SecProbe.io

CORRESP
1
filename1.htm

Correspondence letter

Cookson

Cookson Group plc

 265 Strand

 London WC2R 1DB

 Tel +44(0)20 7061 6500

 Fax +44(0)20 7061 6600

 Mr
Gary Todd

 Reviewing Accountant

 Division of Corporation Finance

 Securities and Exchange Commission

 450 Fifth Street, NW

 Washington, DC 20549

 United States of America

 10 November 2005

 By Facsimile and EDGAR

 Dear Mr Todd:

Re:

Cookson Group plc

Form 20-F for the year ended December 31, 2004

Filed on June 3, 2005

File 0-21784

 We refer to the comment letter (the
“Comment Letter”) dated July 14, 2005 of the staff (“Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (the “Commission”) on the above referenced Form
20-F, as amended (the “2004 Form 20-F”), of Cookson Group plc (“Cookson” or the “Company”). For your convenience, each comment is repeated below, prior to the response.

 Cost-saving and efficiency improvement initiatives, page
20

1.
With respect to restructuring and exit plans, please expand future filings to present more detailed and quantified disclosure about expected and actual cost savings. Refer to the
guidance under “4. Disclosures” to SAB Topic 5-P.

 Response

 We note the Staff’s comment and its reference to Staff Accounting Bulletin (“SAB”) Topic 5–P. The Company will continue to keep such disclosures under review and at such time as it is required to report on Form
20-F in the future, Cookson’s management (the “Management”) will consider how best to present further information with regard to expected and actual cost savings relating to restructuring and exit plans, and make such
disclosures as it believes are necessary and are consistent with SAB Topic 5-P.

 Liquidity and capital resources, page 27

2.
We note your use of non-GAAP measures of “EBITDA” and “free cash flow.” In future filings, please expand to more fully comply with the disclosure requirements of
Item 10(e)(1)(i) of Regulation S-K. Under that guidance you should disclose, with equal or greater prominence, the most directly comparable GAAP measure and you should provide reconciliation of the differences between those non-GAAP and GAAP
measures. You should also provide substantive

 statements disclosing the reasons why you believe a non-GAAP measure provides useful information to
investors. In that regard, you should expand the existing statements to provide more specific rationale for your use and disclosure of the measures. For additional guidance with respect to free cash flow refer to Question 13 to “Frequently
Asked Questions Regarding the Use of Non-GAAP Financial Measures.” That document is available on our website.

 Response

 We note the Staff’s comment and will revisit the disclosure pertaining to any non-GAAP measures, including “EBITDA” and “free cash
flow”, for any future Form 20-F filing. The Company undertakes to consider more fulsome disclosure surrounding the use of figures that are outside of generally accepted accounting principles (“GAAP”) and shall make such
disclosures as are necessary to follow the Staff’s existing guidance on such matters.

 Turnover, page F-6

3.
We see that you are engaged in numerous and diverse businesses. Accordingly, future filings should present more detailed and specific disclosure about revenue policies. That
disclosure should more specifically address your significant revenue generating activities and the underlying polices and practices for each of those activities. Where relevant, the policy disclosure should address long-term contracts and multiple
element arrangements. Also, as relevant, disclosure should address the nature and extent of customer acceptance provisions, post-shipment obligations, return policies, warranties, credits, discounts, rebates, and price protection or similar
privileges, including disclosure about how these matters are considered in your revenue practices. Show us how you plan to implement this comment.

Response

 The turnover accounting policy, as presented in the Company’s 2004 Form 20-F, was presented under UK GAAP as permitted for companies filing
under Item 17 (“Item 17”) of Form 20-F. As Cookson is transitioning its domestic GAAP to comply with International Financial Reporting Standards (“IFRS”) for the year ending 31 December 2005, the
Company’s revenue accounting policy is being re-examined.

 The Company’s businesses, in spite of being numerous and diverse, are all engaged in relatively straightforward operations, the most significant part of which comprises the purchase of goods and raw materials, the manufacture of
finished products and the sale of those finished products. The Company’s finished products can be regarded as standard products which typically do not need to undergo onerous customer acceptance procedures before acceptance. Therefore, the
determination of the point at which the risk of loss transfers from the Company in relation to the sale of product is not a complex process.

 The Company intends to continue to make any future filings on Form 20-F utilising Item 17 disclosure. Therefore, it is Management’s current
intention, bearing in mind the nature of the Company’s operations as explained above, that the Company’s revenue accounting policy, under IFRS, would be presented in any future filings with the SEC as follows:

 “Revenue represents amounts received and receivable for goods supplied
and services rendered

 to customers after deducting sales allowances and value added taxes. Turnover is recognised when

 the risk of loss transfers to the customer, depending on individual customer terms at the time of

 despatch, delivery or upon formal customer acceptance. Provision is made for returns where appropriate.”

 Having considered the relative materiality of the Company’s various
revenue-generating activities as currently disclosed in the Company’s audited financial statements incorporated into the 2004 Form 20-F (please refer also to the response provided to Comment 4 below), the

Registered in England & Wales number 251977. Registered Office as above.

2

 Company respectfully submits that Management does not consider that separate disclosure is relevant with
regard to the Company’s accounting policy for long-term contracts, multiple element arrangements, customer acceptance provisions, post-shipment obligations, warranties, rebates and price protection or similar privileges. However, should the
Company record a material amount of turnover in future accounting periods which gives rise to such accounting policy issues, then the Company will provide full and appropriate accounting policy disclosure.

4.
With respect to US GAAP, provide us a written analysis of your revenue practices and show us that your practices are appropriate under SAB 104.

 Response

 Under SAB 104, the Company understands that there are four criteria that
must be met in order to recognise revenue: (i) persuasive evidence of an arrangement existing; (ii) delivery having occurred or services having been rendered; (iii) the seller’s price to the buyer being fixed or determinable; and
(iv) collectability being reasonably assured.

 The
significant majority of the Company’s revenues arise on the sale of goods supplied and services rendered, where the risk of loss transfers either on shipment of the goods or on delivery of the goods or service. Other revenue-generating
activities are not material. These include long-term contract, arrangements which the Company accounts for in line with SOP 81-1 and sales of equipment which are recognised either on delivery to the customer or upon customer acceptance, if this is
not received at the time of delivery.

 The significant
majority of all sales are subject to a written contract with a customer or a purchase order.

 Revenue is only recognised when the risk of loss transfers to the purchaser, whether on despatch, delivery, or as required under a customer’s acceptance terms. In addition, revenue relating to services provided
is only recognised in a period once those services have been rendered. Revenue recorded is consistent with the invoice price which recognises appropriate deductions.

 Sales are made only to customers where the Company has an established relationship or to new customers where the Company has
carried out appropriate verification of creditworthiness.

 Based on the discussion above and the accounting policy described in response to Comment 3 above, the Company respectfully submits to the Staff that it believes that the existing disclosure provided in the 2004 Form 20-F and the
Company’s practices meet the requirements of SAB 104.

 Note 25. Commitments for capital expenditure, contingencies and guarantees, page F-28

5.
We note that you have given guarantees to precious metals consignors for all of the value of precious metals held on consignment terms at December 31, 2004, amounting to
£185.7 million. With respect to the consignment arrangements and for US GAAP purposes, tell us why you believe the underlying metals (and accompanying payable) should not be included on your balance sheet. Please support your conclusion
in GAAP. Also describe your consideration of paragraph 9 to FIN 45. The response should also address the affect of the guarantee on the accounting. That is, tell us how the guarantee impacts your conclusion that the rights and risks of ownership
remain with the consignor.

 Response

 With respect to the impact of the Company’s
precious metals consignment arrangements for US GAAP purposes, as significantly all the risks and rewards of ownership of the metal remain with the consignors, Management has concluded that it would not be appropriate for the Company to

Registered in England & Wales number 251977. Registered Office as above.

3

 include the metal (and any associated payable) on balance sheet until such time as metal is purchased
from the consignor, with the consequential transfer of risks and rewards of ownership. Where metal is sourced from consignors to meet customer sales transactions, title to the metal and the associated risks and rewards of ownership either
(i) pass directly from the consignor to the customer (in those instances where a customer requests the Company to source metal from a consignor for the customer’s own account) or (ii) are transferred to the Company and then
concurrently transferred to the customer, usually on the same day. Where title and the risks and rewards of ownership of the metal are transferred to the customer more than one day after it transfers to the Company from the consignors, the metal is
recorded on the Company’s balance sheet (and any associated payable). In reaching its conclusion, Management has referred to Staff Accounting Bulletin (“SAB”) 104 – Revenue Recognition.

 With regard to the contractual agreements which exist between the Company
and the consignors, the following matters are relevant in determining that the Company treats this inventory as consignment inventory:

•

Contractually, the Company has no legal title to the consignment inventory. Title is retained by the consignor;

•

The Company does not have an obligation to pay for the consignment inventory at the time of physical receipt, or on any pre-specified schedule;

•

The consignment arrangements are based on weight of metal and not value. Consequently, at 31 December 2004, the Company’s custodial guarantee was based on re-delivering a
given specified weight of metal to the consignors;

•

Price, or market, risk is a key risk in relation to commercial transactions involving precious metal. Importantly, under the terms of the Company’s consignment contracts, the
consignor retains 100% of the price risk throughout the period of time that the Company has custody of the metal; and

•

The Company can return the consigned metal inventory at any point in time in weight of metal either at its own option or at the request of the consignors without financial penalty.
This is physically and commercially practicable given the fungible nature of precious metals and the very low marginal cost of returning finished metal product to its original state, i.e. the Company’s manufacturing processes do not convert
metal into complex new products but instead roll, press, re-alloy and form metal into new shapes and basic components for the jewellery market which if necessary, can be re-processed easily.

 With respect to FIN 45, Management considers the guarantee issued by the
Company (disclosed in note 25, page F-28) to be a guarantee of the consolidated entity’s own performance with respect to its custodial function. Management does not believe that such guarantees of the Company’s own performance are subject
to the recognition and measurement provisions in paragraph 9 of FIN 45, as referred to in paragraph A23 of FIN 45.

 As regards the impact of the Company’s guarantee on the accounting referred to above, as a contingent obligation for the custodial risk of the
consigned metal inventory, the Company has disclosed the maximum amount of the loss that was possible at 31 December 2004, based on the weight of consigned metal inventory and the spot price of metal at that date. As the loss recognition
criteria of paragraph 8 of FAS 5 Accounting for Contingencies have not been met, Management believe that no related provision is required.

6.
Also with respect to US GAAP, clarify whether you recognize revenue on a gross or net basis for metal that is purchased from consignors and sold concurrently to customers.
Describe how you apply the requirements of EITF 99-19.

Registered in England & Wales number 251977. Registered Office as above.

4

 Response

 Where metal is purchased from consignors and sold concurrently to customers, the Company recognises revenue on a gross
basis.

 Under Emerging Issues Task Force
(“EITF”) 99-19, the Company understands that there are four criteria which should be considered in assessing whether a company should report revenue gross or net. These relate to whether the Company: (i) acts as principal in
the transaction; (ii) takes title to the products; (iii) has risks and rewards of ownership; or (iv) acts as agent or broker with compensation on a commission or fee basis.

 In the Company’s precious metals operations, irrespective of whether
metal is consigned, owned by the Company or owned by a customer, the Company acts as principal in transactions with customers, resulting from the fact that the Company controls the manufacturing output and the provision of the product, including the
acceptability and fulfilment of the customer order.

 For metal
that is purchased from consignors and sold concurrently to customers, the Company does take title to the metal and bears the risks and rewards of ownership of the metal for the short period of time between the transfer of title to the metal from the
consignor to the Company. In the majority of transactions, title to the metal and the associated risks and rewards of ownership of that metal are transferred to the customer on the same day that they pass to the Company. Where title and the risks
and rewards of ownership of the metal are transferred to the customer more than one day after it transfers to the Company from the consignors, the metal is recorded on the Company’s balance sheet (and any associated payable).

 When metal is purchased from consignors and sold concurrently to customers,
the Company assumes the credit risk for the combined value of metal and added-value, i.e. the Company will record a receivable for the gross value.

 The Company submits to the Staff that it does not consider that it acts as either an agent or a broker for consigned metal and, as a result, it does not
consider this criterion applicable to it.

 On the basis of the
above, the Company respectfully believes, particularly as regards consideration of the transfer of the title, risks and rewards of ownership of the metal, that it appropriately applies the requirements of EITF 99-19 in its exi