Mail Stop 7010
March 29, 2006
J. Eric Schaal
Corporate Secretary and Associate General Counsel
USG Corporation
125 South Franklin Street
Chicago, IL 60606-4678
Re: USG Corporation
Registration Statement on Form S-1
Filed March 3, 2006
File No. 333-132203
Form 10-K for Fiscal Year Ended December 31, 2005
Filed February 14, 2006
File No. 1-08864
Dear Mr. Schaal:
We have limited our review of your filing to those issues we
have addressed in our comments. Where indicated, we think you
should
revise your document in response to these comments. If you
disagree,
we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with information so we may better understand
your
disclosure. After reviewing this information, we may raise
additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
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 S-1
General
1. Please revise to provide more detail about how the board
determined the exercise price and why this was the price necessary
to
obtain a backstop commitment. We note your disclosure on page 1,
in
particular, your reference to "among other things." Please revise
to
remove this vague disclosure and replace it with more detailed
disclosure that would be helpful to your stockholders.
2. Please tell us how you plan to proceed with your rights
offering
in the event that the Bankruptcy Court does not approve your plan
of
reorganization. We may have further comment based on your
response.
Cover Page of Registration Statement
3. It appears you are registering an offering on a delayed or
continuous basis pursuant to Rule 415 of the Securities Act.
Please
revise accordingly.
Prospectus Cover Page
4. Please state the maximum number of shares of common stock
issuable
upon exercise of the rights, i.e., the number of shares you are
offering pursuant to Item 501(b)(2) of Regulation S-K.
5. Disclose the level of participation by officers and directors
in
offering the rights.
Table of Contents
6. We note the statement in the first sentence of the third
paragraph
that precedes your table of contents. If you intend to use any
free
writing prospectuses, you should consider revising this statement,
as
you will be liable for, and investors will be entitled to rely on,
that information.
About this Prospectus
7. We note the statement in the third sentence. Delete the
language
that statements contained in the prospectus about the contents of
any
other document "are not necessarily complete." Rule 411(a) of
Regulation C under the Securities Act allows qualification of
information inside the prospectus by reference to information
outside
the prospectus only to the extent that the form explicitly permits
it
or where the form requires a summary of the document. If you
retain
the language that statements "are not necessarily complete,"
disclose
that all material provisions of the documents are discussed in the
prospectus.
Questions and Answers About the Rights Offering, page 1
How will the rights offering affect the backstop purchaser`s
ownership of our common stock, page 4
8. Please disclose the percentage of your outstanding shares
Berkshire would own if it must fully exercise its backstop
commitment. Please also include appropriate risk factor disclosure
regarding this percentage.
What are the U.S. federal income tax consequences of the rights
offering to me?, page 5
9. Please tell us why you are not receiving and filing a tax
opinion
pursuant to Item 601(b)(8) of Regulation S-K since the tax
consequences appear to be material.
10. Please delete the term "generally" here and throughout the
other
tax discussions in the prospectus and instead briefly explain when
shareholders should not recognize gain or loss on the receipt or
exercise of rights and when they will recognize gain or loss on
the
sale of rights.
Adjustments Relating to Stock Options, page 8
11. Please revise to explain what you mean by "equitably" when you
refer to the adjustments to stock options and exercise prices, as
well as deferred stock units.
Information Regarding Forward-Looking Statements, page 18
12. Please delete "will" from your list of forward-looking
statement
terms.
Management and Executive Compensation, page 34
13. Please briefly describe the business experience during the
past
five years for each executive officer named in your table on pages
34
and 35. Refer to Item 401(d) of Regulation S-K.
The Chief Executive Officer`s 2005 Compensation, page 44
14. The 2005 salary for Mr. Foote is listed here as $995,000. On
page 37, however, his 2005 salary is listed as $978,333. Please
reconcile and revise as necessary.
Certain Relationships and Related Transactions, page 45
15. Please revise to describe in more detail the material terms of
the Equity Commitment Agreement, including any conditions or
termination provisions.
Plan of Distribution, page 50
16. To the extent that you intend to conduct the offering through
officers, directors or employees, explain how they qualify for the
exemption from registration as broker-dealers under Rule 3a4-1 of
the
Securities Exchange Act.
Legal Matters, page 52
17. Please state in your document that counsel will opine that the
rights are the binding obligations of the company.
Undertakings
18. Please include the undertakings required by Item 512(a) of
Regulation S-K.
Exhibit 99.1 - Form of Rights Certificate
19. We regard it as inappropriate for the rights certificate to
require the holder to acknowledge that he or she has read or
reviewed
the prospectus since this acts as a disclaimer and the certificate
should be consistent with the disclosure in the prospectus.
Please
revise to delete this requirement.
Form 10-K for the year ended December 31, 2005
Voluntary Reorganization under Chapter 11, page 3
20. With regards to your asbestos liability for which you have
accrued $4.1 billion for related claims, please disclose the
following in future filings, including your amended Form S-1:
* We note that you estimate the amount you will pay to be $900
million, if the FAIR Act passes by the Trigger Date. Otherwise,
we
note that you estimate a funding obligation of $3.95 billion.
Please
disclose how you determined these amounts. For example, please
clarify whether these amounts are fixed or whether they are
calculated based on certain formulas and assumptions, which may be
subject to change. If these amounts may be subject to change,
please
disclose the nature of your assumptions, how you arrived at the
estimates used in calculating the $900 million and $3.95 billion,
and
any uncertainties associated with these assumptions.
* Your $4.1 billion accrual indicates that you do not believe
passage
of the FAIR Act is probable prior to the Trigger Date. Please
discuss your basis for this view by disclosing the status of the
FAIR
Act, the remaining process prior to passage of the FAIR Act, and
any
uncertainties associated with passage of the FAIR Act.
* Please disclose whether the enactment of this legislation could
result in additional provisions or a reversal of provisions
previously recorded. For example, please clarify whether you have
additional obligations if the FAIR Act passes next year, after you
have already paid the $3.95 billion you have estimated.
* Please disclose components (such as legal fees, administrative
costs, and settlement costs) of the $3.95 billion and the amount
associated with each component.
In addition, please reconcile for us your obligation of $3.95
billion
if the FAIR Act does not pass by the Trigger Date with your
obligation of $900 million if the FAIR Act passes by the Trigger
Date. It is unclear why your obligation differs by over $3
billion,
depending on whether the FAIR Act passes. For example, please
clarify whether your estimated obligation of $3.95 billion covers
contingencies not included for the purposes of estimating the $900
million. If so, please disclose any additional loss contingencies
beyond the $900 million, which may be reasonably likely, if the
FAIR
Act passes by the Trigger Date.
Management`s Discussion and Analysis, page 18
Reconciliation of Non-GAAP Financial Matters, page 26
21. In your future filings, including your amended Form S-1,
please
revise your disclosures to include the following information as
required by Question 8 of the Frequently Asked Questions Regarding
the Use of Non-GAAP Financial Measures issued June 13, 2003, as
they
specifically relate to your use of net earnings excluding the
provision for asbestos claims and cumulative effect of accounting
change related to the adoption of FIN 47:
* Discuss how you use the measure to conduct or evaluate business.
* Discuss the economic substance behind your decision to use this
measure.
* Discuss the material limitations associated with the non-GAAP
measure as compared to the use of the most directly comparable
GAAP
measure. In this regard you must identify each item you eliminate
and
clarify how the elimination of such items limits the usefulness of
this non-GAAP measure as a performance measure;
* Discuss the manner in which you compensate for these limitations
when using this non-GAAP measure.
In addition, your disclosure that you believe the non-GAAP measure
provides investors with a more useful comparison of your ongoing
business performance suggests that you believe your asbestos
provisions are non-recurring. Please clarify your basis for this
conclusion, including why you do not believe further asbestos-
related
charges are reasonably likely to recur within two years.
Liquidity and Capital Resources, page 30
22. In future filings, including your amended Form S-1, please
disclose in greater detail, the expected timing of your cash
inflows
and outflows. For example, we note that you expect to have cash
outflows of $890 million in December 2006, $1.9 billion in January
2007, and $1.15 billion, plus interest in May 2007. In addition,
we
note you expect to have cash outflows related to a note payable of
$10 million, debt of $1 billion, contractual obligations of $231
million, capital expenditures of $587 million, and payment of
current
liabilities of $600 million, the timing of all of which is
unclear.
On the other hand, we note your cash and marketable securities of
$1.5 billion, as well as expected cash inflows of $1.8 billion
related to your rights offering, $1.1 billion related to your tax
refund, and $1 billion related to a possible debt issuance.
Depending on the anticipated timing of the tax refund and debt
issuance in relation to the cash outflows listed above, it appears
that you may need additional sources of capital. Accordingly,
please
revise your disclosures to clarify the expected timing.
Realization of Deferred Tax Asset, page 34
23. In future filings, including your amended Form S-1, please
revise
your disclosures as follows:
* We note that you reported federal taxable income of $3.2 billion
for the years 1996 to 2005. Please clarify that the carryback of
your NOL`s related to the payment of asbestos claims will generate
a
tax refund of $1.1 billion.
* Please disclose the timing of when you expect to receive this
refund.
* With respect to the remaining $600 million of NOL`s related to
the
payment of asbestos claims, please disclose the amounts and
expiration dates of the NOL`s by year, segregated by federal vs.
state benefits.
Asbestos Liability, page 36
24. We note your statement that you utilized an independent
consultant to assist you in considering factors that would impact
the
amount of your asbestos personal injury liability. Because you
incorporate this information into your prospectus, you must
identify
that expert and include his, her or its consent in the Form S-1 in
accordance with Section 436(b) of Regulation C.
Financial Statements, page 41
Note 18. Litigation, page 70
25. With respect to your silica litigation, you state that you do
not
have sufficient information to estimate the likely cost of
resolving
the pending silica claims. However, you then state that the
silica
matters will not have a material impact on your financial
position,
cash flows or results of operations. Please clarify how you
determined that the matters will not have a material impact, if
you
do not have sufficient information to estimate the likely cost.
Note 19. Quarterly Financial Data (Unaudited), page 77
26. We note your $37 million adjustment to the fourth quarter of
2005
that should have been recognized in the third quarter of 2005. We
note that this amount represents 14.6% of net earnings for the
three
months ended September 30, 2005, and 6.7% of net earnings for the
nine months ended September 30, 2005. Please tell us the
following:
* Why you did not make any disclosures under Item 4.02 of Form 8-
K.
* We note your original conclusion in your Form 10-Q for the
quarter
ended September 30, 2005, that your disclosure controls and
procedures are adequate. However, it does not appear that your
certifying officers have reached a conclusion that your disclosure
controls and procedures are effective. Please clarify to us
whether
you originally determined, prior to the identification of the $37
million error, that your disclosure controls and procedures were
effective or ineffective. In future filings, please use the term
"effective" or "ineffective," instead of "adequate."
* Your consideration of the effect of the control deficiencies
surrounding your derivative instruments on your original
conclusion
at September 30, 2005, regarding the effectiveness of your
disclosure
controls and procedures. If you believe your disclosure controls
and
procedures were effective at September 30, 2005, despite the
error,
please tell us the basis for your conclusion.
* Whether you made changes to your internal control over financial
reporting during the fourth quarter of 2005 to address the control
deficiencies that contributed to the error. If so, please tell us
why you have not disclosed these changes in Item 9A of your Form
10-K
for the year ended December 31, 2005. If not, please tell us the
basis for your conclusion that your disclosure controls and
procedures and your internal control over financial reporting were
effective at December 31, 2005, despite the error.
27. Please disclose the following regarding the $37 million
adjustment, either in your amended Form S-1, or by amendment of
your
Form 10-Q for the quarter ended September 30, 2005 and your Form
10-K
for the year ended December 31, 2005:
* Your original conclusion regarding the effectiveness of your
disclosure controls and procedures as of September 30, 2005.
* Your consideration of the effect of the control deficiencies
surrounding your derivative instruments on your original
conclusion
regarding the effectiveness of your disclosure controls and
procedures as of September 30, 2005. If you conclude that your
disclosure controls and procedures were effective as of September
30,
2005, despite the control deficiencies surrounding your derivative
instruments, please disclose, in detail, the basis for this
conclusion.
* Any changes to your internal control over financial reporting
during the fourth quarter of 2005 to address the control
deficiencies
that contributed to the error. If, as you disclose, that you made
no
changes to your internal control over financial reporting during
the
fourth quarter of 2005 related to your derivatives controls,
please
disclose, in detail, the basis for your conclusion that your
disclosure controls and procedures and your internal control over
financial reporting were effective at December 31, 2005, despite
the
error.
Item 9a. Controls and Procedures
28. In future filings, please provide the correct definition of
disclosure controls. Refer to Exchange Act Rule 13a-15(e).
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert staff comments and the declaration
of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
Please direct questions regarding accounting comments to
Melissa Rocha at (202) 551-3854, or in her absence, to Nilima Shah
at
(202) 551-3255. Direct questions on other disclosure to Lesli
Sheppard at (202) 551-3708. In this regard, please do not
hesitate
to contact the undersigned at (202) 551-3760.
Sincerely,
Jennifer R. Hardy
Legal Branch Chief
cc: Timothy J. Melton, Esq. (via facsimile (312) 782-8585)
Jones Day
77 West Wacker
Chicago, IL 60601-1692
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J. Eric Schaal
USG Corporation
March 29, 2006
Page 4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE