenue stream by providing its outputs to customers.
In
your explanation, please go through each step of the three-step
process outlined in paragraph 6 of EITF 98-3, which should include
a
detailed explanation of each of the elements included in the
assets
acquired as well as each of the elements missing from the assets
acquired.
Note 7. Intangible and Other Assets, page 36
4. We note your response to prior comment 13. Please tell us more
about the product registrations which are not subject to
amortization. Specifically address the following:
* Tell us whether these product registrations expire after a
certain
period. If so, for each of these product registrations, tell us
the
period after which they expire, the term of the renewal periods,
and
the costs of renewal; and
* Help us understand why you were only using a 15 year
amortization
period prior to the adoption of SFAS 142. Tell us the specific
facts
and circumstances that changed upon the adoption of SFAS 142 that
led
you to determine it was appropriate to go from a 15 year estimated
useful life to an indefinite useful life.
* * * *
Please respond to these comments within 10 business
days,
or tell us when you will provide us with a response. Please
provide
us with a supplemental response letter that keys your responses to
our comments and provides any requested supplemental information.
Detailed letters greatly facilitate our review. Please file your
supplemental response on EDGAR as a correspondence file. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
If you have any questions regarding these comments, please
direct them to Marie Trimeloni, Staff Accountant, at (202) 551-
3734,
or Nudrat Salik, Review Accountant, at (202) 551-3692, or in their
absence, to the undersigned at (202) 551-3769.
Sincerely,
Rufus Decker
Accounting Branch Chief
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Mr. David L Hatcher
June 7, 2005
Page 3 of 3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0510
DIVISION OF
CORPORATION FINANCE