[DOREL LETTERHEAD]
May 31, 2006
BY EDGAR
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Attention: Nili Shah
Accounting Branch Chief
Re: Dorel Industries, Inc.
Form 40-F for the Fiscal Year ended December 30, 2005
File No. 0-29712
Dear Ms. Shah:
We hereby acknowledge receipt of the comment letter dated May 19,
2006 (the "Comment Letter") from the staff of the Securities and Exchange
Commission (the "Commission") concerning the above captioned Annual Report on
Form 40-F for the fiscal year ended December 30, 2005 (the "40-F").
We submit this letter in response to the Comment Letter. For ease
of reference, we have reproduced the text of the comments in bold-face type
below, followed by our responses.
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RESPONSES TO STAFF COMMENTS
Form 40-F for the year ended December 30, 2005
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General
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1. Your geographic segment information contained in note 25 indicates that
the majority of your goodwill and property, plant and equipment is
located in the United States. Based on this fact, it is unclear to us
whether the majority of your remaining assets is also located in the
United States. If so, please tell us how you satisfied the requirements
to be considered a foreign private issuer as defined by Rule 405 of
Regulation C, for the purposes of filing on Form 40-F. We presume that
less than 50% of your outstanding voting securities are directly or
indirectly owned of record by residents of the U.S. Please confirm.
Response: We confirm that less than 50% of Dorel Industries, Inc.'s
(the "Company") outstanding voting securities are directly or
indirectly owned of record by residents of the United States.
Auditors' Report
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2. We note from the KPMG audit report that another auditor performed the
2004 audit of your financial statements. It appears that Goldsmith
Hersh performed the 2004 audit, based on the consent from them dated
April 4, 2006. Please tell us where you have included the 2004 audit
opinion from Goldsmith Hersh in your filing or tell us why you believe
the report is not required.
Furthermore, we note that Goldsmith Hersh is not listed as a registered
firm with the Public Company Accounting Oversight Board (PCAOB) as of
the May 17, 2006 listing. Please tell us whether the firm was
registered during the audit of your 2004 financial statements. If not,
please tell us your basis for not obtaining an audit from a
PCAOB-registered firm in 2004.
Response: We have been advised that, pursuant to applicable Canadian
law, the audit report of Goldsmith Hersh, the Company's auditors in
respect of fiscal 2004, was not required to be filed in Canada with the
Company's audited financial statements in respect of fiscal 2005. The
only Canadian law requirement was to include a reference to such report
in respect of fiscal 2004 in KPMG's audit report in respect of fiscal
2005. The Company's Form 40-F therefore included the audit report
required under Canadian law, as we believe is appropriate pursuant to
the requirements of Form 40-F. The Company included Goldsmith Hersh's
consent in the Form 40-F because of the reference to it in KPMG's audit
report, in accordance with the requirements of Form 40-F.
Goldsmith Hersh was registered with the PCAOB during the period that
they were the auditors of the Company. Subsequent to KPMG replacing
them as auditors of the Company, they elected to de-register as they no
longer have any U.S-listed clients.
Note 22. Income Taxes
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3. We note that you reduced income tax expense in 2005 and 2004 by $6.5
million and $9 million, respectively, relating to the recovery of
income taxes arising from exempt items and the use of unrecorded tax
benefits. Please tell us the amount of the recovery from exempt items
and clarify the nature of these items. For example, please clarify
whether these items represent permanent differences under SFAS 109.
Please provide specific examples of these items and tell us the periods
in which they originally arose, if other than the period in which they
were recognized.
With respect to your unrecorded tax benefits, please address the
following.
o Tell us the circumstances that originally gave rise to your
unrecorded tax benefits and the periods in which they originally
arose.
o Tell us why you have not recognized these benefits in the periods
in which they originally arose.
o Discuss the circumstances that occurred in 2005 and 2004 that
allowed you to use these benefits and recognize the amounts noted
above.
o Provide to us a roll-forward from December 31, 2003 to December
30, 2005.
Response: Please see Appendix B to this letter for the Company's
response
Closing Comments
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In connection with responding to our comments, please provide, in
writing, a statement from the company acknowledging that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
o staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with respect to the filing; and
o the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Response: Attached as Appendix A to this letter is the requested
statement.
*****
We appreciate your assistance in reviewing this response letter.
Please direct all questions or comments regarding this filing to Frank Rana at
1255 Greene Ave, Suite 300, Montreal, Quebec H3Z 2A4.
Sincerely,
/s/ Frank Rana
--------------------------------
Frank Rana
Vice-President, Finance
Attachment
cc: Tracey McKoy, Securities and Exchange Commission
Audit Committee of Dorel Industries Inc.
Jeffrey Schwartz, Executive Vice-President and CFO - Dorel Industries Inc.
Gary O'Connor, KPMG LLP
Michael Yuck, Goldsmith Hersh
Jennifer Mazin, Shearman & Sterling LLP
Appendix A
May 31, 2006
BY EDGAR
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549-7010
Dorel Industries, Inc.
Annual Report on Form 40-F
(File No. 0-29712)
Reference is made to the Annual Report on Form 40-F for the fiscal year
ended December 30, 2005 (the "Annual Report") filed by Dorel Industries, Inc.
(the "Company") with the Securities and Exchange Commission (the "Commission").
The Company acknowledges that the Company is responsible for the adequacy and
accuracy of the disclosure in the Annual Report. The Company further
acknowledges that comments of the staff of the Commission or changes to
disclosure in response to such comments do not foreclose the Commission from
taking any action with respect to the Annual Report. In addition, the Company
further acknowledges that it may not assert the comments of the staff of the
Commission as a defense in any proceeding initiated by the Commission or any
person under the federal securities laws of the United States.
Very truly yours,
Dorel Industries, Inc.
By: /s/ Frank Rana
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Name: Frank Rana
Title: Vice-President, Finance
Appendix B
(Amounts in thousands of U.S. dollars)
The 2005 and 2004 amounts from the "recovery of income taxes arising from exempt
items and the use of unrecorded tax benefits" line in Note 22 consists of the
following:
A) Exempt items and additional tax benefits that represent permanent differences
under SFAS 109:
2005 2004
---- ----
o The Company's multi-national organizational structure
allows for interest deductions in more than one tax
jurisdiction. As a result these deductions have the $2,451 $3,278
effect of lowering the Company's effective tax rate.
In 2004 and 2005 these deductions were
o Amount allocated to "recovery of income taxes arising
from exempt items and the use of unrecorded tax
benefits" instead of "Difference in effective tax rates 4,165 -
of foreign subsidiaries"
--------------------
Sub-total: 6,616 3,278
o An interest free loan within our group of companies
which gives rise to an imputed interest deduction for 828 1,874
tax purposes in a specific tax jurisdiction
o Expenses that are not tax deductible (1,533) -
o Other 550 -
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Total permanent differences: $6,461 $5,152
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Note: These amounts arose in their respective periods and as such could not
have been recognized previously.
Appendix B (continued)
B) Unrecorded tax benefits arising from prior year corrections and new estimates
of the realization of tax benefits :
2005 2004
---- ----
o Corrections of 31/12/2003 taxes of various subsidiaries
upon finalization of tax returns and results of tax
audits (change in estimates). Income taxes are
determined in accordance with the rules established by
local taxation authorities based on estimates. As tax
returns are finalized at a later date, occasionally, - $3,219
different tax strategies are used to those originally
foreseen in order to minimize income taxes. When the
outcome of prior year corrections is a recovery of
taxes, it represents unrecorded tax benefits, thus
included on this line in the tax reconciliation.
o The utilization of brought forward tax losses that a
subsidiary was unable to recognize before 2004 because
it did not meet the recognition criteria (i.e., the
100% valuation allowance was reversed). These unused
tax losses arose in 2000 to 2003. In 2004, this entity
was able to apply unused losses against taxable income
as it became profitable; $628 was realized from such
unrecorded tax benefits. Additionally, with new - 628
favourable evidence (existing backlog, expected future
income, etc.), the tax benefits resulting from the
remaining accumulated tax losses also met the
recognition threshold of "more likely than not to be
realized", thus the 100% valuation allowance was
reversed and a deferred tax asset of $725 was
recognized for the remaining unused tax loss amount.
The $725 appears separately in the 2004 tax
reconciliation.
--------------------
Total unrecorded tax benefits: - 3,847
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TOTAL, AS DISCLOSED: $6,461 $8,999
====================
As mentioned in A) above, due to a clerical error, an amount of $4,165 disclosed
under "recovery of income taxes arising from exempt items and the use of
unrecorded tax benefits" in Note 22 for the fiscal year ended December 30, 2005
should have been classified under "difference in effective tax rates of foreign
subsidiaries". We consider this mis-allocation to be immaterial.
A roll-forward schedule from December 31, 2003 to December 31, 2005 has not been
provided because the Company believes that such a schedule would not elaborate
further on the detail provided above.