Locke Liddell & Sapp LLP
Attorneys & Counselors
2200 Ross Avenue (214) 740-8000
Suite 2200 Fax: (214) 740-8800
Dallas, Texas 75201-6776 www.lockeliddell.com
Austin o Dallas o Houston o New Orleans
Direct Number: (214) 740-8623
email: dglendenning@lockeliddell.com
June 3, 2005
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Kronos International, Inc.
Registration Statement on Form S-4 filed March 30, 2005
Annual Report on Form 10-K for the year ended December 31, 2004
File Nos.: 333-123680 and 333-100047
Ladies and Gentlemen:
The following are the responses of Kronos International, Inc. ("Kronos") to
the comments contained in the Staff's comment letter dated April 27, 2005 (the
"Comment Letter") concerning the above-referenced Registration Statement on Form
S-4. Amendment No. 1 to the Form S-4 ("Amendment No. 1") is filed herewith. The
responses are numbered to correspond to the numbers of the Comment Letter.
FORM S-4 FILE 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).
Kronos is relying on the Exxon Capital Holdings Corp. no-action letter. The
requested supplemental letter is being provided concurrently herewith.
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 euro 5,585,000 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.
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The initial notes and the old notes were issued, and all are held, in
global form in book-entry accounts maintained by The Bank of New York at
Euroclear Bank, S.A./N.V., as operator of the Euroclear System
("Euroclear"), or Clearstream Banking Societe Anonyme, Luxembourg
("Clearstream"). We have been informed by The Bank of New York that each of
Euroclear and Clearstream maintains a current listing of the holders of
interests in the initial notes and the holders of the old notes and is
therefore able to distinguish between such holders. We have instructed The
Bank of New York, who in turn will instruct Euroclear and Clearstream, to
accept only tenders of interests in the global old notes and to not accept
tenders of interests in any of the initial notes.
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-l(g)(3).
This will confirm that the offer will be open at least through midnight on
the twentieth business day. Amendment No. 1 has been revised throughout to
reflect that the expiration time will be 12:00 midnight. Please see the
cover page and pages 4, 18, 19 and 22.
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.
This will 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.
An organizational chart has been added to the summary in response to the
Staff's request. Please see page 3.
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.
The requested disclosure has been added to the "Selected Financial and
Other Data" table on page 28.
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7. It appears that some of your information is taken verbatim from the
disclosures in your parent's Form l0-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.
With respect to the information contained in Amendment No. 1 that is taken
verbatim from disclosures in Kronos' parents' 10-K, this will confirm that
no changes need to be made to such information.
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.
The requested disclosure has been added. Please see pages 2, 12 and 61.
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.
The requested disclosure has been added. Please see pages 1 and 48.
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.
The requested disclosure has been added. Please see page 7.
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.
The first-tier subsidiary pledgors are indicated on the organizational
chart on page 3. Cross-references have been added on pages 7, 10 and 61 per
the Staff's request.
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
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effective March 3, 2005 that would permit an equity offering whose proceeds
could be used to conduct the optional redemption.
The requested disclosure has been added. Please see pages 8 and 60.
Change of Control Offer, page 7
13. Please indicate that you may not have enough cash to redeem the notes at a
premium.
The requested disclosure has been added. Please see page 8.
Risk factors, page 8
14. Under distinct risk factor subheadings, please discuss the risks that:
o 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
o 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.
The requested disclosure has been added. Please see page 13.
Servicing our debt requires a significant amount of cash, page 10
15. Please state your current annual debt service payment obligations.
The requested disclosure has been added. Please see page 11.
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.
This will confirm that Kronos is currently in compliance with all of the
terms of its outstanding debt and required ratios.
17. Please briefly expand on the risks associated with your cross-default
provisions.
The requested disclosure has been added. Please see pages 11 and 12.
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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.
The requested disclosure has been added. Please see page 12.
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?
The requested disclosure has been added. Please see page 14.
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.
The reference to the Private Securities Litigation Reform Act has been
removed.
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-l(c). For example, if you are
referring to the right to delay acceptance only due to an extension of the
exchange offer, so state.
The requested revisions have been made. Please see page 18.
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.
The requested disclosure has been added. Please see page 18.
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-l(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.
The requested revision has been made. Please see page 18. Similar
disclosure does not appear in any other section of Amendment No. 1.
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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-l(d).
The reference to oral notice of an extension has been deleted. Please see
page 18.
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.
The requested revision has been made. Please see page 18.
26. Please revise to explain what governmental approvals are necessary in order
to consummate the exchange offer.
The requested revision has been made. Please see page 18.
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.
The requested revision has been made. Please see page 21 and Instruction 10
of the letter of transmittal.
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.
The requested revision has been made. Please see page 21 of Amendment No. 1
and page 3 of the letter of transmittal.
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."
The requested disclosure has been added. Please see page 30.
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Outlook, page 32
30. Please revise to describe your "debottlenecking programs."
The requested disclosure has been added. Please see page 35.
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 know events. With
regard, to past recent price increases, discuss the impact of these
increases on historical results.
The requested disclosure regarding discussion of the price increases that
became effective April 1, 2005 has been added. Please see page 35. We have
also indicated that as a result of these price increases and other prior
price increase announcements, Kronos' average selling prices in 2005 are
expected to be higher than in 2004, and that overall such higher expected
average selling prices are expected to result in income from operations
being higher in 2005 than 2004. We believe these disclosures sufficiently
describe Kronos' expectations as to the future effect of these known events
(i.e., the price increase announcements).
With regard to the effect of past recent price increases in Kronos'
historical results, we have clarified that the higher average selling
prices in the first quarter of 2005 as compared to the first quarter of
2004 was due primarily to the implementation of announcements of prior
price increases. Please see page 35.
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.
The requested disclosure has been added. Please see page 43.
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.
The requested disclosure has been added. Please see page 43.
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.
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Kronos itself does not have any contractual purchase commitments. The
disclosure has been appropriately revised. Please see pages 44 through 45.
Business, page 43
35. Please state the date of your incorporation.
The requested disclosure has been added. Please see page 47.
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.
We have provided a table which shows the quantities of raw materials
procured or mined in 2004 to supply Kronos' sulfate and chloride
operations. We have not listed the general specifications of such raw
materials, as such disclosure (e.g., ilmenite content of the raw material)
is not believed to be meaningful or understandable to a reader. Please see
page 49.
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.
None of Kronos' directors serves as a director or officer of other
companies involved in mineral processing or any other significant
operations of Kronos (e.g., TiO2 operations). Accordingly, no additional
disclosure appears to be needed.
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.
Neither Kronos nor any of its subsidiaries is a party to any material
pending legal proceedings, nor are any of their properties the subject of
such litigation, other than ordinary routine litigation incidental to its
business. The cross-reference on page 52 has been deleted.
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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.
The section entitled "Description of the New Notes" has been revised in
response to the Staff's comment. Please see pages 59 through 77.
Certain Covenants, page 59
40. Please revise to state, if true, that you have described the material
financial and other restrictive covenants.
The requested disclosure has been added. Please see page 62.
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."
This section has been revised in accordance with the Staff's comment.
Please see pages 59 through 77.
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.
The requested revision has been made. Please see page 79.
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.
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The requested revision has been made. Please see the table of contents and
page 81.
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.
The requested revisions have been made. Please see pages 81 through 82.
45. Please delete the word "some" in the first sentence. You are required to
disclose all material tax consequences.
The requested revision has been made. Please see page 81.
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.
The requested revision has been made. Please see page 82.
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.
The word "should" has been changed to "will" in the bullet points
referenced in the Staff's comment. Please see pages 82 and 83.
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.
The requested disclosure has been added. Please see page 91.
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).
The requested revision has been made. Please see pages II-6 and II-7.
Exhibit 5.1 - Legal Opinion
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50. Please obtain a revised legality opinion that includes the file number for
the registration statement.
The legality opinion filed as Exhibit 5.1 to Amendment No. 1 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.
The legal opinion has been revised in response to the Staff's comment.
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.
The legal opinion has been revised in response to the Staff's comment.
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.
The tax opinion filed as Exhibit 8.1 to Amendment No. 1 has been revised in
response to the Staff's comment.
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.
Amendment No. 1 includes an Exhibit 12.1 to show the computation of the
ratio of earnings to combined fixed charges and preferred dividends for all
applicable periods.
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.
A list of subsidiaries of Kronos is filed as Exhibit 21.1 to Amendment No.
1.
As noted by the Staff, Kronos meets the conditions of General Instruction
I(1) to Form 10-K, and therefore Kronos is not required to provide a list
of subsidiaries as an exhibit to its Annual Report on Form 10-K pursuant to
General Instruction I(2)(b) to Form 10-K.
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Kronos will include, as applicable, an Exhibit 12.1 showing the computation
of the ratio of earnings to combined fixed charges and preferred dividends
in its future Annual Reports on Form 10-K filed with the Commission, as
required by Item 601(12) of Regulation S-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.
The requested revision has been made to the letter of transmittal filed as
Exhibit 99.1 to Amendment No. 1.
Signatures
57. Please revise to identify your principal executive officer.
The requested revision has been made to the signature page.
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.
In accordance with the Staff's comment, we have applied the following
comments to Amendment No. 1 on the pages referenced below. In addition, to
the extent applicable, Kronos will incorporate such comments in its
subsequent filings with the Commission, including Annual Reports on Form
10-K and Quarterly Reports on Form 10-Q.
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.
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The four first-tier subsidiaries whose stock has been pledged (namely,
Kronos Titan GmbH, Kronos Denmark APS, Kronos Limited (United Kingdom) and
Societe Industrielle Du Titane, S.A.) are identified on the organization
chart on page 3 and are also identified on page F-17.
Kronos agreed with the Staff's assumption that Kronos Titan GmhB and Kronos
Denmark APS are the only subsidiaries for which consolidated financial
statements are required to be filed under Rule 3-16 of Regulation S-X at
the 20% significance level, and that financial statements are not required
to be filed under Rule 3-16 for either Kronos Limited or Societe
Industrielle Du Titane, S.A. Therefore, no additional financial statements
under Rule 3-16 are required to be included in Kronos' Form 10-K or in
Amendment No. 1.
Kronos' significance tests under Rule 3-16 as of December 31, 2004 are as
follows:
o Kronos Titan - ratio of (i) book value of Kronos' investment in Kronos
Titan ($322 million) to (ii) principal amount of Senior Secured Notes
($510 million, computed as euro 375 million principal amount
outstanding at December 31, 2004, translated at the December 31, 2004
exchange rate of euro 1 = U.S. $1.26) equals 63%;
o Kronos Denmark - ratio of (i) book value of Kronos' investment in
Kronos Denmark ($148 million) to (ii) principal amount of Senior
Secured Notes ($510 million) equals 29%;
o Kronos Limited- ratio of (i) book value of Kronos' investment in
Kronos Limited ($13 million) to (ii) principal amount of Senior
Secured Notes ($510 million) equals 3%; and
o Societe Industrielle Du Titane - ratio of (i) book value of Kronos'
investment in Societe Industrielle Du Titane ($10 million) to (ii)
principal amount of Senior Secured Notes ($510 million) equals 2%.
Note that Kronos has used the book value of its investment in such
subsidiaries for purposes of determining the significance under Rule 3-16.
While Rule 3-16(b) requires the use of the greater of the book value or
market value of the subsidiaries for purposes of determining the 20%
significance level, Kronos believes it is acceptable to use book value for
Kronos Limited and Societe Industrielle Du Titane for purposes of testing
their significance because:
o No quoted market prices exist for its investment in such subsidiaries;
and
o Kronos believes it would be unreasonable to assume that the market
value of such subsidiaries could be so much in excess of their book
value to result in significance at the 20% level, when such
subsidiaries own no significant long-lived assets and only represent
sales and marketing divisions of Kronos.
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The market value of Kronos Titan and Kronos Denmark wouldn't be relevant
because their significance at the 20% level was already established using
book value.
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.
Kronos does not believe providing a small-scale map showing the location
and transportation access to its properties and the location of its loading
terminals within such properties would be meaningful. Kronos has described
the location of its properties (city and country) in "Business -
Properties." Kronos has clarified such disclosure to note that Kronos
believes the transportation access to its facilities, which are generally
maintained by the applicable local governmental unit, are adequate for its
purposes. Please see page 52.
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:
o Site name and location . o Land ownership or lease status - date lease
expires.
o Conditions that must meet in order to obtain or retain title to the
property.
o Proven & Probable reserves, three years annual production (tonnage and
grade).
o A brief description of the rock formations and mineralization of
existing or potential economic significance on the property.
Exploration program development.
o Provide a description of the mining operation, equipment,
transportation access, and other infrastructure or processing
facilities.
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o Provide the age, details as to modernization & physical condition of
the plants and equipment, including subsurface improvements and
equipment, if any.
o Number of years until reserve depletion at current production rates.
o The total cost of the property incurred to date and planned future
costs.
o 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.
Kronos does not believe the disclosures required by Industry Guide 7 are
applicable to its mining operations since, among other things, (i) Kronos
does not own the ilmenite reserves and (ii) such mining operations are not
material to Kronos' consolidated financial statements as evidenced by the
fact that the net book value of the buildings and equipment used in such
mining operations only represents approximately 1% of Kronos' total assets
as of March 31, 2005. Therefore, Kronos does not believe it is involved in
"significant mining operations" as that term is used in Industry Guide 7.
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.
An organization chart has been included on page 3 of Amendment No. 1, which
includes all of Kronos' direct and indirect subsidiaries. A chart including
all subsidiaries of Kronos' affiliates would require several pages of
disclosure and would be confusing and not meaningful to securityholders.
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.
The requested disclosure has been added on pages 28 and 31 of Amendment No.
1 as part of Selected Financial and Other Data and MD&A, in which Kronos
has disclosed its average TiO2 selling price index for each of 2000, 2001,
2002, 2003 and 2004, and the first quarters of 2004 and 2005, using Kronos'
average price in 1990 as a base index of 100. Kronos believes this is a
more meaningful disclosure than disclosing an actual, generalized, weighted
average selling price for TiO2 for each period because the price index
removes the effect of relative changes in foreign exchange rates, and
therefore provides securityholders with an understanding of relative
changes in Kronos' selling prices in the actual various billing currencies.
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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.
The requested disclosure has been added on page 36 of Amendment No. 1, in
which Kronos has disclosed its 1994 production capacity and its 2005
expected production capacity for each of its facilities (segregated between
the sulfate and chloride process).
We have not disclosed the original name plate production capacities for
such facilities. Since some of Kronos' facilities were first constructed in
the 1920s, and some facilities have undergone transformation from sulfate
to chloride process, Kronos does not believe disclosing the original name
plate capacity for such facilities is meaningful. Kronos believes that
disclosing the 1994 production capacity and 2005 expected production
capacity adequately illustrates the effect of its debottlenecking efforts.
Kronos selected its 1994 production capacity as a reference point because
that is the first full year in which its latest facility to be constructed
was fully operational.
We have not disclosed any future production goals beyond 2005, as we have
disclosed that any additional capacity generated from the debottlenecking
efforts in 2006 and beyond is expected to be slight and therefore such
disclosure is not meaningful.
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.
The requested disclosure has been added on page F-19 of Amendment No. 1.
Kronos will include such disclosure in its future filings with the
Commission.
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
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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.
With respect to the business purpose and rationale for the promissory
notes, Kronos hereby advises the Staff that rather than make a distribution
to Kronos' parent company (Kronos Worldwide, Inc.) in the form of cash
dividends, Kronos loaned euro 163.1 million amount to Kronos Worldwide
pursuant to the two promissory notes. Until such time as the principal
amount of the notes are settled, which is expected to be through a capital
transaction in the form of a non-cash dividend, Kronos benefits from the
interest income earned on the promissory notes, which interest income
Kronos expects to receive quarterly and which Kronos will recognized as
interest income as earned. Kronos had stated that settlement of the notes
was not contemplated within the foreseeable future because Kronos expects
that the promissory notes will be settled through a capital transaction in
the form of a non-cash dividend.
Kronos believes presenting the principal amount of the promissory notes as
a contra equity account is appropriate under the guidance of Staff
Accounting Bulletin Topic 4G. Kronos believes using the cost recovery
method to account for the receipt of all payments, including interest,
would only be appropriate if significant uncertainty existed regarding the
ability of Kronos Worldwide to cash settle the notes. Because Kronos
believes Kronos Worldwide has the ability to fully settle both the
principal and interest on the notes, if Kronos Worldwide so chose, Kronos
has no concerns regarding the collectibility of the notes, and therefore
Kronos does not believe it would be appropriate to account for the receipt
of all required payments, including interest, using the cost recovery
method. Because Kronos expects to receive the quarterly interest payments,
Kronos believes it is appropriate to account for such interest as income
when earned, as such interest meets the definition of revenues in paragraph
78 of FASB Concept Statement No. 6.
The requested disclosures and clarifications have been made to Amendment
No. 1. Please see pages 36 and F-19.
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
17
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.
Kronos leases only the land, and not the Leverkusen facility itself, from
Bayer AG pursuant to the lease expiring in 2050. Kronos owns the Leverkusen
facility itself. Rent for the land lease associated with the Leverkusen
facility is periodically established by agreement between Kronos and Bayer
AG for periods of at least two years at a time. The lease agreement for the
land associated with the Leverkusen facility contains no formula, index or
other mechanism to determine changes in rent for such land. Rather, any
change in rent is subject solely to periodic negotiation between Kronos and
Bayer AG.
Kronos accounts for this land lease as an operating lease under the
guidance of paragraph 25 of SFAS No. 13 because land is the sole item of
property leased, and neither of the criteria of paragraph 7(a) or 7(b) of
SFAS No. 13 are met in that the lease does not transfer ownership of the
land to Kronos at the end of the lease term, nor does the lease contain a
bargain purchase option. Accordingly, rent expense associated with this
land lease is expensed as incurred, based on the then-current rental rate.
Any change in the rent based on periodic negotiation between Kronos and
Bayer AG is recognized as part lease expense starting from the time such
change in rent is agreed upon by both parties, as any such change in rent
is considered to be "contingent rentals" under the guidance of paragraph
5(n) of SFAS No 13, as amended, and contingent rentals are included in the
determination of net income as accruable under paragraph 13 of SFAS No. 29.
The guidance in FASB Technical Bulletin No. 85-3 is not applicable to this
land lease.
The requested disclosure and clarifications have been made to Amendment No.
1. Please see page 43 and pages F-30 through F-31.
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.
As noted above in response to Comment No. 67, any change in the rent for
Kronos' land lease associated with the Leverkusen facility is based upon
periodic negotiation between Kronos and Bayer AG, and is recognized as part
of lease expense starting from the time such change in rent is agreed upon
18
by both parties, as any such change in rent is considered to be "contingent
rentals" under the guidance of paragraph 5(n) of SFAS No. 13, as amended.
Contingent rentals are excluded from the definition of minimum lease
payments under the guidance of footnote 4a to paragraph 5(j)(i) of SFAS No.
13. Therefore, the disclosure of future minimum lease payments as of
December 31, 2004 is based on the current annual rental rate, in accordance
with the guidance of paragraph 16(b)(i) of SFAS No. 13.
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.
The financial statements in Amendment No. 1 have been updated to March 31,
2005.
70. Each amendment to the registration statement should include a currently
dated consent of the independent registered accountants.
Currently dated consents of Kronos' independent registered public
accounting firm are filed as Exhibits 23.1, 23.2 and 23.3 to Amendment No.
1.
If you have any questions, please do not hesitate to contact the
undersigned at (214) 740-8623.
Very truly yours,
Don M. Glendenning
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