SEC Company Response from James Hardie Industries plc (JHX, JHIUF) (CIK 0001159152) (JHX) — Apr 28, 2005
James Hardie Industries plc (JHX, JHIUF) (CIK 0001159152)
Date: April 28, 2005 · CIK: 0001159152 · Accession: 0000950137-05-005108
AI Filing Summary & Sentiment
File numbers found in text: 001-15240
Referenced dates: April 11, 2005
Letter
VIA EDGAR AND OVERNIGHT DELIVERY Securities and Exchange Commission Division of Corporation Finance Attention: Pamela A. Long Re: James Hardie Industries N.V. File No. 001-15240 Form 20-F for the fiscal year ended March 31, 2004
Dear Ms. Long:
The Staff provided supplemental comments, by letter dated April 11, 2005 (the “Comment Letter”), regarding the Form 20-F of James Hardie Industries N.V. (“JHI NV,” and together with its subsidiaries as of the time relevant to the applicable reference, the “James Hardie Group,” and together with its current wholly owned subsidiaries, the “Company”) for the fiscal year ended March 31, 2004.
The following responses to your comments have been numbered to correspond to the sequential numbering of the comments contained in the Comment Letter. For your convenience in reviewing the responses, each comment has been set forth immediately prior to the response. The following responses reflect management’s assessment of the events and circumstances as of the date of this letter. Because of the fluid nature of the Company’s situation, particularly as to asbestos matters, events and circumstances may change and timelines may shift. Such subsequent events, if they were to occur, could affect the Company’s responses
to comments 2 and 3. Unless otherwise noted, page numbers included herein refer to the Company’s Form 20-F for its fiscal year ended March 31, 2004. Courtesy copies of this letter are being delivered to Rufus Decker, Andrew Schoeffler and Scott Watkinson.
Unless the context otherwise requires, capitalized terms used in this letter and not defined herein have the meanings set forth in our letter of March 7, 2005.
FORM 20-F FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Results of Operations, page 41
1. We have reviewed your response to prior comment 2. Please note that Staff Accounting Bulletin 5:Y was issued to provide our interpretation of current accounting literature and disclosure requirements and serve as guidance for public companies in their disclosures regarding contingent liabilities.
In addition, it is not the sole purpose of such disclosures to provide readers the specific ability to extrapolate future costs based upon disaggregated information. The disclosures required by the SAB are intended to allow a reader, with appropriate narrative explanation through the eyes of management, to understand the scope of anticipated and historical expenditures. The SAB states that disclosures should be sufficiently specific to enable a reader to understand that scope.
In that SAB, we clearly state that we believe that product liabilities typically are of such significance that detailed disclosures regarding judgments and assumptions underlying the recognition and measurement of the liabilities are necessary to inform readers fully regarding the range of reasonably possible outcomes that could have a material effect on your financial condition, results of operations, or liquidity.
Among the disclosures called for in the SAB are:
• circumstances affecting the reliability and precision of loss estimates;
• the extent to which unasserted claims are reflected in any accrual or may affect the magnitude of the contingency;
• whether, and to what extent, losses may be recoverable from third parties;
• the timing of payments of accrued and unrecognized amounts;
• the material components of the accruals and significant assumptions underlying estimates;
• the total claims pending at each balance sheet date;
• the number of claims filed for each period presented;
• the number of claims dismissed;
• the number of claims settled;
• the number of claims otherwise resolved;
• the average costs per settled claim;
• the total damages alleged at each balance sheet date (Regulation S-K, Item 103);
• the aggregate settlement costs to date; and
• the aggregate costs of administering and litigating the claims.
Finally, disclosure should include an analysis of the expected future trend in claims and settlement costs.
It remains unclear to us why you believe that some, if not all, of the above disclosures would not be material to an understanding of this contingent liability. Based on your response it appears that considerations such as recoverability from Amaca, Amaba, and ABN 60 would be material to an evaluation of the claim information. Similarly, your expectation with regard to cash payment limitations would also appear relevant in evaluating the timing of payments related to the contingent liability. We continue to believe that a rollforward of claims activity and the average cost per settled claim would be material to an understanding of this substantial contingent liability. Please revise your disclosure to include each of the disclosures required by SAB 5:Y detailed above.
General approach to providing disclosure of Claims
Our upcoming Form 20-F filing will contain the information described below under the heading “Specific information to be provided” as of March 31, 2005.
Further, assuming that the Principal Agreement has been entered into by the Company by the date of that filing, the Form 20-F and filings occurring after that date will disclose:
• the basis on which the Company will have agreed under the Principal Agreement, subject to the satisfaction of the conditions set out in that agreement (including that the Company obtains shareholder and lender support for the implementation of the Principal Agreement), to provide funding contributions on a long-term basis to the Special Purpose Fund (the “SPF”) to be established under the Principal Agreement; and
• the basis on which the SPF will manage and settle or meet proven personal injury and death claims (“Claims”) by or on behalf of individuals affected by the former asbestos-related activities of Amaca Pty Limited (“Amaca”), Amaba Pty Limited (“Amaba”) and ABN 60 Pty Limited (“ABN 60,” together with Amaca and Amaba, the “Liable Entities”) and Asbestos Mines Pty Limited (“Asbestos Mines”).
The potential range of losses, as estimated by KPMG Actuaries Pty Ltd (“KPMG”), is affected by a number of variables such as nil settlement rates, peak year of Claims, history of Claims numbers, average settlement rates, history of Australian asbestos-related medical injuries, current number of Claims, average defense and plaintiff costs, inflation and superimposed inflation. The potential range of losses to be disclosed includes both asserted and unasserted Claims. While no assurances can be provided, if
the Company signs the Principal Agreement and it is approved by all of the necessary parties, including shareholders and lenders, the Company expects to be able to partially recover losses from various insurance carriers. As of March 2004, KPMG’s undiscounted central estimate of asbestos-related liabilities was A$3.586 billion. This undiscounted central estimate is net of expected insurance recoveries of A$469.5 million and allowance for A$45.9 million of “by claim” or subrogation recoveries from other third parties.
At this point in time, the timing of any potential payments is uncertain because the Company has not yet reached agreement with the New South Wales Government (the “NSW Government”) and the conditions to any agreement that may be reached have not been satisfied. See “[cross reference to relevant section.]” In addition, the Company has not yet incurred any settlement costs because the Foundation continues to meet all Claims of the Liable Entities. The Company is currently unable to estimate the expected cost of administering and litigating the Claims under the potential agreement with the NSW Government because this is highly contingent upon the outcome of the NSW Government’s review of legal and administrative costs.
Specific information to be provided
The following information will be provided:
• the number of Claims pending at each balance sheet date;
• the number of Claims filed for each period presented;
• the number of Claims dismissed, settled or otherwise resolved for each period and the average settlement amount per Claim for each period; and
• the number of open, new and closed Claims during past five years and the average settlement amount per case closed.
For the years ended March 31, 2004 and 2003 respectively, the summary information in relation to these matters is as follows:
The following table shows the number of Claims pending at each balance sheet date.
For the Year Ended March 31
Australia
New Zealand
Unknown – Court Not Identified(1)
USA
(1) The “Unknown – Court Not Identified” designation reflects that the information for such Claims had not been, as of the date of publication, entered into the database which the Foundation maintains. Over time, as the details of “unknown” Claims are provided to the Foundation, we believe the database is updated to reflect where such Claims originate. Accordingly, we understand that the number of unknown Claims pending fluctuates due to the resolution of Claims as well as due to reclassification of such Claims.
The following table shows the Claims filed for each period presented, the number of Claims dismissed, settled or otherwise resolved for each period, and the average settlement amount per Claim.
Australia
For the Year Ended March 31
Number of Claims filed
Number of Claims dismissed
Number of Claims settled or otherwise resolved
Average settlement amount per Claim
A$165,135
A$202,507
A$195,752
New Zealand
For the Year Ended March 31
Number of Claims filed
Number of Claims dismissed
Number of Claims settled or otherwise resolved
Average settlement amount per Claim
A$0
A$2,000
A$0
Unknown – Court Not Identified
For the Year Ended March 31
Number of Claims filed
Number of Claims dismissed
Number of Claims settled or otherwise resolved
Average settlement amount per Claim
A$0
A$37,090
A$305,480
USA
For the Year Ended March 31
Number of Claims filed
Number of Claims dismissed
Number of Claims settled or otherwise resolved
Average settlement amount per Claim
A$0
A$0
A$0
The following table shows the activity related to the numbers of open Claims, new Claims, and closed Claims during each of the past five years and the average settlement per case closed.
As of March 31
Number of open Claims at beginning of year
Number of new Claims
Number of closed Claims
Number of open Claims at year end
Average settlement amount per case closed
A$115,228
A$174,321
A$126,265
A$126,614
A$123,204
Limited access by the Company to specific Claims information
Any disclosure by the Company in relation to Claims information will need to include disclosure that:
• the Company has not had any responsibility or involvement in the management of Claims against ABN 60 since the time it left the James Hardie Group in 2003;
• since February 2001, when Amaca and Amaba were separated from the James Hardie Group, no current subsidiary of JHI NV has had any responsibility or involvement in the management of Claims against those entities – and prior to that date, the principal entity potentially involved in relation to such Claims was ABN 60, which (as described above) has not been a member of the James Hardie Group since 2003;
• The Company has no current right to access any Claims information in relation to Claims against Asbestos Mines. The Company’s agreement to provide funding to the SPF with respect to proven Claims against Asbestos Mines will be conditional upon a number of factors, including that information in relation to the proven Claims is provided to the Company. Asbestos Mines has not been part of the James Hardie Group since 1976, when it was sold to Woodsreef Mines Ltd, which was subsequently renamed Mineral Commodities Ltd. From 1954 until 1976, Asbestos
Mines was a wholly-owned subsidiary of James Hardie Industries Limited (now ABN 60).
• except as described below, the Company has not had access to any information regarding Claims or the decisions taken by the Foundation in relation to them;
• on October 26, 2004, the Company, the Foundation and KPMG entered into a confidentiality agreement under which the Company would be entitled to obtain a copy of the actuarial report prepared by KPMG in relation to the Claims liabilities of the Foundation and Amaba and Amaca, and would be entitled to release the final version of such reports;
• the Company is seeking to obtain similar rights of access to actuarial information produced for the SPF by the actuary to be appointed by the SPF (the “Approved Actuary”). The Company is seeking to have such rights of access under the terms of the Principal Agreement, but the terms of such access are not yet settled.
• the Company’s future disclosures with respect to Claims statistics is subject to the Company actually obtaining such information from the Approved Actuary. The Company has historically had no general right (and will not obtain any right under the Principal Agreement) to audit or otherwise itself independently verify such information because the methodologies are adopted by the Approved Actuary.
• As a result of the above, the Company cannot make any representations or warranties as to the accuracy or completeness of the actuarial information to be disclosed.
Special Commission of Inquiry, page F-22
2. We have reviewed your response to prior comment 7. Regardless of whether the legally binding component of your asbestos obligation is reinstated by the Principal Agreement, we continue to believe that your obligation meets the definition of a liability defined by footnote 22 to paragraph 35 of FASB Concept Statement 6. Further, your response addresses only the obstacles to your signing of the Principal Agreement and not the likelihood of retroactive legislation requiring you to satisfy the funding shortfall should the Principal Agreement fail to materialize.
The key issue presented is whether it is probable that the Claims against the Liable Entities and Asbestos Mines will become the legal responsibility of the Company. To date, the Company has successfully defended itself against legal assertions that the liabilities of the Liable Entities are also liabilities of the Company. Also, as of the date of this letter, there are numerous and significant hurdles that exist that could prevent the Company from becoming legally liable for the Claims under a negotiated agreement. As a result, the Company does not believ
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CORRESP
1
filename1.htm
James Hardie Industries N.V.
James Hardie Industries NV
The liability of members is limited
Incorporated in The Netherlands
4th floor, Atrium
Unit 04-07
Strawinskylaan 3077
1077 ZX Amsterdam
The Netherlands
Telephone: 31 20 301 2986
Facsimile: 31 20 404 2544
April 28, 2005
VIA EDGAR AND OVERNIGHT DELIVERY
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, NW
Washington, DC 20549
Attention: Pamela A. Long
Re:
James Hardie Industries N.V.
File No. 001-15240
Form 20-F for the fiscal year ended March 31, 2004
Dear Ms. Long:
The Staff provided supplemental comments, by letter dated April 11, 2005 (the “Comment
Letter”), regarding the Form 20-F of James Hardie Industries N.V. (“JHI NV,” and together with its
subsidiaries as of the time relevant to the applicable reference, the “James Hardie Group,” and
together with its current wholly owned subsidiaries, the “Company”) for the fiscal year ended March
31, 2004.
The following responses to your comments have been numbered to correspond to the sequential
numbering of the comments contained in the Comment Letter. For your convenience in reviewing
the responses, each comment has been set forth immediately prior to the response. The
following responses reflect management’s assessment of the events and circumstances as of the
date of this letter. Because of the fluid nature of the Company’s situation, particularly as
to asbestos matters, events and circumstances may change and timelines may shift. Such
subsequent events, if they were to occur, could affect the Company’s responses
to comments 2 and 3. Unless otherwise noted, page numbers included herein refer to the
Company’s Form 20-F for its fiscal year ended March 31, 2004. Courtesy copies of this letter
are being delivered to Rufus Decker, Andrew Schoeffler and Scott Watkinson.
Unless the context otherwise requires, capitalized terms used in this letter and not
defined herein have the meanings set forth in our letter of March 7, 2005.
FORM 20-F FOR THE FISCAL YEAR ENDED MARCH 31, 2004
Results of Operations, page 41
1.
We have reviewed your response to prior comment 2. Please note that Staff
Accounting Bulletin 5:Y was issued to provide our interpretation of current accounting
literature and disclosure requirements and serve as guidance for public companies in
their disclosures regarding contingent liabilities.
In addition, it is not the sole purpose of such disclosures to provide readers the
specific ability to extrapolate future costs based upon disaggregated information. The
disclosures required by the SAB are intended to allow a reader, with appropriate
narrative explanation through the eyes of management, to understand the scope of
anticipated and historical expenditures. The SAB states that disclosures should be
sufficiently specific to enable a reader to understand that scope.
In that SAB, we clearly state that we believe that product liabilities typically are of
such significance that detailed disclosures regarding judgments and assumptions
underlying the recognition and measurement of the liabilities are necessary to inform
readers fully regarding the range of reasonably possible outcomes that could have a
material effect on your financial condition, results of operations, or liquidity.
Among the disclosures called for in the SAB are:
•
circumstances affecting the reliability and precision of loss estimates;
•
the extent to which unasserted claims are reflected in any accrual or may
affect the magnitude of the contingency;
•
whether, and to what extent, losses may be recoverable from third parties;
•
the timing of payments of accrued and unrecognized amounts;
•
the material components of the accruals and significant assumptions
underlying estimates;
•
the total claims pending at each balance sheet date;
•
the number of claims filed for each period presented;
•
the number of claims dismissed;
•
the number of claims settled;
•
the number of claims otherwise resolved;
•
the average costs per settled claim;
•
the total damages alleged at each balance sheet date (Regulation S-K, Item 103);
•
the aggregate settlement costs to date; and
•
the aggregate costs of administering and litigating the claims.
Finally, disclosure should include an analysis of the expected future trend in claims
and settlement costs.
It remains unclear to us why you believe that some, if not all, of the above disclosures
would not be material to an understanding of this contingent liability. Based on your
response it appears that considerations such as recoverability from Amaca, Amaba, and
ABN 60 would be material to an evaluation of the claim information. Similarly, your
expectation with regard to cash payment limitations would also appear relevant in
evaluating the timing of payments related to the contingent liability. We continue to
believe that a rollforward of claims activity and the average cost per settled claim
would be material to an understanding of this substantial contingent liability. Please
revise your disclosure to include each of the disclosures required by SAB 5:Y detailed
above.
General approach to providing disclosure of Claims
Our upcoming Form 20-F filing will contain the information described below under the
heading “Specific information to be provided” as of March 31, 2005.
Further, assuming that the Principal Agreement has been entered into by the Company by
the date of that filing, the Form 20-F and filings occurring after that date will
disclose:
•
the basis on which the Company will have agreed under the Principal
Agreement, subject to the satisfaction of the conditions set out in that
agreement (including that the Company obtains shareholder and lender support for
the implementation of the Principal Agreement), to provide funding contributions
on a long-term basis to the Special Purpose Fund (the “SPF”) to be established
under the Principal Agreement; and
•
the basis on which the SPF will manage and settle or meet proven personal
injury and death claims (“Claims”) by or on behalf of individuals affected by
the former asbestos-related activities of Amaca Pty Limited (“Amaca”), Amaba Pty
Limited (“Amaba”) and ABN 60 Pty Limited (“ABN 60,” together with Amaca and
Amaba, the “Liable Entities”) and Asbestos Mines Pty Limited (“Asbestos Mines”).
The potential range of losses, as estimated by KPMG Actuaries Pty Ltd (“KPMG”),
is affected by a number of variables such as nil settlement rates, peak year of
Claims, history of Claims numbers, average settlement rates, history of
Australian asbestos-related medical injuries, current number of Claims, average
defense and plaintiff costs, inflation and superimposed inflation. The potential
range of losses to be disclosed includes both asserted and unasserted Claims.
While no assurances can be provided, if
the Company signs the Principal Agreement and it is approved by all of the
necessary parties, including shareholders and lenders, the Company expects to be
able to partially recover losses from various insurance carriers. As of March
2004, KPMG’s undiscounted central estimate of asbestos-related liabilities was
A$3.586 billion. This undiscounted central estimate is net of expected insurance
recoveries of A$469.5 million and allowance for A$45.9 million of “by claim” or
subrogation recoveries from other third parties.
At this point in time, the timing of any potential payments is uncertain because
the Company has not yet reached agreement with the New South Wales Government
(the “NSW Government”) and the conditions to any agreement that may be reached
have not been satisfied. See “[cross reference to
relevant section.]” In
addition, the Company has not yet incurred any settlement costs because the
Foundation continues to meet all Claims of the Liable Entities. The Company is
currently unable to estimate the expected cost of administering and litigating
the Claims under the potential agreement with the NSW Government because this is
highly contingent upon the outcome of the NSW Government’s review of legal and
administrative costs.
Specific information to be provided
The following information will be provided:
•
the number of Claims pending at each balance sheet date;
•
the number of Claims filed for each period presented;
•
the number of Claims dismissed, settled or otherwise resolved for
each period and the average settlement amount per Claim for each period;
and
•
the number of open, new and closed Claims during past five years and
the average settlement amount per case closed.
For the years ended March 31, 2004 and 2003 respectively, the summary information
in relation to these matters is as follows:
The following table shows the number of Claims pending at each balance sheet
date.
For the Year Ended March 31
2004
2003
Australia
680
737
New Zealand
0
0
Unknown – Court Not Identified(1)
50
64
USA
5
6
(1) The “Unknown – Court Not Identified”
designation reflects that the information for such Claims had not been, as of
the date of publication, entered into the database which the Foundation
maintains. Over time, as the details of “unknown” Claims are provided to the
Foundation, we believe the database is updated to reflect where such Claims
originate. Accordingly, we understand that the number of unknown Claims
pending fluctuates due to the resolution of Claims as well as due to
reclassification of such Claims.
The following table shows the Claims filed for each period presented,
the number of Claims dismissed, settled or otherwise resolved for each
period, and the average settlement amount per Claim.
Australia
For the Year Ended March 31
2004
2003
2002
Number of Claims filed
377
403
369
Number of Claims dismissed
120
32
66
Number of Claims settled or otherwise
resolved
314
231
167
Average settlement amount per Claim
A$165,135
A$202,507
A$195,752
New Zealand
For the Year Ended March 31
2004
2003
2002
Number of Claims filed
0
0
0
Number of Claims dismissed
0
2
0
Number of Claims settled or otherwise
resolved
0
1
0
Average settlement amount per Claim
A$0
A$2,000
A$0
Unknown – Court Not Identified
For the Year Ended March 31
2004
2003
2002
Number of Claims filed
1
7
2
Number of Claims dismissed
15
0
21
Number of Claims settled or otherwise
resolved
0
3
5
Average settlement amount per Claim
A$0
A$37,090
A$305,480
USA
For the Year Ended March 31
2004
2003
2002
Number of Claims filed
0
0
3
Number of Claims dismissed
1
0
12
Number of Claims settled or otherwise
resolved
0
0
0
Average settlement amount per Claim
A$0
A$0
A$0
The following table shows the activity related to the numbers of open
Claims, new Claims, and closed Claims during each of the past five years and
the average settlement per case closed.
As of March 31
2004
2003
2002
2001
2000
Number of open
Claims at beginning
of year
807
666
563
502
450
Number of new Claims
378
410
374
284
213
Number of closed
Claims
450
269
271
223
161
Number of open
Claims at year end
735
807
666
563
502
Average settlement
amount per case
closed
A$115,228
A$174,321
A$126,265
A$126,614
A$123,204
Limited access by the Company to specific Claims information
Any disclosure by the Company in relation to Claims information will need to include
disclosure that:
•
the Company has not had any responsibility or involvement in the management
of Claims against ABN 60 since the time it left the James Hardie Group in 2003;
•
since February 2001, when Amaca and Amaba were separated from the James
Hardie Group, no current subsidiary of JHI NV has had any responsibility or
involvement in the management of Claims against those entities – and prior to
that date, the principal entity potentially involved in relation to such Claims
was ABN 60, which (as described above) has not been a member of the James Hardie
Group since 2003;
•
The Company has no current right to access any Claims information in relation
to Claims against Asbestos Mines. The Company’s agreement to provide funding to
the SPF with respect to proven Claims against Asbestos Mines will be conditional
upon a number of factors, including that information in relation to the proven
Claims is provided to the Company. Asbestos Mines has not been part of the
James Hardie Group since 1976, when it was sold to Woodsreef Mines Ltd, which
was subsequently renamed Mineral Commodities Ltd. From 1954 until 1976,
Asbestos
Mines was a wholly-owned subsidiary of James Hardie Industries Limited (now
ABN 60).
•
except as described below, the Company has not had access to any information
regarding Claims or the decisions taken by the Foundation in relation to them;
•
on October 26, 2004, the Company, the Foundation and KPMG entered into a
confidentiality agreement under which the Company would be entitled to obtain a
copy of the actuarial report prepared by KPMG in relation to the Claims
liabilities of the Foundation and Amaba and Amaca, and would be entitled to
release the final version of such reports;
•
the Company is seeking to obtain similar rights of access to actuarial
information produced for the SPF by the actuary to be appointed by the SPF (the
“Approved Actuary”). The Company is seeking to have such rights of access under
the terms of the Principal Agreement, but the terms of such access are not yet
settled.
•
the Company’s future disclosures with respect to Claims statistics is subject
to the Company actually obtaining such information from the Approved Actuary.
The Company has historically had no general right (and will not obtain any right
under the Principal Agreement) to audit or otherwise itself independently verify
such information because the methodologies are adopted by the Approved Actuary.
•
As a result of the above, the Company cannot make any representations or
warranties as to the accuracy or completeness of the actuarial information to be
disclosed.
Special Commission of Inquiry, page F-22
2.
We have reviewed your response to prior comment 7. Regardless of whether the
legally binding component of your asbestos obligation is reinstated by the Principal
Agreement, we continue to believe that your obligation meets the definition of a
liability defined by footnote 22 to paragraph 35 of FASB Concept Statement 6. Further,
your response addresses only the obstacles to your signing of the Principal Agreement and
not the likelihood of retroactive legislation requiring you to satisfy the funding
shortfall should the Principal Agreement fail to materialize.
The key issue presented is whether it is probable that the Claims against the Liable
Entities and Asbestos Mines will become the legal responsibility of the Company. To
date, the Company has successfully defended itself against legal assertions that the
liabilities of the Liable Entities are also liabilities of the Company. Also, as of the
date of this letter, there are numerous and significant hurdles that exist that could
prevent the Company from becoming legally liable for the Claims under a negotiated
agreement. As a result, the Company does not believ