SEC Comment Letter for VALHI (VHI) — Oct 17, 2005
VALHI INC /DE/ (VHI) (CIK 0000059255)
Date: Oct. 17, 2005 · CIK: 0000059255 · Accession: 0000000000-05-052902
AI Filing Summary & Sentiment
File numbers found in text: 333-48391
Letter
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 DIVISION OF CORPORATION FINANCE October 11, 2005 Mr. Bobby D. O’Brien, CFO Valhi, Inc. 5430 LBJ Freeway, Suite 1700 Dallas, Texas 75240-2697
Re: Valhi, Inc. File No. 333-48391 12/31/04 Form 10-K; 6/30/05 Form 10-Q
Dear Mr. O’Brien:
We have reviewed your August 12, 2005 re sponse to our July 28, 2005 comment letter. Where indicated, we think you should revise your future filings in response to our comments. If you disagree, we will consider your explanation as to why our comment is inapplicable or a revision is unnecessary. Pl ease be as detailed as necessary in your explanation. Please understand th at the purpose of our review process is to assist you in your compliance with the applicable disclosu re 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.
Form 10-K for the Fiscal Year Ended December 31, 2004 Amalgamated Sugar Company LLC 1. Note 19 to your December 31, 1997 audited fina ncial statements states that “Because the Company receives preferential distribu tions from the LLC and has the right to require the LLC to redeem its interest in the LLC for a fixed and determinable amount beginning at a fixed and determinable date, the Company has classified its investment in the LLC as an available-for-sale marketable security carried at estimated fair value”. This is consistent with the disclosure in your prior and subsequent filings and with the analys is provided in your July 13, 2005 response letter asserting that SFAS 115 is the relevant accounting model for the LLC investment. Your July 13, 2005 letter also st ates that “Because Valhi can redeem its interest in the LLC for a fi xed and determinable amount, Valhi believes it can readily determine the fair value of its investment”. However, in your August 12, 2005 letter, you cite paragraph 21.b of APB 29 as the ba sis for deferring the gain on your asset sale to the LLC. This appears inappropria te because: (1) paragraph 3(e) of APB 29 includes only “equity method” investments in its definition of “productive assets”; and (2) SFAS 115 requires that marketable debt securities be initially recorded at fair value. It appears that the fair valu e of the LLC investment when acquired approximated its $250 million redemption value because: the redemption value was
Mr. Bobby D. O’Brien, CFO October 7, 2005 Page 2
negotiated over several months with an independent thir d party (Snake River); the annual distributions paid by the LLC on this investment share the qualities of an interest-bearing financial instrument; Valh i has substantive creditor rights including the ability to take control of the LLC if the minimum distributi ons are not paid; the transferred business had historically generated positive cash flows evidencing an ability to meet its obligations; a nd $158 million of the $250 million was constructively received within four months of the transaction.
Therefore, it appears that the transaction should have been initially accounted for by recording the LLC investment at a fa ir value approximating $250 million and by recording a $216 million gain for the amount of consideration that exceeded the $34 million carrying value of transferred asse ts. Please revise the accounting in your September 30, 2005 Form 10-Q. See the guidance in paragraphs 36 and 37 of APB 20.
Form 10-Q for the Fiscal Quarter Ended June 30, 2005 2. Please revise Note 13 in future filings to explain how management determined that receipt of the $1.2 million insurance rec overies was probable given that the companies are insolvent. 3. Regarding the 490 asbestos lawsuits against NL, please provide disclosure in future filings informing readers about the range of reasonably possible outcomes. The existing disclosure infers that the probable loss is not reasonably estimable, however paragraph 10 of SFAS 5 contains a disclosu re requirement for the range of reasonably possible losses. Absent a substantive explanati on to the contrary, it would appear that management could meet this disclosure requirement based on known facts i.e. the historical amounts paid for litigation defense and claim settlements, case dismissal rates, types and severities of disease alleged by claimants, the gross number of any open malignancy claims, the solvency of any other companies that are co-defendants, analysis of the jurisdiction and governing law of the states in which claims are pending; outside defense counsel's opinions and recommendations with respect to the merits of the claims, and the extent of any legally enforceable insurance coverage. Please provide a disclosure enabling reader s to assess the reasonably possible impact of this loss contingency.
Please direct questions to Al Pavot at (202) 551-3738 or me at (202) 551-3255.
S i n c e r e l y ,
Nili Shah, Accounting Branch Chief
Show Raw Text
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE
October 11, 2005
Mr. Bobby D. O’Brien, CFO
Valhi, Inc.
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
Re: Valhi, Inc. File No. 333-48391
12/31/04 Form 10-K; 6/30/05 Form 10-Q
Dear Mr. O’Brien:
We have reviewed your August 12, 2005 re sponse to our July 28, 2005 comment
letter. Where indicated, we think you should revise your future filings in response to our
comments. If you disagree, we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Pl ease be as detailed as necessary in your
explanation. Please understand th at the purpose of our review process is to assist you in
your compliance with the applicable disclosu re 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.
Form 10-K for the Fiscal Year Ended December 31, 2004
Amalgamated Sugar Company LLC
1. Note 19 to your December 31, 1997 audited fina ncial statements states that “Because
the Company receives preferential distribu tions from the LLC and has the right to
require the LLC to redeem its interest in the LLC for a fixed and determinable amount beginning at a fixed and determinable date, the Company has classified its
investment in the LLC as an available-for-sale marketable security carried at
estimated fair value”. This is consistent with the disclosure in your prior and
subsequent filings and with the analys is provided in your July 13, 2005 response
letter asserting that SFAS 115 is the relevant accounting model for the LLC
investment. Your July 13, 2005 letter also st ates that “Because Valhi can redeem its
interest in the LLC for a fi xed and determinable amount, Valhi believes it can readily
determine the fair value of its investment”. However, in your August 12, 2005 letter,
you cite paragraph 21.b of APB 29 as the ba sis for deferring the gain on your asset
sale to the LLC. This appears inappropria te because: (1) paragraph 3(e) of APB 29
includes only “equity method” investments in its definition of “productive assets”; and (2) SFAS 115 requires that marketable debt securities be initially recorded at fair
value. It appears that the fair valu e of the LLC investment when acquired
approximated its $250 million redemption value because: the redemption value was
Mr. Bobby D. O’Brien, CFO
October 7, 2005
Page 2
negotiated over several months with an independent thir d party (Snake River); the
annual distributions paid by the LLC on this investment share the qualities of an
interest-bearing financial instrument; Valh i has substantive creditor rights including
the ability to take control of the LLC if the minimum distributi ons are not paid; the
transferred business had historically generated positive cash flows evidencing an
ability to meet its obligations; a nd $158 million of the $250 million was
constructively received within four months of the transaction.
Therefore, it appears that the transaction should have been initially accounted for by recording the LLC investment at a fa ir value approximating $250 million and by
recording a $216 million gain for the amount of consideration that exceeded the $34
million carrying value of transferred asse ts. Please revise the accounting in your
September 30, 2005 Form 10-Q. See the guidance in paragraphs 36 and 37 of APB 20.
Form 10-Q for the Fiscal Quarter Ended June 30, 2005
2. Please revise Note 13 in future filings to explain how management determined that receipt of the $1.2 million insurance rec overies was probable given that the
companies are insolvent.
3. Regarding the 490 asbestos lawsuits against NL, please provide disclosure in future
filings informing readers about the range of reasonably possible outcomes. The
existing disclosure infers that the probable loss is not reasonably estimable, however
paragraph 10 of SFAS 5 contains a disclosu re requirement for the range of reasonably
possible losses. Absent a substantive explanati on to the contrary, it would appear that
management could meet this disclosure requirement based on known facts i.e. the
historical amounts paid for litigation defense and claim settlements, case dismissal
rates, types and severities of disease alleged by claimants, the gross number of any
open malignancy claims, the solvency of any other companies that are co-defendants,
analysis of the jurisdiction and governing law of the states in which claims are
pending; outside defense counsel's opinions and recommendations with respect to the merits of the claims, and the extent of any legally enforceable insurance coverage.
Please provide a disclosure enabling reader s to assess the reasonably possible impact
of this loss contingency.
Please direct questions to Al Pavot at (202) 551-3738 or me at (202) 551-3255.
S i n c e r e l y ,
Nili Shah,
Accounting Branch Chief