SEC Company Response from AVECIA GROUP PLC (CIK 0001102027) — Aug 4, 2005
AVECIA GROUP PLC (CIK 0001102027)
Date: Aug. 4, 2005 · CIK: 0001102027 · Accession: 0000947871-05-001455
AI Filing Summary & Sentiment
File numbers found in text: 333-11268
Referenced dates: July 5, 2005
Letter
[Avecia logo] Avecia Group plc PO Box 42 Hexagon House Blackley Manchester M9 8ZS Tel : +44 (0)161 740 1460 Fax : +44 (0)161 795 6005 www.avecia.com Mr Rufus Decker Accounting Branch Chief Division of Corporation Finance Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0303 <TABLE> <CAPTION> <S> <C> <C> <C> <C> Our Ref: Direct Line: Direct Fax: E-mail: Date: 0161 721 2396 0161 721 5220 derrick.nicholson@avecia.com 3 August 2005 </TABLE>
Dear Mr Decker
Avecia Group plc Form 20-F for the fiscal year ended December 31, 2004 (File No. 333-11268) --------------------------------------------------------------------------
We refer to the Staff's comment letter dated July 5, 2005, relating to the Form 20-F for the fiscal year ended December 31, 2004 (the "Form 20-F") of Avecia Group plc ("Avecia"). Set forth below in detail are the responses to the Staff's comments, which have been provided in each case following the text of the comment in the Staff's letter of July 5, 2005.
All references to page numbers in this letter refer to the page numbers of the Form 20-F as filed with the Commission on May 18, 2005.
Form 20-F for the fiscal year ended December 31, 2004 -----------------------------------------------------
General -------
1. Where a comment below requests additional disclosures or other revisions, please show us in your response what the revisions will look like. These revisions may be included in your future filings. Some of our comments refer to US GAAP literature. If your accounting under IFRS differs from your accounting under US GAAP, please also show us the additional disclosures that will be included in your US GAAP reconciliation note.
Response Avecia appreciates the Staff's comment and will include the revisions set forth in this letter in future filings.
Item 5 - Operating and Financial Review and Prospects, page 24 --------------------------------------------------------------
Financial Results, page 25 --------------------------
2. You discuss the business reasons for changes between periods in your financial statement line items. However, where there is more than one business reason identified as contributing to a change, you should quantify the incremental impact of each individual business reason discussed if practicable. Please also discuss business reasons for
Avecia Group plc. Registered in England No 3768265. Registered Office: PO Box 42, Hexagon House, Blackley, Manchester M9 8ZS.
<PAGE>
2 3 August 2005
changes in your other financial statement line items such as operating costs, exceptional operating costs, and other operating income.
Response For future filings, Avecia will amend its disclosure in the manner set forth in Annex A to this letter (additional disclosure underlined).
Aggregate Contractual Arrangements, page 35 -------------------------------------------
3. Please revise your table of contractual cash obligations to include estimated interest payments on your debt, planned funding of pension benefit obligations and estimated payments under your interest rate swaps and caps and foreign currency contracts. Because the table is aimed at increasing transparency of cash flow, we believe these payments should be included in the table. Please also disclose any assumptions you made to derive these amounts. Please refer to note 46 of SEC Release 33-8350.
Response For future filings, Avecia will amend its table of contractual cash obligations in the manner set forth in Annex B to this letter (additional disclosure underlined).
Item 9 - The Offer and Listing, page 40 ---------------------------------------
4. Please disclose the annual high and low market prices for the five most recent full financial years pursuant to Item 9A 4(a) of Form 20-F.
Response
For future filings, Avecia will amend its disclosure in the manner set forth in Annex C to this letter (additional disclosure underlined).
Item 15 - Controls and Procedures, page 54 ------------------------------------------
5. You indicate that your Chief Executive Officer and Chief Financial Officer concluded that your disclosure controls and procedures were effective in timely identifying material information potentially required to be included in your SEC filings. Please revise your disclosure to state your conclusion while providing the complete definition of disclosure controls and procedures, or alternatively, state that your disclosure controls and procedures are effective, or not effective, without providing any part of the definition of disclosure controls and procedures that is included in Exchange Act Rule 13a-15(e).
Response For future filings, Avecia will amend its disclosure in the manner set forth in Annex D to this letter (additional disclosure underlined).
Financial Statements --------------------
Note 2 - Accounting Policies, page 65 -------------------------------------
Investments, page 65 --------------------
<PAGE>
3 3 August 2005
6. Please provide us with the significance tests required by Rule 3-09 of Regulation S-X for Image Polymers Europe and Image Polymers Company, individually and in combination with other 50% or less owned entities, for each period presented.
Response Please find the relevant significance test below.
Test 1 - % of investment to total assets
<TABLE> <CAPTION> 2004 % of Total 2003 % of Total 2002 % of Total GBPM Assets GBPM Assets GBPM Assets <S> <C> <C> <C> Value of Investments Image Polymers Europe 5.133 0.8% 5.783 0.7% 5.984 0.6% Image Polymers Company 2.810 0.4% 15.764 1.9% 15.748 1.6% --------------------------------------------------------------------------- Combined 7.943 1.2% 21.547 2.6% 21.732 2.1% ===========================================================================
Total assets per US GAAP 666.70 838.30 1,016.00 </TABLE>
Test 2 - Proportionate share of total assets --------------------------------------------
Not required
Test 3 - Equity in income from continuing operations ----------------------------------------------------
<TABLE> <CAPTION> 2004 % of Income 2003 % of Income 2002 % of Income GBPM GBPM GBPM <S> <C> <C> <C> <C> <C> <C> Income Image Polymers Europe 0.427 1.0% 0.996 -0.7% 0.867 -1.5% Image Polymers Company 0.687 1.6% 1.681 -1.1% 2.367 -4.1% --------------------------------------------------------------------------- Combined 1.114 2.6% 2.677 -1.8% 3.234 -5.7% ===========================================================================
Income from continuing operations 42.40 -147.700 -54.000 Adjusted income from continuing operations -150.377 -57.234 </TABLE>
Note - Figures in bold are ones used for test
Note 4 - Group Operating profit, page 78 ----------------------------------------
7. Although your restructuring costs are unallocated, these restructuring activities relate to specific segments. SFAS 146 requires that you disclose, for each reportable segment, the total amount of costs expected to be incurred in connection with the activity, the amount incurred in the period, and the cumulative amount incurred to date, net of any adjustments to the liability. Please provide the required disclosures in a tabular format supplemented with explanation for any adjustments to related liabilities. Please refer to paragraph 20(d) of SFAS 146.
<PAGE>
4 3 August 2005
Response For future filings, Avecia will amend its disclosure in the manner set forth in Annex E to this letter (additional disclosure underlined).
Note 24 - Contingent Liabilities and Contingent Assets, page 114 ----------------------------------------------------------------
Environmental, page 114 -----------------------
8. You indicate that the ultimate requirement for remediation work and its costs are difficult to estimate. Please disclose the impact of SFAS 143 and any significant differences between UK GAAP and US GAAP.
Response For future filings, Avecia will amend its disclosure in the manner set forth in Annex F to this letter (additional disclosure underlined).
9. You state that you believe the outcome of environmental matters will not have a material effect on your financial position. Please revise your disclosure to clarify whether you believe outstanding environmental matters will have a material effect on cash flows or results of operations. Please also similarly revise your discussion of litigation and other claims.
Response For future filings, Avecia will amend its disclosure in the manner set forth in Annex F to this letter (additional disclosure underlined).
10. If true, please confirm that additional losses related to environmental matters, in total and for each site individually, are not reasonably possible. If not, please revise your discussion to include each of the disclosures required by paragraph 10 of SFAS 5 and question 2 in SAB Topic 5:Y.
Response
For future filings, Avecia will amend its disclosure in the manner set forth in Annex F to this letter (additional disclosure underlined).
Note 26 - Pension Scheme, page 117 ----------------------------------
11. Please provide the disclosures required by paragraph 5 of SFAS 132(R), including a description of your investment strategy and target allocations for each scheme and benefits expected to be paid in the next five fiscal years and in the aggregate for the five years thereafter. Please refer to paragraph 5 subparts (d)2 and (e)-(f) of SFAS 132(R).
Response For future filings, Avecia will amend its disclosure in the manner set forth in Annex G to this letter (additional disclosure underlined).
<PAGE>
5 3 August 2005
Note 33 - Difference Between UK and US Accounting Principles, page 131 ----------------------------------------------------------------------
Purchase Accounting Adjustments (Goodwill and Intangibles), page 132 --------------------------------------------------------------------
12. Note 3 does not allocate goodwill to reportable segments. Please disclose US GAAP goodwill in total and for each reportable segment and disclose any significant changes in the allocation of goodwill by reportable segment. If any portion of goodwill has not yet been allocated to a reporting unit, please disclose the unallocated amount and the reasons that amount has not been allocated. See paragraph 45 of SFAS 142.
Response For future filings, Avecia will amend its disclosure in the manner set forth in Annex H to this letter. There is no amount of goodwill that remains unallocated and there have been no significant changes in the allocation of goodwill by reportable segment in the periods shown.
13. Please provide us with additional information to help us understand your conclusion that goodwill related to the biotechnology and chemicals segments is not impaired in light of their recent operating losses.
Response The estimated fair values of our reporting units are measured by reference to the discounted future net cash flows expected to be generated by them. For our Biotechnology segment the discounted future cash flows expected from this segment exceeded the net carrying value of assets, including goodwill. This reflects our current expectations that this segment will generate positive cash flows in the future, compared to their recent operating losses. There is currently no goodwill relating to the Chemicals segment, due to the fact that previous impairment tests have resulted in a write-off of the original goodwill balance.
Note 34 - Condensed Financial Statements, page 139 --------------------------------------------------
14. If true, please confirm to us and revise your disclosures to clarify that your guarantor subsidiaries are 100% owned as defined by Rule 3-10(h)(1) of Regulation S-X. Please note that this definition is different than the term wholly-owned, as defined by Rule 1-02(aa) of Regulation S-X.
Response We can confirm that our guarantor subsidiary is 100% owned as defined under Rule 3-10 (h)(l) of Regulation S-X. For future filings, Avecia will amend its disclosure in the manner set forth in Annex I to this letter (additional disclosure underlined).
* * * * *
<PAGE>
6 3 August 2005
Should the Staff have any questions or require any additional information, please do not hesitate to contact me.
Very truly yours,
Derrick A. Nicholson
Chief Financial Officer
Show Raw Text
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<TEXT>
[Avecia logo]
Avecia Group plc
PO Box 42 Hexagon House
Blackley Manchester M9 8ZS
Tel : +44 (0)161 740 1460
Fax : +44 (0)161 795 6005
www.avecia.com
Mr Rufus Decker
Accounting Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0303
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Our Ref: Direct Line: Direct Fax: E-mail: Date:
0161 721 2396 0161 721 5220 derrick.nicholson@avecia.com 3 August 2005
</TABLE>
Dear Mr Decker
Avecia Group plc
Form 20-F for the fiscal year ended December 31, 2004 (File No. 333-11268)
--------------------------------------------------------------------------
We refer to the Staff's comment letter dated July 5, 2005, relating to
the Form 20-F for the fiscal year ended December 31, 2004 (the "Form 20-F") of
Avecia Group plc ("Avecia"). Set forth below in detail are the responses to the
Staff's comments, which have been provided in each case following the text of
the comment in the Staff's letter of July 5, 2005.
All references to page numbers in this letter refer to the page numbers
of the Form 20-F as filed with the Commission on May 18, 2005.
Form 20-F for the fiscal year ended December 31, 2004
-----------------------------------------------------
General
-------
1. Where a comment below requests additional disclosures or other revisions,
please show us in your response what the revisions will look like. These
revisions may be included in your future filings. Some of our comments
refer to US GAAP literature. If your accounting under IFRS differs from
your accounting under US GAAP, please also show us the additional
disclosures that will be included in your US GAAP reconciliation note.
Response
Avecia appreciates the Staff's comment and will include the revisions set
forth in this letter in future filings.
Item 5 - Operating and Financial Review and Prospects, page 24
--------------------------------------------------------------
Financial Results, page 25
--------------------------
2. You discuss the business reasons for changes between periods in your
financial statement line items. However, where there is more than one
business reason identified as contributing to a change, you should quantify
the incremental impact of each individual business reason discussed if
practicable. Please also discuss business reasons for
Avecia Group plc. Registered in England No 3768265.
Registered Office: PO Box 42, Hexagon House, Blackley, Manchester M9 8ZS.
<PAGE>
2 3 August 2005
changes in your other financial statement line items such as operating
costs, exceptional operating costs, and other operating income.
Response
For future filings, Avecia will amend its disclosure in the manner set
forth in Annex A to this letter (additional disclosure underlined).
Aggregate Contractual Arrangements, page 35
-------------------------------------------
3. Please revise your table of contractual cash obligations to include
estimated interest payments on your debt, planned funding of pension
benefit obligations and estimated payments under your interest rate swaps
and caps and foreign currency contracts. Because the table is aimed at
increasing transparency of cash flow, we believe these payments should be
included in the table. Please also disclose any assumptions you made to
derive these amounts. Please refer to note 46 of SEC Release 33-8350.
Response
For future filings, Avecia will amend its table of contractual cash
obligations in the manner set forth in Annex B to this letter (additional
disclosure underlined).
Item 9 - The Offer and Listing, page 40
---------------------------------------
4. Please disclose the annual high and low market prices for the five most
recent full financial years pursuant to Item 9A 4(a) of Form 20-F.
Response
For future filings, Avecia will amend its disclosure in the manner set
forth in Annex C to this letter (additional disclosure underlined).
Item 15 - Controls and Procedures, page 54
------------------------------------------
5. You indicate that your Chief Executive Officer and Chief Financial Officer
concluded that your disclosure controls and procedures were effective in
timely identifying material information potentially required to be included
in your SEC filings. Please revise your disclosure to state your conclusion
while providing the complete definition of disclosure controls and
procedures, or alternatively, state that your disclosure controls and
procedures are effective, or not effective, without providing any part of
the definition of disclosure controls and procedures that is included in
Exchange Act Rule 13a-15(e).
Response
For future filings, Avecia will amend its disclosure in the manner set
forth in Annex D to this letter (additional disclosure underlined).
Financial Statements
--------------------
Note 2 - Accounting Policies, page 65
-------------------------------------
Investments, page 65
--------------------
<PAGE>
3 3 August 2005
6. Please provide us with the significance tests required by Rule 3-09 of
Regulation S-X for Image Polymers Europe and Image Polymers Company,
individually and in combination with other 50% or less owned entities, for
each period presented.
Response
Please find the relevant significance test below.
Test 1 - % of investment to total assets
<TABLE>
<CAPTION>
2004 % of Total 2003 % of Total 2002 % of Total
GBPM Assets GBPM Assets GBPM Assets
<S> <C> <C> <C>
Value of Investments
Image Polymers Europe 5.133 0.8% 5.783 0.7% 5.984 0.6%
Image Polymers Company 2.810 0.4% 15.764 1.9% 15.748 1.6%
---------------------------------------------------------------------------
Combined 7.943 1.2% 21.547 2.6% 21.732 2.1%
===========================================================================
Total assets per US GAAP 666.70 838.30 1,016.00
</TABLE>
Test 2 - Proportionate share of total assets
--------------------------------------------
Not required
Test 3 - Equity in income from continuing operations
----------------------------------------------------
<TABLE>
<CAPTION>
2004 % of Income 2003 % of Income 2002 % of Income
GBPM GBPM GBPM
<S> <C> <C> <C> <C> <C> <C>
Income
Image Polymers Europe 0.427 1.0% 0.996 -0.7% 0.867 -1.5%
Image Polymers Company 0.687 1.6% 1.681 -1.1% 2.367 -4.1%
---------------------------------------------------------------------------
Combined 1.114 2.6% 2.677 -1.8% 3.234 -5.7%
===========================================================================
Income from continuing operations 42.40 -147.700 -54.000
Adjusted income from continuing operations -150.377 -57.234
</TABLE>
Note - Figures in bold are ones used for test
Note 4 - Group Operating profit, page 78
----------------------------------------
7. Although your restructuring costs are unallocated, these restructuring
activities relate to specific segments. SFAS 146 requires that you
disclose, for each reportable segment, the total amount of costs
expected to be incurred in connection with the activity, the amount
incurred in the period, and the cumulative amount incurred to date, net
of any adjustments to the liability. Please provide the required
disclosures in a tabular format supplemented with explanation for any
adjustments to related liabilities. Please refer to paragraph 20(d) of
SFAS 146.
<PAGE>
4 3 August 2005
Response
For future filings, Avecia will amend its disclosure in the manner set
forth in Annex E to this letter (additional disclosure underlined).
Note 24 - Contingent Liabilities and Contingent Assets, page 114
----------------------------------------------------------------
Environmental, page 114
-----------------------
8. You indicate that the ultimate requirement for remediation work and its
costs are difficult to estimate. Please disclose the impact of SFAS 143 and
any significant differences between UK GAAP and US GAAP.
Response
For future filings, Avecia will amend its disclosure in the manner set
forth in Annex F to this letter (additional disclosure underlined).
9. You state that you believe the outcome of environmental matters will not
have a material effect on your financial position. Please revise your
disclosure to clarify whether you believe outstanding environmental matters
will have a material effect on cash flows or results of operations. Please
also similarly revise your discussion of litigation and other claims.
Response
For future filings, Avecia will amend its disclosure in the manner set
forth in Annex F to this letter (additional disclosure underlined).
10. If true, please confirm that additional losses related to environmental
matters, in total and for each site individually, are not reasonably
possible. If not, please revise your discussion to include each of the
disclosures required by paragraph 10 of SFAS 5 and question 2 in SAB Topic
5:Y.
Response
For future filings, Avecia will amend its disclosure in the manner set
forth in Annex F to this letter (additional disclosure underlined).
Note 26 - Pension Scheme, page 117
----------------------------------
11. Please provide the disclosures required by paragraph 5 of SFAS 132(R),
including a description of your investment strategy and target allocations
for each scheme and benefits expected to be paid in the next five fiscal
years and in the aggregate for the five years thereafter. Please refer to
paragraph 5 subparts (d)2 and (e)-(f) of SFAS 132(R).
Response
For future filings, Avecia will amend its disclosure in the manner set
forth in Annex G to this letter (additional disclosure underlined).
<PAGE>
5 3 August 2005
Note 33 - Difference Between UK and US Accounting Principles, page 131
----------------------------------------------------------------------
Purchase Accounting Adjustments (Goodwill and Intangibles), page 132
--------------------------------------------------------------------
12. Note 3 does not allocate goodwill to reportable segments. Please disclose
US GAAP goodwill in total and for each reportable segment and disclose any
significant changes in the allocation of goodwill by reportable segment. If
any portion of goodwill has not yet been allocated to a reporting unit,
please disclose the unallocated amount and the reasons that amount has not
been allocated. See paragraph 45 of SFAS 142.
Response
For future filings, Avecia will amend its disclosure in the manner set
forth in Annex H to this letter. There is no amount of goodwill that
remains unallocated and there have been no significant changes in the
allocation of goodwill by reportable segment in the periods shown.
13. Please provide us with additional information to help us understand your
conclusion that goodwill related to the biotechnology and chemicals
segments is not impaired in light of their recent operating losses.
Response
The estimated fair values of our reporting units are measured by reference
to the discounted future net cash flows expected to be generated by them.
For our Biotechnology segment the discounted future cash flows expected
from this segment exceeded the net carrying value of assets, including
goodwill. This reflects our current expectations that this segment will
generate positive cash flows in the future, compared to their recent
operating losses. There is currently no goodwill relating to the Chemicals
segment, due to the fact that previous impairment tests have resulted in a
write-off of the original goodwill balance.
Note 34 - Condensed Financial Statements, page 139
--------------------------------------------------
14. If true, please confirm to us and revise your disclosures to clarify that
your guarantor subsidiaries are 100% owned as defined by Rule 3-10(h)(1) of
Regulation S-X. Please note that this definition is different than the term
wholly-owned, as defined by Rule 1-02(aa) of Regulation S-X.
Response
We can confirm that our guarantor subsidiary is 100% owned as defined under
Rule 3-10 (h)(l) of Regulation S-X. For future filings, Avecia will amend
its disclosure in the manner set forth in Annex I to this letter
(additional disclosure underlined).
* * * * *
<PAGE>
6 3 August 2005
Should the Staff have any questions or require any additional
information, please do not hesitate to contact me.
Very truly yours,
Derrick A. Nicholson
Chief Financial Officer
cc: Ernest Greene, Staff Accountant
Scott Watkinson, Staff Accountant
- United States Securities and Exchange Commission, Washington D.C
Duncan McLellan
Andrew Cree
- Avecia Group plc, Manchester, England
David Bills
Chris Martin
- KPMG Audit Plc, Manchester, England
David Beveridge
Peter Young
- Shearman & Sterling (London) LLP, London
<PAGE>
Annex A
Year ended December 31, 2004 compared to the year ended December 31, 2003
The following table sets forth turnover for each of 2004 and 2003.
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31, Actual %