October 21, 2005
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Ibolya Ignat, Staff Accountant
Division of Corporation Finance
RE: Chandler (U.S.A.), Inc.
Form 10-K for Fiscal Year Ended December 31, 2004
Filed March 22, 2005
Form 10-Q for Fiscal Quarter Ended March 31, 2005
Filed May 11, 2005
File No. 001-15135
Dear Ms. Ignat:
This letter is to provide additional responses related to my letter to
you dated August 5, 2005 as a result of our telephone conversation on October
4, 2005. Page numbers refer to the redlined draft of the filing.
Form 10-K for the fiscal year ended December 31, 2004
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Comment 1: We have added additional discussion explaining that the changes in
estimates for loss reserves are based on management's best estimate
using the data available at the time the estimate is made. The
added text is included in the first paragraph under RESERVES FOR
LOSSES AND LOSS ADJUSTMENT EXPENSES on page 2.
We have deleted "but such change was in accord with accepted loss
reserving standards" from the proposed new text in the 3rd
paragraph on page 3. Our actuary has advised that the change was
not prescribed under loss reserving standards as such, but was
considered to be within the general statements of principles
applicable to the evaluation and review of loss reserves. We have
also added text in this paragraph to disclose the impact on pre-tax
income of this change in assumptions.
Trends that affect the process of establishing loss reserves are
discussed in the second paragraph on page 3, in the 7th sentence.
In addition, trends and their effect on our loss reserves and loss
development are generally discussed under "Losses and Loss
Adjustment Expenses" starting on page 10. There were no individual
trends that were a significant factor in determining the changes in
loss reserve estimates.
PAGE 2
Comment 2. You asked if we could construct an analysis of a few of the key
factors involved in the process of estimating loss reserves. The
second paragraph on page 3 includes the following text:
"Assumptions used in establishing loss reserves are regularly
reviewed and updated by management as new data becomes available.
Given the number of factors considered, it is not practical nor
meaningful to isolate a particular assumption of the process and
calculate the impact of changing that single item. For every 1%
change in the estimate, the effect on pre-tax income would be
approximately $450,000." We believe that this disclosure is both
accurate and meaningful.
Comment 3: We have removed the references to "accident year loss ratio" from
the 1st paragraph on page 7 and from the two tables that follow
since we believe that these are Non-GAAP performance measures. We
have also removed the reconciliation on page 8 of GAAP losses to
accident year losses.
Comment 4: No changes.
Comment 5: Statement of Financial Accounting Standards No. 28 "Accounting for
Sales with Leasebacks" paragraph 3.b. is applicable to the
sale-leaseback transaction described in our 10-K. In our
situation, the profit on the sale was $2.0 million and the present
value of the minimum lease payments for the operating lease was
$3.4 million including the guaranteed residual value of $2.4
million. In accordance with SFAS 28, no profit could be amortized
to income until the deferred profit exceeded the present value of
the minimum lease payments. Upon our decision to repurchase the
equipment, the guaranteed residual value was removed from the
minimum lease payments and the gain was amortized over the
remaining term of the lease.
Comment 6: No changes.
Comment 7: No changes.
A draft of our Amended Form 10-K is being sent to your attention via
e-mail. If you have any questions or additional comments, please contact me
at (405) 258-4292.
Sincerely,
/s/ Mark C. Hart
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Mark C. Hart
Vice President and
Chief Financial Officer
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