March 26, 2008
John M. Hartz
Senior Assistant Chief Accountant
Division of Corporate Finance
United States Securities and Exchange Commission
100 F St., NE
Washington, DC 20549-7010
Re: United States Steel Corporation Form 10-K for the fiscal year ended
December 31, 2007
Filed February 27, 2008
File No. 1-16811
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Dear Mr. Hartz:
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR A PORTION OF THIS LETTER PURSUANT
TO 17 C.F.R. Section 200.83. WE HAVE INDICATED WHERE WE HAVE OMITTED
CONFIDENTIAL INFORMATION THAT WAS INCLUDED IN THE UNREDACTED VERSION OF THE
LETTER THAT WAS DELIVERED TO THE DIVISION OF CORPORATE FINANCE.
This is in response to your letter of March 14, 2008 regarding the subject
filing.
U. S. Steel is pleased to voluntarily provide the following responses and
information to the staff of the Securities and Exchange Commission (the
"Commission"). For convenience, we have reproduced each of your comments in the
order in which they appeared in your letter, and our response to each comment
immediately follows it.
Form 10-K for the year ended December 31, 2007
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Management's Discussion and Analysis, page 46
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1. We note your discussion of the segment results for Flat-rolled, USSE,
and Tubular on pages 53-55, including the fact that each of these
segments' income decreased during 2007. For example, you disclose on
page 53 that the decrease in Flat-rolled's segment income in 2007
compared to 2006 was "mainly due to higher raw materials, repair and
maintenance, outage and labor costs; lower shipments excluding USSC;
and operating losses at USSC primarily due to curtailed iron and
steelmaking operations as a result of unplanned blast furnace outages.
These were partially offset by increased average realized prices and
lower costs for profit-based payments." In future filings, please
quantify the effects of the various sources you have identified that
have contributed to such decreases. Pursuant to Item 303(a)(3)(ii)
of Regulation S-K, you should describe any known trends or
uncertainties that have had or that you reasonably expect will have
a material unfavorable impact on revenues or income from continuing
operations. If you know of events that will cause a material change
in the relationship between costs and revenues, you should disclose
the change in the relationship.
Response: U. S. Steel discloses results for the key business drivers
of raw steel production and shipments, average price per ton
and raw steel capability utilization, as applicable for each
segment. There are also several cost elements that affect
results. In future filings, U. S. Steel will set forth
quantifiable estimates of the major factors that contribute
to significant increases or decreases in income to the
extent those factors are reasonably quantifiable. In
addition, pursuant to Item 303(a)(3)(ii) of Regulation S-K,
U. S. Steel will continue to describe any known trends or
uncertainties that have had or that U. S. Steel reasonably
expects will have a material unfavorable impact on revenues
or income from continuing operations, and will describe the
change in relationship between costs and revenues arising
from any events causing a material change in such
relationship. We will quantify such effects to the extent
that they are reasonably quantifiable.
2. We note your statement on page 26 that major production curtailments
and escalated costs in Serbia have reduced profit margins and may do
so in the future, as well as your statement on page 28 that USSE's
shipments in the fourth quarter of 2007 were reduced by outbound rail
transportation service disruptions. To the extent material in future
filings, please quantify the impact of these unfavorable conditions
in your MD&A so that readers can better understand and assess the
scope of these events.
Response: In future filings, U. S. Steel will set forth in its MD&A
quantifiable estimates of the effects of significant
atypical events to the extent such events are reasonably
quantifiable.
3. We also note the fourth quarter financial data presented on page F-58,
which represents significant decreases in Flat-rolled and USSE's
segment income and net income compared to the prior quarters of 2007.
We remind you to include specific, detailed forewarning disclosure in
MD&A related to material trends and uncertainties at the earliest
possible time. Generally, the disclosure included in the Outlook
section of your September 30, 2007, Form 10-Q could have been more
helpful for these purposes. Please refer to the guidance in
Item 303(a)(3) of Regulation S-K, and Sections 216, 501.02 and
501.12.b.3 of the Financial Reporting Codification.
Response: While we believe the disclosure U. S. Steel included in the
Outlook section of its September 30, 2007, Form 10-Q met the
requirements of Item 303(a)(3) of Regulation S-K based upon
our knowledge and expectations, we acknowledge the Staff's
reminder.
In future filings, U. S. Steel shall attempt to identify and
quantify trends where such trends are reasonably
quantifiable.
1. Nature of Business and Significant Accounting Policies, page F-10
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4. We note your disclosure in Note 23 on page F-50 that U. S. Steel is
PRO-TEC's exclusive sales agent and is responsible for credit risk
related to receivables for which U. S. Steel provides certain customer
service functions. In future filings, please revise your significant
accounting policies to disclose how you recognize revenue related to
this agency relationship, as well as any other agency relationships
you have entered into, including your consideration of paragraphs
7-17 of EITF99-19.
Response: We considered the effect of EITF99-19 in preparing our
reports and have complied therewith. (Commission income
from our agency relationship with PRO-TEC is less than 0.2%
of U. S. Steel's revenue.) As of December 31, 2007, PRO-TEC
is the only agency relationship that we have, and it is not
deemed material enough to warrant disclosure as a
significant accounting policy. We will continue to review
our disclosure of significant accounting policies in future
filings to ensure that all material transactions are
addressed as they arise.
5. Assets Held for Sale, page F-23
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5. We note your disclosure herein regarding the sale of U. S. Steel
Canada Inc.'s (USSC) 44.6% interest in the Wabush Mines joint venture
(Wabush) to Consolidated Thompson Mines Limited for C$41 million. We
also note the Form 8-K dated March 4, 2008, in which USSC announced
that it had withdrawn from negotiations to sell this interest to
ArcelorMittal Dofasco Inc., one of the partners of the joint venture
who had exercised a right of first refusal over the proposed
transaction in August 2007. Since as of December 31, 2007, USSC's
investment in Wabush was classified as held for sale in accordance
with SFAS 144, please confirm your accounting for this investment
will comply with paragraphs 38-40 of SFAS 144 in your Form 10-Q for
the period ended March 31, 2008. Please also address the need to
establish litigation reserves in accordance with SFAS 5 for any
actions brought against the Company due to this withdrawal.
Response: We confirm that our 10-Q for the quarter ended March 31,
2008 will account for Wabush in accordance with GAAP
requirements.
[INFORMATION REDACTED] Our rational for that conclusion is
more fully explained in the following summary that we
anticipate including in the 10-Q, that will be updated for
any developments occurring before the 10-Q is filed:
Before U. S. Steel's October 31, 2007 acquisition of USSC,
Cleveland Cliffs Inc. ("Cliffs") and USSC received and
accepted a non-binding offer dated June 6, 2007 from
Consolidated Thompson Iron Mines Limited ("Consolidated") to
purchase USSC's 44.6% interest and Cliff's 26.8% interest in
Wabush for a purchase price of $64.3 million plus two year
warrants to purchase 3 million shares of Consolidated common
stock. This offer stated: "The acceptance of this offer by
Cliffs and Stelco [USSC] shall not create any legally
enforceable rights, other than the provisions of section 5,
14 and 15 of the attached". (Those sections contained
limited exclusivity, confidentiality and choice of law
provisions.) On August 30, 2007, ArcelorMittal Dofasco,
Inc. ("Dofasco") purported to exercise a right of first
refusal under the Participants Agreement dated as of
January 1, 1967 governing Wabush. On March 4, 2008,
following several months of unsuccessful negotiations over
many of the major terms of the proposed purchase and sale,
USSC and Cliffs informed Dofasco that they were withdrawing
from further negotiations. On March 20, 2008, Dofasco
served USSC with a statement of claim filed in the Ontario
Superior Court of Justice seeking a court order requiring
Cliffs and USSC to sell their interests in Wabush to Dofasco
and CAD427 million or, alternatively, damages of
CAD1.8 billion. USSC intends to vigorously defend this
action and does not believe it has any liability to Dofasco
regarding this matter.
16. Pension and Other Benefits, Page F-39
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6. We note your disclosure on page F-42 that the net periodic benefit
cost for pensions is projected to be $60 million for 2008. It is not
clear why the pension cost would be expected to be more than half the
amount less than the cost for 2007 of $129 million, especially
considering the employees added from the acquisitions of Stelco and
Lone Star during 2007. Please tell us and disclose in future filings
to the extent material the reason(s) therefor.
Response: The decrease in pension expense is due principally to: (a)
the absence of settlement, termination and curtailment costs
(approximately $20 million) and (b) the improved funded
status of the main U. S. Steel pension plan (approximately
$45 million). The two acquisitions are not expected to have
a material impact on 2008 pension expense. To the extent
material, we will make additional disclosures in the MD&A in
future filings.
As requested in your letter, U. S. Steel acknowledges that it is responsible for
the adequacy and accuracy of its filings; that the Commission is not foreclosed
from taking action as a result of staff comments or changes in disclosure as a
result of staff comments; and that U. S. Steel may not assert staff comments as
a defense in any proceeding initiated by the Commission or any other person
under the federal securities law.
Please contact me, or, in my absence, Joseph Napoli, General Attorney-Corporate
(412-433-2891) with any questions. With respect to any accounting issues,
please contact Larry Schultz, Vice President and Controller (412-433-1139) or
Colleen Darragh, Director- Financial Analysis & External Reporting (412-433-
5606) directly.
Sincerely,
/s/ Robert M. Stanton
Robert M. Stanton