July 1, 2005
Mail Stop 7010
By U.S. Mail and facsimile to (405) 270-3609
Gregory F. Pilcher, Esq.
Senior Vice President, General Counsel and Secretary
New-Co Chemical, Inc.
Kerr-McGee Corporation
123 Robert S. Kerr Avenue
Oklahoma City, Oklahoma 73102
Re: New-Co Chemical, Inc.
Registration Statement on Form S-1
Filed June 6, 2005
File No. 333-125574
Dear Mr. Pilcher:
We have reviewed your filing 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 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 any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. We note that you have omitted the price range and number of
shares
for this offering. To assist you in planning your offering,
please
be advised that we will need to review the registration statement
with this information included prior to effectiveness. We ask
that
you provide this information and any other non-430A information,
including information regarding your capital structure, as soon as
practicable to allow for our review. In addition, note that any
preliminary prospectus that is circulated must include all non-
430A
information, including a bona fide estimated price range.
2. Please provide us with copies of any graphics or photos you
intend
to include in your prospectus. Understand that we will review
these
materials and may have comments on them.
3. Various portions of your prospectus appear written from the
perspective of someone who is already quite familiar with your
company and the separation transaction. For example, without
limitation, you reference "certain subsidiaries," "certain
events,"
"certain products," "certain jurisdictions," and "certain
benefits."
Revise to replace the term "certain" with disclosure that is
meaningful to investors.
4. We may have further comment once items that are currently
blank,
such as portions of summary and selected financial data, and the
capitalization and dilution tables, are completed.
5. Note 1 to your financial statements for the years ended
December
31, 2004, 2003, and 2002 states that Kerr-McGee`s board authorized
management to pursue alternatives for the separation of its
chemical
business, including a "spin-off or sale." Is a sale still being
contemplated by Kerr-McGee? Please tell us about such a sale, as
we
note from your document that Kerr-McGee "intends" to consummate
the
Distribution and has sole discretion to decide if the Distribution
will occur. We may have further comment based on your response.
Table of Contents, page i
6. Please revise your table of contents to contain the page
numbers
of the various sections and subdivisions of your prospectus. See
Regulation S-K, Item 502(a).
Prospectus Summary, page 1
7. Please balance your disclosure concerning your net sales by
disclosing your net loss for 2004.
8. Please provide the basis for your comparative and factual
assertions here and throughout your document regarding the size of
your operations, your market share, your leading positions, and
information related to your industry that appears here and in
Industry Background, beginning on page 53. Please provide us with
independent support for these statements.
9. Please revise your disclosure to identify the measure used to
conclude that you are the third largest producer of titanium
dioxide
products.
Business Strategy, page 3
10. Please revise to explain what you mean by "scorecard
approach."
Our relationship with Kerr-McGee, page 4
11. Please balance your disclosure in the first paragraph by
stating
that you will receive all assets and liabilities on an "as-is,
where-
is" basis and will have no recourse against Kerr-McGree for
defects.
We note your disclosure on page 77 in the first paragraph under
the
subheading "Contribution Agreement."
12. Please explain how you will communicate the Distribution or
Kerr-
McGee`s decision not to effect the Distribution to stockholders of
New-Co Chemical.
13. Please disclose the total value of the transaction. We note
that
you will distribute all of the net proceeds of this offering to
Kerr-
McGee, as well as all as majority of the net proceeds of any
additional financing. What is the aggregate value of what Kerr-
McGee
receives in the separation?
Additional Financing, page 5
14. You state that your expect to obtain additional financing
concurrently with or shortly following the completion of the
offering. Please provide updated and detailed disclosure once
more
information is available and file any corresponding documents.
Dividend Policy, page 7
15. Please revise pages seven and 26 to remove disclosure of your
intended dividend amount or demonstrate your ability to pay the
regular quarterly dividend.
Summary Financial Data, page 9
16. Please ensure that, when completed, your presentations on
pages
nine and 27 include discussion of each adjustment between the
actual
and adjusted columns.
17. The subtotal in your reconciliation of net income to adjusted
EBITDA currently characterized as EBITDA is adjusted for items
other
than interest, taxes, depreciation, and amortization. Please move
these additional adjustments below the EBITDA subtotal.
18. Please also provide each of the disclosures required by Item
10(e) of Regulation S-K for the non-GAAP measure currently
characterized as EBITDA.
19. Please revise your reconciliation of net income to adjusted
EBITDA to separately present interest expense from loss on the
sale
of receivables, and depreciation and amortization from asset
write-
downs.
20. It is unclear whether your presentation of adjusted EBITDA as
a
liquidity measure is appropriate given its adjustment for
environmental remediation and restoration costs, net of
reimbursements. Such costs appear to require cash settlement.
Please tell us why you believe your presentation is consistent
with
Item 10(e)(1)(ii)(A) of Regulation S-K and the response to
Question
10 from the June 13, 2003 Frequently Asked Questions Regarding the
Use of Non-GAAP Financial Measures.
21. Please revise your disclosure to provide a direct
reconciliation
from your non-GAAP liquidity measure, adjusted EBITDA, to cash
provided by operating activities. Your current presentation of a
reconciliation of your non-GAAP measure to net income alongside a
reconciliation of net income to cash provided by operating
activities
is less understandable than a direct reconciliation. This is so
in
part because the two reconciliations you present share several
similarly labeled line items with different amounts for the same
periods. Please refer to Item 10(e)(1)(i)(B) of Regulation S-K.
Risk Factors, page 12
22. Please add a risk factor noting that you have been losing
money
in recent periods.
We will have liabilities that are not typical . . ., page 12
23. Please revise your heading and discussion to specify the risk
you
will face. What liabilities are associated with the "treatment of
forest products, the production of ammonium perchlorate, the
refining
and marketing of petroleum products and the mining, milling and
processing of nuclear materials?" Please keep in mind that
someone
unfamiliar with the titanium dioxide business or these other
businesses should be able to understand these risks.
Costs of environmental liabilities . . ., page 12
24. Please revise the statement in that "[i]t is not possible for
us
to estimate reliably the amount and timing of all future
expenditures
related to environmental matters," as you are responsible for all
information in your prospectus. This language may suggest that
you
do not have full responsibility under the federal securities laws
for
this discussion.
Our business, financial condition and results of operations could
be
adversely affected by the political and economic conditions of the
countries. . . page 14
25. Describe with greater specificity the risks that arise from
your
operations in specific foreign markets. For example, in which
countries or regions are you subject to civil disturbances or
political instability and what measures have you undertaken to
address this? Are there specific countries in which you operate
that
may be more susceptible to changes in political, legal, regulatory
or
economic conditions? Please revise.
Management`s Discussion and Analysis, page 30
Overview, page 30
26. Please revise your presentation to include discussion of net
income wherever adjusted EBITDA is discussed, including the first
paragraph of this section. Please refer to Item 10(e)(1)(i)(A) of
Regulation S-K.
Results of Operations, page 32
27. Please revise your presentation of summarized segment results
on
page 32 to include a reconciliation of the sum of your segments`
performance measures, which you refer to as operating profit
(loss),
to GAAP operating income. Please refer to Question 19 from the
June
13, 2003 Frequently Asked Questions Regarding the Use of Non-GAAP
Financial Measures.
28. Please revise your discussion of period-to-period results to
quantify the incremental impact of each business reasons noted as
contributing to a change between periods. Please also revise your
discussion of segment results to include gross margin. See Item
303(a)(3) of Regulation S-K and Financial Reporting Codification
501.04.
Contractual Obligations and Commitments, page 41
29. We note your disclosure on page 42 that Kerr-McGee Chemical
Worldwide LLC`s guarantee on the 2001 note is expected to be
removed
prior to the offering. Tell us whether the note holders have
released this entity from the guarantee upon separation from Kerr-
McGee or, alternatively, that Kerr-McGee has agreed to indemnify
you
for any loses under the guarantee. If the holders of the notes
have
not released Kerr-McGee Chemical Worldwide from the guarantee,
provide supplemental explanation how the obligation as guarantor
of
the notes has been extinguished, as you might be secondarily
liable
if Kerr-McGee were unable or unwilling to honor the notes. We may
have additional comments upon review of your response.
Income Taxes, page 48
30. We note your disclosure that if Kerr-McGee fails to pay taxes
attributable to it under the tax sharing agreement for periods
prior
to and including its current taxable year, that you could be
liable
for these taxes. If material, please disclose this in your risk
factors.
Critical Accounting Policies, page 46
Benefit Plans, page 48
31. We note your statement here that Kerr-McGee is transferring
unfunded defined benefit obligations to you and that the projected
benefit obligation that you will incur is $147 million. Please
reconcile this disclosure with your statement on page 84 that you
anticipate the plan being "fully funded as of the completion of
the
Distribution."
Patents and Other Intellectual Property, page 66
32. Please disclose when your intellectual property rights with
respect to your material patents expire or terminate.
Legal Proceedings, page 68
33. We note "some" of your lawsuits and claims pending against you
are summarized in this section. Please revise to delete the term
"some," remove the cross-reference to note 21, and disclose all of
the information required by Item 103 of Regulation S-K. We may
have
further comment based on your revised disclosure.
Board of Directors, page 70
34. Disclose the class that each board member will belong to upon
consummation of the offering.
Director Compensation, page 72
35. Please revise to disclose what you mean by "customary
compensation." Use quantification in your revised disclosure, if
available.
Description of Capital Stock, page 86
36. Please revise your disclosure to clarify the voting preference
for Class B shares after the distribution of the shares to Kerr-
McGee`s shareholders.
Shares Eligible For Future Sale, page 95
The Distribution, page 96
37. We note your statement that shares of Class B common stock
distributed to Kerr-McGee common stockholders will generally be
freely transferable. Please revise to clarify how these shares
will
become registered with the Commission.
Certain United States Federal Income and Estate Tax Consequences .
..
.., page 97
38. Revise this subheading as well as the disclosure that follows
and
that appears in the summary to clarify that you are discussing all
"material," rather than "certain" or "certain material" tax
considerations.
Underwriting, page 100
39. Please revise to clarify the condition in the first bullet
point.
Lock-Up Agreements, page 101
40. Confirm that there are no agreements or understandings between
Lehman Brothers Inc. and J.P. Morgan Securities Inc. and any of
the
persons subject to the lock-up agreements to permit those persons
to
resell their shares before the lock-up period`s expiration.
Please
also disclose the criteria that the underwriters will use in
determining whether to consent to releasing the securities subject
to
the lock-up agreement.
Directed Share Program, page 102
41. Please confirm, if true, the following regarding your directed
share program:
* Except for the underwriting commission, the offers and sales are
on
the same terms as those offered to the general public;
* No offers were made prior to the filing of the registration
statement;
* Offers were made only with the prospectus; and
* No funds have been or will be committed or paid prior to
effectiveness of the registration statement.
Also, please state whether or not the shares purchased as part of
the
directed share program will be subject to the lock-up agreement
and
provide us with copies of the materials that you will send to the
directed share program participants.
Electronic Distribution, page 103
42. Please identify any members of the underwriting syndicate that
will engage in any electronic offer, sale, or distribution of the
shares and describe their procedures to us supplementally, or
confirm
that the Division`s Office of Chief Counsel has reviewed and
approved
these procedures. If you become aware of any additional members
of
the underwriting syndicate that may engage in electronic offers,
sales, or distributions after you respond to this comment,
promptly
supplement your response to identify those members and provide us
with a description of their procedures.
43. Tell us whether you or the underwriters have any arrangements
with a third-party to host or access your preliminary prospectus
on
the Internet. If so, identify the party and the website, describe
the material terms of your agreement, and provide us with a copy
of
any written agreement. Please also provide us with copies of all
information concerning your company or prospectus that has
appeared
on their website. Again, if you subsequently enter into any such
arrangements, promptly supplement your response.
Where you can find additional information, page 104
44. Delete the language that statements contained in the
prospectus
about the contents of any contract or other document "are not
necessarily complete" and are "qualified by the provisions in such
exhibit, to which reference is hereby made." Rule 411(a) of
Regulation C under the Securities Act allows qualification of
information inside the prospectus by reference to information
outside
the prospectus only to the extent that the form explicitly permits
it
or where the form requires a summary of the document. If you
retain
the language that statements "are not necessarily complete,"
disclose
that all material provisions of the contract or other document are
discussed in the prospectus. Please make corresponding revisions
elsewhere in your document where you state that descriptions of
agreements are not complete.
Financial Statements
Statement of Operations, page F-3
45. Please provide us with a reconciliation of the provision for
environmental remediation and restoration, net of reimbursements
line
item on the statement of operations to that on the statement of
cash
flows.
Note 1 - The Company, page F-7
46. Please tell us more regarding the recapitalization referred to
in
the second paragraph on page F-7 and tell us why its extent is
currently unknown.
Note 2 - Significant Accounting Policies, page F-8
Basis of Combination, page F-8
47. Please provide us with your significance computations under
Rules
3-09 and 4-08(g) of Regulation S-X for the Tiwest joint venture
and
other 50% or less owned entities for each period presented.
Property, Plant and Equipment, page F-9
48. Please revise your disclosure to segregate machinery and
equipment to enable you to provide narrower ranges of useful lives
than 3 to 25 years.
Retirements and Sales, page F-9
49. Please revise your statement of operations to reflect gains or
losses on the sale of property, plant and equipment before the
unlabeled subtotal depicting operating income. Please refer to
paragraph 45 of SFAS 144.
Employee Stock-Based Compensation, page F-12
50. Please revise your disclosure to include your accounting
policy
for performance units.
Revenue Recognition, page F-12
51. Please disclose the types of expenses that you include in the
cost of goods sold and selling, general and administrative
expenses
line items. Please also disclose whether you include inbound
freight
charges, purchasing and receiving costs, inspection costs,
warehousing costs, internal transfer costs, and the other costs of
your distribution network in the cost of goods sold line item.
With
the exception of warehousing costs, if you currently exclude a
portion of these costs from cost of goods sold, please disclose:
* in a footnote the line items that these excluded costs are
included
in and the amounts included in each line item for each period
presented; and
* in MD&A that your gross margins may not be comparable to those
of
other entities, since some entities include all of the costs
related
to their distribution network in cost of goods sold while others
like
you exclude a portion of them from gross margin, including them in
the selling, general and administrative expense line item.
Note 11 - Goodwill and Other Intangible Assets, page F-20
52. Please disclose the nature of your indefinite-lived intangible
assets and the basis for their classification as indefinite-lived.
Note 18 - Employee Benefit Plans, page F-29
53. Please revise your disclosure to include additional
information
regarding the assets and liabilities to be transferred to you on
the
distribution date. Please provide a description of the basis for
their calculation. Please also provide us with additional
information to help us understand why such amounts, which will be
determined on the distribution date, cannot currently be
determined.
54. Please also provide us with additional explanation to help us
understand why, given that you will assume the U.S. employee
benefit
plan liabilities related to your employees, their exclusion from
your
financial statements is appropriate. Please also address why you
believe the disclosures specified by SFAS 132R are not required
for
the U.S. plans.
Note 21 - Contingencies, page F-37
Environmental, page F-38
55. If true, please revise your disclosure to clarify that a range
of
the possible additional losses related to environmental
contingencies
is not estimable for any of the individual sites discussed or in
total.
Litigation and Claims, page F-46
Forest Products Litigation, page F-47
56. Please revise your disclosure in the first full paragraph on
page
F-48 to clarify whether you believe that the ultimate resolution
of
the forest products litigation will have a material adverse effect
on
your cash flows.
Interim Financial Statements
57. Please address the comments above in your interim financial
statements as appropriate.
Exhibits
58. We note that you plan to file nearly all of your exhibits by
amendment, including all of the agreements related to your
separation
from Kerr-McGee. Please note that we will review these exhibits
when
they are filed and may have comments on them or on related
disclosure
in the prospectus. Please file these exhibits with enough time
for
us to review them before requesting effectiveness.
59. We note these disclosures in which you refer to experts:
* on pages 49 and F-33 you disclose you based your expected long-
term
rate of return for the Netherlands pension plan assets on the
advice
of third-party consultants; and
* on pages F-38 and F-63 you indicate that you consulted with
counsel
in concluding on the adequacy of your reserves for environmental
and
other contingencies.
You must identify these experts or delete your reference to them.
If
you chose to refer to and identify these experts, you must include
these experts` consents in your Form S-1. See Rule 436(b) of
Regulation C under the Securities Act.
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 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 filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment 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 staff comments and the declaration of
effectiveness 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.
You may contact Scott Watkinson, Staff Accountant, at (202)
551-3741 or Rufus Decker, Accounting Branch Chief, at (202) 551-
3769
if you have questions regarding comments on the financial
statements
and related matters. Please contact Matt Franker, Staff Attorney,
at
(202) 551-3749 or Lesli Sheppard, Senior Staff Attorney, at (202)
551-3708 with any other questions. Alternatively, you may contact
me
at (202) 551-3760.
Sincerely,
Pamela A. Long
Assistant Director
cc: David B.H. Martin, Esq. (via facsimile 202/778-5128)
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, DC 20004
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Gregory F. Pilcher
New-Co Chemical, Inc.
June 27, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE