<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
USG CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3275 36-3329400
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code No.)
organization) Number)
</TABLE>
125 SOUTH FRANKLIN STREET
CHICAGO, ILLINOIS 60606-4678
(312) 606-4000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
ARTHUR G. LEISTEN, ESQ.
SENIOR VICE PRESIDENT - GENERAL COUNSEL AND SECRETARY
125 SOUTH FRANKLIN STREET
CHICAGO, ILLINOIS 60606-4678
(312) 606-4000
(Name, address and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
FRANCIS J. GERLITS, P.C. SETH A. KAPLAN
Kirkland & Ellis Wachtell, Lipton, Rosen & Katz
200 East Randolph Drive 51 West 52nd Street
Chicago, Illinois 60601 New York, New York 10019
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
REGISTERED BE REGISTERED(1) PER SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, par value
$0.10 per share........ 9,775,000 shares $29.625 $289,584,375 $99,857
<FN>
(1) Includes 1,275,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated in accordance with Rule 457 solely for the purpose of calculating
the registration fee.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF
FORM S-1.
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page of Prospectus; Outside Back
Cover Page of Prospectus; Additional Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors
4. Use of Proceeds................................... Purpose of the Offering and Use of Proceeds;
Management's Discussion and Analysis of Financial
Condition and Results of Operations
5. Determination of Offering Price................... Not applicable
6. Dilution.......................................... Dilution
7. Selling Security Holders.......................... Ownership of Common Stock
8. Plan of Distribution.............................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to Be Registered........ Prospectus Summary; Dividend Policy; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and Counsel............ Legal Matters
11. Information with Respect to the Registrant........ Outside Front Cover Page of Prospectus; Prospectus
Summary; Risk Factors; Dividend Policy; Purpose of the
Offering and Use of Proceeds; Capitalization; Dilution;
Selected Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management; Certain
Relationships and Related Transactions; Description of
Capital Stock; Legal Matters; Experts; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SECURITIES IN
ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<TABLE>
<S> <C> <C>
PROSPECTUS SUBJECT TO COMPLETION [LOGO]
8,500,000 SHARES JANUARY 7, 1994
USG CORPORATION
COMMON STOCK
($.10 PAR VALUE)
</TABLE>
Of the 8,500,000 shares of common stock ("Common Stock") being offered (the
"Offering"), 6,000,000 shares are being sold by USG Corporation (the
"Corporation" or "USG") and 2,500,000 shares are being sold by a stockholder of
the Corporation (the "Selling Stockholder"). See "Ownership of Common Stock --
Selling Stockholder." The Company will not receive any of the proceeds from the
sale of Common Stock by the Selling Stockholder.
The Common Stock is traded on the New York Stock Exchange (the "NYSE") under the
symbol "USG." On January 3, 1994, the last reported sale price of the Common
Stock as reported on the NYSE Composite Tape was $29.625 per share. See "Price
Range of Common Stock." Potential investors are encouraged to obtain current
trading price information.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE MATTERS DISCUSSED UNDER THE
CAPTION "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
PROCEEDS TO PROCEEDS TO
PRICE TO UNDERWRITING CORPORATION SELLING
PUBLIC DISCOUNT (1) STOCKHOLDER
Per Share.................. $ $ $ $
Total (2).................. $ $ $ $
<FN>
(1) Before deduction of expenses payable by the Corporation, estimated to be
$810,000.
(2) The Corporation and the Selling Stockholder have granted to the Underwriters
a 30-day option to purchase up to 637,500 and 637,500 additional shares of
Common Stock, respectively, at the Price to Public, less the Underwriting
Discount, solely to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discount, Proceeds to Corporation and Proceeds to Selling Stockholder will
be , , , and , respectively. See
"Underwriting."
</TABLE>
The shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the shares will be made at the office of Salomon
Brothers Inc, Seven World Trade Center, New York, New York, or through the
facilities of The Depository Trust Company, on or about , 1994.
SALOMON BROTHERS INC LAZARD FRERES & CO.
SMITH BARNEY SHEARSON INC.
The date of this Prospectus is , 1994.
<PAGE>
[PICTURES TO BE FILED BY AMENDMENT]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) CONTAINED
ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES
TO "USG" AND THE "CORPORATION" MEAN USG CORPORATION, A DELAWARE CORPORATION, AND
ITS SUBSIDIARIES. UNLESS OTHERWISE SPECIFIED, THE INFORMATION PROVIDED IN THIS
PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE
"UNDERWRITING."
THE CORPORATION
Through its subsidiaries, USG is a leading manufacturer of building
materials in North America which produces a wide range of products for use in
residential and nonresidential construction, repair and remodeling, as well as
products used in certain industrial processes. United States Gypsum Company
("U.S. Gypsum") is the largest producer of gypsum wallboard in the United States
and accounted for approximately one-third of total domestic gypsum wallboard
sales in 1992. USG Interiors, Inc. ("USG Interiors") is a leading supplier of
interior ceiling, wall and floor products used primarily in commercial
applications. L&W Supply Corporation ("L&W Supply") is the largest distributor
of wallboard and related products in the United States and in 1992 sold
approximately 23% of U.S. Gypsum's wallboard production. In addition to its
United States operations, the Corporation's 76% owned subsidiary, CGC Inc.
("CGC"), is the largest manufacturer of gypsum products in eastern Canada and
the Corporation's USG International unit ("USG International") supplies interior
systems and gypsum wallboard products in Europe, the Pacific and Latin America.
In the nine months ended September 30, 1993, the Corporation had net sales of
$1.4 billion and generated EBITDA of $165 million. In the year ended December
31, 1992, the Corporation had net sales of $1.8 billion and generated EBITDA of
$159 million.
The Corporation believes that its leading industry positions and low cost
structure position it to take advantage of the long term potential in its three
industry segments: Gypsum Products, Interior Systems and Building Products
Distribution.
GYPSUM PRODUCTS. U.S. Gypsum has vertically integrated operations for
extracting, processing, producing and marketing gypsum and related products,
such as "SHEETROCK" brand wallboard, joint compound and industrial gypsum
cements and fillers. U.S. Gypsum also manufactures cement board, which it sells
under the "DUROCK" brand name. Due to the vertical integration of its key raw
materials (gypsum and paper), its technical expertise and the proximity of its
plants to major metropolitan areas, U.S. Gypsum believes that its delivered cost
for gypsum wallboard is generally lower than its competitors'. As a result of
efficiency improvements and cost reduction efforts, U.S. Gypsum's unit
manufacturing cost for gypsum wallboard in 1992 (measured in nominal dollars)
was lower than its unit manufacturing cost in 1982, despite a 28% increase in
the United States producer price index for construction materials during this
period. In the year ended December 31, 1992, the Gypsum Products segment had net
sales of $1.1 billion and generated EBITDA of $123 million before allocation of
corporate expenses.
INTERIOR SYSTEMS. The Interior Systems segment manufactures and markets an
integrated line of products used primarily for commercial interiors. Products
include ceiling grid and ceiling tile, access floor systems, wall systems and
mineral wool insulation and soundproofing products. In 1992, USG Interiors was
the leading producer of ceiling grid and the second largest producer of ceiling
tile in the United States, accounting for over one-half and approximately
one-third of total domestic sales of such products, respectively. CGC is the
largest producer of ceiling grid and the second largest marketer of ceiling tile
in Canada. Through USG International, the Interior Systems segment has a growing
presence in Europe, the Pacific and Latin America. In the year ended December
31, 1992, the Interior Systems segment had net sales of $548 million and
generated EBITDA of $59 million before allocation of corporate expenses.
BUILDING PRODUCTS DISTRIBUTION. The Building Products Distribution segment
is conducted through L&W Supply, which accounted for approximately 9% of all
gypsum wallboard sold in the United States in 1992. L&W Supply's 130
distribution centers located in 33 states offer a wide range of building
products
3
<PAGE>
to construction contractors, including wallboard, ceiling tile and ceiling grid.
L&W Supply is able to provide less than truckload quantities of materials
directly to job sites and place the materials in areas where work is in
progress, thereby reducing contractors' material handling and inventory
requirements. In the year ended December 31, 1992, the Building Products
Distribution segment had net sales of $464 million and generated EBITDA of $5
million before allocation of corporate expenses.
U.S. INDUSTRY TRENDS. Demand for the Corporation's products in the United
States is largely influenced by the three major components of the construction
industry: new residential construction (single and multi-family homes), new
non-residential construction (offices, schools, stores and other institutions)
and repair and remodel activity. In recent years, structural changes in
residential construction activity combined with growth in the repair and remodel
component have partially mitigated the impact of the cyclical demand in overall
new construction components. New residential construction has shifted toward
more single family housing, which typically requires twice as much wallboard as
a multi-family home, and the average single family home size has increased by
approximately 17% since 1985. In addition, the repair and remodel segment has
become an increasing percentage of the Corporation's business. For 1992, the
Corporation estimates that the repair and remodel segment comprised
approximately 36% of 1992 industry-wide demand for gypsum wallboard and
approximately half of industry-wide demand for interior systems products.
Largely as a result of these factors, United States industry shipments of gypsum
wallboard were 20.3 billion square feet in 1992, as compared to 20.1 billion in
1985, despite an approximate 31% decline in the number of housing starts from
1.7 million units in 1985 to 1.2 million units in 1992.
Industry shipments of gypsum wallboard during the nine months and three
months ended September 30, 1993 were 4% and 5% higher than during the
corresponding periods in 1992, respectively. The Corporation estimates that
industry capacity utilization for gypsum wallboard has increased from an average
of approximately 83% during 1992 to over 90% during the third quarter of 1993,
with U.S. Gypsum operating at over 90% of capacity. USG's average gypsum
wallboard price increased to $80.70 per thousand square feet ("MSF") in the
three months ended September 30, 1993, as compared to its 14 year low of $67.77
reached in the three months ended March 31, 1992.
The Corporation's principal executive offices are located at 125 South
Franklin Street, Chicago, Illinois 60606. Its telephone number at that address
is 312-606-4000.
THE RESTRUCTURING
On May 6, 1993, the Corporation completed a comprehensive restructuring of
its debt (the "Restructuring") through the implementation of a "prepackaged"
plan of reorganization under the federal bankruptcy laws. In the Restructuring,
the Corporation (i) converted approximately $1.4 billion of subordinated debt
and accrued interest into Common Stock and warrants to purchase Common Stock,
(ii) converted approximately $340 million of its bank obligations into 10 1/4%
Senior Notes due 2002 ("Senior 2002 Notes") and (iii) extended the maturities of
its remaining bank debt and certain public debt. Subsequent to the
Restructuring, the Corporation also completed an exchange offer that converted
an additional $138 million of bank debt into Senior 2002 Notes and eliminated
all scheduled bank debt amortization prior to December 31, 1997. Taken together,
the Restructuring and the subsequent exchange of bank debt for Senior 2002 Notes
significantly reduced the Corporation's overall interest and debt repayment
obligations and extended the maturities of a substantial portion of its
remaining debt.
PURPOSE OF THE OFFERING AND USE OF PROCEEDS
The Offering is part of a refinancing strategy which also includes (i) the
placement (the "Note Placement") of $150 million principal amount of new senior
notes due 2001 (the "Senior 2001 Notes") with certain institutional investors
and (ii) the amendment of USG's bank credit agreement (the "Credit Agreement
Amendments" and, together with the Offering and the Note Placement, the
"Transactions"). The Credit Agreement Amendments will, among other things, amend
existing mandatory bank term loan
4
<PAGE>
prepayment provisions so as to allow USG, upon the achievement of certain
financial tests, to retain additional free cash flow for capital expenditures
and the purchase of its public debt. The Credit Agreement Amendments are
contingent on the consummation of the Offering.
USG expects to use a portion of the net proceeds from the Offering and the
Note Placement, together with approximately $150 million of existing cash
generated from operations, to pay $140 million of its bank debt and to redeem,
at 100% of principal amount, $75 million of its 8% Senior Notes due 1995 (the
"Senior 1995 Notes") and $35 million of its 9% Senior Notes due 1998 (the
"Senior 1998 Notes"). The Corporation also expects to use a portion of the net
proceeds to purchase up to a total of approximately $128 million aggregate
principal amount of its outstanding 8% Senior Notes due 1996 (the "Senior 1996
Notes") and 8% Senior Notes due 1997 (the "Senior 1997 Notes"). The remainder of
the net proceeds will be available for general corporate purposes, including
capital expenditures for cost reduction, capacity improvement and future growth
opportunities.
Sources and uses of funds in the Transactions are estimated to be as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C>
Sources:
The Offering, net of the estimated underwriting discount and
expenses.............................................................. $ 169
The Note Placement..................................................... 150
Cash on hand........................................................... 150
-----
$ 469
-----
-----
Uses:
Payment of bank debt................................................... $ 140
Redemption of Senior 1995 Notes and Senior 1998 Notes.................. 110
Purchase of Senior 1996 Notes and Senior 1997 Notes.................... 128
General corporate purposes............................................. 91
-----
$ 469
-----
-----
</TABLE>
Collectively, the Transactions are designed, among other things, to (i)
reduce the Corporation's financial leverage, (ii) reduce the amount of the
Corporation's debt maturing in 1995 through 1998, (iii) extend the final
maturity of a significant portion of the Corporation's debt, (iv) improve the
Corporation's financial and operating flexibility under its bank credit
agreement and (v) provide funds for general corporate purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Purpose of the Offering and
Use of Proceeds."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Corporation................. 6,000,000 shares
The Selling Stockholder......... 2,500,000 shares
Total......................... 8,500,000 shares
Common Stock outstanding (a):
Prior to the Offering........... 37,158,085
After the Offering.............. 43,158,085
Use of Proceeds................... Payment of indebtedness and general corporate purposes,
including capital expenditures for cost reduction,
capacity improvement and future growth opportunities.
See "Purpose of the Offering and Use of Proceeds."
NYSE Symbol....................... USG
<FN>
- ------------------------
(a) Does not include (i) warrants to purchase up to an aggregate of 2,601,619
shares of Common Stock which are immediately exercisable at a price of
$16.14 per share and (ii) options held by management to purchase up to an
aggregate of 1,673,000 shares of Common Stock which will become exercisable
at a price of $10.3125 per share in the years 1994 through 1996. See
"Management -- Executive Compensation and Benefits."
</TABLE>
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
(Dollars in millions, except per share data and wallboard prices)
The following tables present summary historical financial data, summary pro
forma financial data and certain other information. Due to the Restructuring and
implementation of fresh start accounting, financial statements subsequent to May
6, 1993 are not comparable to financial statements for periods prior to that
date. Accordingly, a vertical line has been added to separate such information.
The information in the tables should be read in conjunction with "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Pro Forma Condensed Consolidated
Financial Information" and the Corporation's Consolidated Financial Statements
and notes thereto, all of which are included elsewhere in this Prospectus. See
"Index to Consolidated Financial Statements and Supplemental Data."
The unaudited pro forma income statement data for the nine months ended
September 30, 1993 and the year ended December 31, 1992 and the unaudited pro
forma balance sheet data as of September 30, 1993 were prepared as if the
Transactions had occurred on January 1, 1993, January 1, 1992 and September 30,
1993, respectively. The unaudited pro forma income statement data reflects the
implementation of the Restructuring, including the adoption of fresh start
accounting prescribed by AICPA Statement of Position 90-7, and the issuance of
$138 million in aggregate principal amount of Senior 2002 Notes in exchange for
bank debt as if those transactions had also occurred on January 1, 1993 and
January 1, 1992, respectively. The unaudited pro forma financial data shown
below does not purport to be indicative of the results of operations that would
actually have been reported had such transactions actually been consummated on
such dates or of the results of operations that may be reported by the
Corporation in the future. For additional detail, see "Pro Forma Condensed
Consolidated Financial Information."
HISTORICAL INFORMATION
<TABLE>
<CAPTION>
NINE
MONTHS
MAY 7 THROUGH JANUARY 1 ENDED YEARS ENDED DECEMBER 31
SEPTEMBER 30 THROUGH MAY SEPTEMBER ------------------------------
1993 6 1993(A) 30 1992 1992 1991 1990
--------------- ----------- -------- -------- -------- --------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C>
Net sales........................ $ 829 $ 591 $1,341 $1,777 $1,712 $1,915
Gross profit..................... 168 109 246 317 327 416
Amortization of excess
reorganization value............ 71 -- -- -- -- --
Operating profit................. 5 38 87 99 133 195
Interest expense................. 56 86 253 334 333 292
Interest income.................. (3) (2) (8) (12) (11) (8)
Other (income)/expense, net...... (6) 6 -- 1 5 5
Reorganization items............. -- (709)(b) -- -- -- --
Net earnings/(loss).............. (46)(c) 1,434 (131) (191) (161) (90)
Average number of common shares
(d)............................. 37,157,477
Net loss per common share (d).... (1.23)(c)
Dividends paid per common share
(d)............................. --
BALANCE SHEET DATA (as of the end
of the period):
Total assets..................... 2,186 2,194 1,676 1,659 1,626 1,675
Total debt....................... 1,543(e) 1,555(e) 2,706 2,711 2,660 2,600
Total stockholders'
equity/(deficit)................ (52) 4 (1,812) (1,880) (1,680) (1,518)
OTHER INFORMATION:
EBITDA (f)....................... 102 63 132 159 194 280
Capital expenditures............. 16 12 27 49 49 64
Gross margin (g)................. 20.3% 18.4% 18.3% 17.8% 19.1% 21.7%
EBITDA margin (h)................ 12.3 10.7 9.8 8.9 11.3 14.6
Gypsum wallboard shipments: (i)
Total U.S. Industry............ 9.2 6.7 15.3 20.3 18.4 20.7
U.S. Gypsum.................... 3.1 2.3 5.4 7.2 6.6 7.2
U.S. Gypsum wallboard price
(j)............................. $79.41 $75.81 $71.01 $71.58 $72.53 $79.08
</TABLE>
7
<PAGE>
PRO FORMA INFORMATION
<TABLE>
<CAPTION>
NINE YEAR
MONTHS ENDED
ENDED DECEMBER
SEPTEMBER 31,
30, 1993 1992
--------- -------
<S> <C> <C>
INCOME STATEMENT DATA:
Operating profit/(loss)........................................... $ (14) $ (66)
Interest expense.................................................. 86 116
Interest income................................................... (5) (10)
Other (income)/expense, net....................................... (1) (5)
Earnings/(loss) before extraordinary gain and changes in
accounting principles (k)........................................ (100) (188)
Earnings/(loss) before extraordinary gain and changes in
accounting principles per common share (k)....................... (2.28) (4.34)
BALANCE SHEET DATA (as of the end of the period):
Total assets...................................................... 2,126
Total debt........................................................ 1,315(l)
Total stockholders' equity/(deficit).............................. 103
OTHER INFORMATION:
EBITDA (f)........................................................ 165 159
Amortization of excess reorganization value....................... 128 170
<FN>
- ------------------------------
(a) Fresh start accounting adjustments were recorded on May 6, 1993.
(b) Reflects one-time gain from reorganization items, including an $851 million
gain from recording reorganization value in excess of identifiable assets,
partially offset by other fresh start adjustments, fees and expenses
associated with the Restructuring and a write-off of deferred financing
costs associated with the 1988 Recapitalization.
(c) For the period of May 7 through September 30, 1993, amortization of excess
reorganization value and reorganization discount reduced reported net
earnings by $75 million, or $2.03 per share.
(d) Common shares and per share data for periods prior to May 7, 1993 have been
omitted because, due to the Restructuring and implementation of fresh start
accounting, they are not meaningful.
(e) Total debt as of September 30 and May 6, 1993 are shown at principal
amounts. The carrying amounts (net of unamortized reorganization discount)
as reflected on the Corporation's balance sheets as of those dates are
$1,453 million and $1,461 million, respectively.
(f) EBITDA represents earnings before interest, taxes, depreciation, depletion,
amortization, non-cash postretirement charges, reorganization items,
extraordinary gain, discontinued operations and changes in accounting
principles. The Corporation believes EBITDA is helpful in understanding cash
flow generated from operations that is available for taxes, debt service and
capital expenditures. In addition, EBITDA facilitates the monitoring of
covenants related to certain long-term debt and other agreements entered
into in conjunction with the Restructuring.
(g) Gross profit as a percentage of net sales.
(h) EBITDA as a percentage of net sales.
(i) In billions of square feet.
(j) Represents average price per thousand square feet realized by U.S. Gypsum
during the periods shown.
(k) For pro forma nine months ended September 30, 1993 and the year ended
December 31, 1992, amortization of excess reorganization value and
reorganization discount reduced pro forma net earnings by $134 million and
$177 million, respectively, or $3.11 per share and $4.10 per share,
respectively.
(l) Total pro forma debt as of September 30, 1993 is shown at the principal
amount. The carrying amount (net of unamortized reorganization discount) as
reflected on the Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1993 is $1,246.
</TABLE>
8
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS.
HIGH LEVERAGE
The Corporation will remain highly leveraged upon completion of the
Transactions. As of September 30, 1993, the Corporation had $1,543 million
principal amount of total debt (which had a carrying amount of $1,453 million on
the Corporation's balance sheet after deducting unamortized reorganization
discount of $90 million) and stockholders' equity/(deficit) of ($52) million. As
adjusted to reflect the Offering and the debt repayments to be made in
connection with the Transactions, the Corporation's total principal amount of
debt and stockholders' equity as of September 30, 1993 would have been $1,315
million and $103 million, respectively. However, the Corporation is expected to
have a deficit in stockholders' equity at least during the period from 1993
through 1998 when reorganization value in excess of identifiable assets will be
amortized. See "Risk Factors -- Recent Losses," "Selected Consolidated Financial
Data," "Purpose of the Offering and Use of Proceeds" and "Capitalization."
The degree to which the Corporation is leveraged will pose risks to holders
of the Common Stock, including, but not limited to, the following: (i) a
significant portion of the Corporation's cash flow from operations will be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Corporation for its operations; (ii) the
Corporation's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes will be restricted; (iii) certain of the Corporation's borrowings are
and will continue to carry variable rates of interest, which could result in
higher interest expense in the event of an increase in interest rates; and (iv)
certain indebtedness contains financial and restrictive covenants, the failure
to comply with which may result in an event of default which, if not cured or
waived, could have a material adverse effect on the Corporation. These and other
factors could have material adverse effects on the marketability, price and
future value of the Common Stock.
LIQUIDITY; RELIANCE ON RECOVERY IN CONSTRUCTION-BASED MARKETS
The Corporation believes that cash generated by operations and the estimated
levels of liquidity available to the Corporation will be sufficient to permit
the Corporation to satisfy its debt service requirements and other capital
requirements for the foreseeable future. However, the Corporation is subject to
significant business, economic and competitive uncertainties that are beyond its
control. In particular, the Corporation's ability to satisfy its debt service
requirements and other capital requirements will require the continuation of the
recovery in the construction-based markets which began in 1992. Therefore, there
can be no assurance that the Corporation's financial resources will be
sufficient for the Corporation to satisfy its debt service obligations and other
capital requirements. See "Risk Factors -- Cyclical Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
RECENT LOSSES
During the period from May 7 through September 30, 1993, the Corporation
reported a net loss of $46 million after the amortization of $71 million of
reorganization value in excess of identifiable assets. The Corporation expects
to report net losses at least until its excess reorganization value is fully
amortized in 1998. Such amortization will be $170 million per year in 1994
through 1997 and $57 million in 1998. Although a significant portion of the
Corporation's recent net losses are the result of non-cash items, there can be
no assurance that the Corporation will have net income in the future.
CYCLICAL BUSINESS
The Corporation's business is cyclical in nature and sensitive to changes in
general economic conditions, including, in particular, conditions in the housing
and construction-based markets. As a result of this cyclicality, the Corporation
has experienced and in the future could experience reduced revenues and margins,
which may affect the Corporation's ability to satisfy its debt service
obligations on a timely basis. See "Business" and "Management's Discussion and
Analysis of Financial Condition and
9
<PAGE>
Results of Operations." During 1992, a modest recovery in the Corporation's
markets was evidenced by increases in housing starts and wallboard pricing and
shipments, in addition to improvement in sales of other construction products
over 1991. This recovery continued in 1993. However, there can be no assurance
that the modest recovery which began in 1992 will continue.
NONCOMPARABILITY OF HISTORICAL FINANCIAL INFORMATION
As a result of the adoption of fresh start accounting upon emergence from
bankruptcy, the Corporation's assets and liabilities were adjusted to fair
values and retained earnings were restated to zero. The historical financial
information presented herein should not, therefore, be viewed as indicative of
the Corporation's future financial performance. For a discussion of the
Corporation's results of operations since emergence from Chapter 11 proceedings,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ASBESTOS LITIGATION
One of the Corporation's subsidiaries, U.S. Gypsum, is a defendant in
asbestos lawsuits alleging property damage (the "Property Damage Cases") and
personal injury (the "Personal Injury Cases") and seeking compensatory and, in
many cases, punitive damages. This litigation has not had a material effect on
the Corporation's liquidity or earnings. To date, virtually all costs of the
Personal Injury Cases have been paid by insurance. U.S. Gypsum estimates that it
is probable that the Personal Injury Cases pending at December 31, 1992 can be
disposed of for an amount between $80 million and $100 million, virtually all of
which is expected to be paid by insurance. U.S. Gypsum is unable to make a
reasonable estimate of the cost of disposing of its pending Property Damage
Cases, some of which are class actions or involve multiple buildings. Many of
U.S. Gypsum's insurance carriers are denying coverage for the Property Damage
Cases, although U.S. Gypsum believes that substantial coverage exists and the
trial court in U.S. Gypsum's insurance coverage action (the "Coverage Action")
against its carriers has so ruled (such ruling has been appealed).
In view of the limited insurance funding currently available to U.S. Gypsum
for Property Damage Cases resulting from continued resistance by a number of its
insurers to providing coverage, the effect of the asbestos litigation on the
Corporation will depend upon a variety of factors, including the damages sought
in Property Damage Cases that reach trial prior to the completion of the
Coverage Action, U.S. Gypsum's ability to successfully defend or settle such
cases, and the resolution of the Coverage Action. As a result, management is
unable to determine whether an adverse outcome in the asbestos litigation will
have a material adverse effect on the results of operations or the consolidated
financial position of the Corporation. The Corporation's independent public
accountants have also noted this uncertainty in their report with respect to the
financial statements of the Corporation. See "Business -- General Information --
Asbestos Litigation" and "Consolidated Financial Statements -- Report of
Independent Public Accountants."
CREDIT AGREEMENT AND OTHER RESTRICTIONS
The Credit Agreement contains restrictions on the Corporation's operations
including, among other things, limitations on the ability of the Corporation and
certain subsidiaries to incur additional indebtedness, to create, incur or
permit the existence of certain liens, to make certain investments, to make
capital expenditures above certain levels, to make certain sales of assets, to
make certain payments with respect to outstanding stock and debt, to give
certain guarantees, to effect certain fundamental changes and to enter into
certain types of transactions. Although the Credit Agreement Amendments are
designed to increase the Corporation's financial and operating flexibility in
certain regards, the foregoing restrictions will nonetheless limit the
Corporation's ability to respond to opportunities or changes in its business.
See "Description Of Credit Agreement."
In addition, after January 1, 1995, the Credit Agreement will require the
Corporation to achieve and maintain certain financial ratios and tests. There
can be no assurance that the Corporation will be able to achieve and maintain
compliance with the prescribed financial ratios and tests or other requirements
under the Credit Agreement. Failure to achieve or maintain compliance with such
financial ratios and tests or other requirements under the Credit Agreement
would result in a default that could lead to the
10
<PAGE>
acceleration of the Corporation's obligations under the Credit Agreement. An
acceleration under the Credit Agreement would in turn permit the acceleration of
other indebtedness of the Corporation. The acceleration of any such indebtedness
would result in its becoming immediately due and payable and could result in the
Corporation becoming subject to a proceeding under the federal bankruptcy laws.
See "Description Of Credit Agreement."
In addition to the restrictions and covenants contained in the Credit
Agreement, the Senior 2002 Notes contain restrictions on the ability of the
Corporation and the Subsidiaries to incur additional indebtedness, to pay
dividends on the Common Stock, to effect certain fundamental changes and to
enter into certain types of transactions. See "Description of Credit Agreement"
and "Description of Other Debt Obligations."
RESTRICTIONS ON COMMON STOCK DIVIDENDS
The Corporation anticipates that no cash dividends will be paid on the
Common Stock for the foreseeable future. Further, the Corporation's ability to
pay cash dividends on the Common Stock is restricted under a number of the
Corporation's existing agreements. See "Dividend Policy," "Description of
Capital Stock," "Description of Credit Agreement" and "Description of Other Debt
Obligations."
ANTITAKEOVER PROVISIONS
The Corporation's Certificate of Incorporation, the Corporation's
Shareholder Rights Plan and the Delaware General Corporation Law contain
provisions that could have the effect of delaying or preventing transactions
that result in a change of control of the Corporation, including transactions in
which stockholders might otherwise receive a substantial premium for their
shares over then current market prices, and may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. See "Description of Capital Stock."
FUTURE SALES OF COMMON STOCK
Water Street Corporate Recovery Fund I, L.P. ("Water Street"), together with
its affiliates Goldman, Sachs & Co. and The Goldman Sachs Group, L.P.
(collectively the "Water Street Entities"), beneficially owned 16,105,840 shares
of Common Stock (including 116,070 warrants), or approximately 43% of the Common
Stock outstanding as of December 31, 1993. Water Street proposes to sell
2,500,000 shares of Common Stock in the Offering. Upon consummation of the
Offering, the Water Street Entities will beneficially own 13,605,840 shares of
Common Stock (including 116,070 warrants), or approximately 32% of the Common
Stock to be outstanding after the Offering. Goldman, Sachs & Co. is the general
partner of Water Street. Messrs. Zubrow and Fetzer, who are directors of the
Corporation, are general partners of Goldman, Sachs & Co.
On February 25, 1993, the Corporation entered into a letter agreement with
the Water Street Entities (the "Water Street Agreement"). The Water Street
Agreement, among other things, (i) restricts purchases of Common Stock by the
Water Street Entities; (ii) governs voting by the Water Street Entities of
shares of Common Stock beneficially owned by them; (iii) restricts transfers by
the Water Street Entities of shares of Common Stock to any person, except for
(a) sales consistent with Rule 144 of the Securities Act of 1933, (b)
underwritten public offerings, (c) persons not known to be 5% holders, (d)
pledgees who agree to be bound by certain provisions of the Water Street
Agreement, (e) in the case of Water Street, distributions to Water Street's
partners in accordance with the governing partnership agreement, (f) pursuant to
certain tender or exchange offers for shares of Common Stock and (g) pursuant to
transactions approved by the Board; (iv) requires that the Corporation's
Shareholder Rights Plan provide temporary exemptions for ownership of Common
Stock by the Water Street Entities; and (v) provides Water Street with four
demand registrations and unlimited piggyback registrations, subject to certain
limitations. During the 180-day period after the effective date of the Offering,
Water Street (and any Water Street Entity that receives a distribution of Common
Stock from Water Street and owns 5% or more of the then outstanding shares of
Common Stock) shall not request a demand registration of Common Stock. Except in
the case of the Offering, the Corporation and Water Street have mutual piggyback
rights on registrations initiated by either, generally on a 50-50 basis.
11
<PAGE>
There can be no assurance as to what effect future sales by the Water Street
Entities would have on the trading markets for the Common Stock. See "Ownership
of Common Stock" and "Certain Relationships and Related Transactions."
THE RESTRUCTURING
In July 1988, the Corporation consummated a plan of recapitalization (the
"1988 Recapitalization") in part in response to an unsolicited takeover attempt.
Approximately $2.5 billion in new debt was incurred by the Corporation to
finance the 1988 Recapitalization, pay related costs and repay certain debt
existing at that time. The 1988 Recapitalization immediately changed the
Corporation's capital structure to one that was highly leveraged. At the time of
the 1988 Recapitalization, the Corporation projected that it would have
sufficient cash flows to meet its debt service obligations in a timely manner.
However, the Corporation was adversely affected by a cyclical downturn in its
construction-based markets which resulted in the Corporation's inability to
achieve projected operating results and service certain debt obligations in a
timely manner.
On May 6, 1993 (the "Effective Date"), the Corporation completed the
Restructuring through the implementation of a "prepackaged" plan of
reorganization (the "Prepackaged Plan") which was confirmed under Chapter 11 of
Title 11 of the United States Code (the "Bankruptcy Code") by the United States
Bankruptcy Court for the District of Delaware. The principal components of the
Restructuring were:
- Conversion of approximately $1.4 billion of subordinated debt
and accrued interest into approximately 36.1 million shares of
Common Stock and warrants to purchase approximately 2.6 million
additional shares of Common Stock.
- Extension of the maturity of the Corporation's bank obligations
through the issuance of approximately $340 million of Senior 2002
Notes, approximately $56 million aggregate principal amount of
capitalized interest notes and approximately $540 million of term
loans with mandatory amortizations from 1994 to 2000; the
implementation of mandatory prepayment provisions and a cash
sweep mechanism; and the extension of the Corporation's then
existing revolving credit facility through July 13, 1998.
- Extension of the maturity of $100 million of senior notes due in
1991 and $10 million of Senior 1996 Notes through the issuance of
$75 million of Senior 1995 Notes and $35 million of Senior 1998
Notes.
Substantially all other obligations of the Corporation and its subsidiaries,
including obligations arising out of asbestos litigation and certain other legal
proceedings against the Corporation or its subsidiaries, were not affected by
the Restructuring and remained outstanding. See "Risk Factors -- Asbestos
Litigation," "Business -- General Information -- Asbestos Litigation" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Projected Liquidity."
Subsequent to the Restructuring, on August 10, 1993 the Corporation issued
$138 million of additional Senior 2002 Notes in exchange for $92 million of bank
term loans and $46 million of capitalized interest notes. In connection with the
issuance of the additional Senior 2002 Notes, USG's bank credit agreement was
modified as follows: (i) scheduled bank term loan amortization payments totaling
$95 million due in 1994, 1995 and 1996 were eliminated ($3 million was added to
the final maturity of the bank term loan due in 2000); (ii) $9 million of
capitalized interest notes originally due in 1998 were paid; and (iii) the cash
sweep mechanism was modified to permit the application of up to $165 million of
cash otherwise subject to the cash sweep mechanism in 1994, 1995 and 1996 to
repayment or purchase of senior debt due prior to January 1, 1999 or bank term
loans, at the discretion of the Corporation.
12
<PAGE>
PURPOSE OF THE OFFERING AND USE OF PROCEEDS
The net proceeds to the Corporation from the Offering are estimated to be
approximately $169 million (or $187 million if the Underwriters' over-allotment
option is exercised in full), based on an assumed offering price of $29.625 per
share (the last reported sale price of the Common Stock on the NYSE Composite
Tape on January 3, 1994), and after deducting the estimated underwriting
discount and offering expenses.
The Offering is part of a refinancing strategy which also includes (i) the
placement of $150 million principal amount of Senior 2001 Notes with certain
institutional investors in the Note Placement and (ii) the amendment of USG's
bank credit agreement (the "Credit Agreement"). The Credit Agreement Amendments
will, among other things, amend existing bank term loan mandatory prepayment
provisions so as to allow USG, upon the achievement of certain financial tests,
to retain additional free cash flow for capital expenditures and the purchase of
its public debt. The Credit Agreement Amendments are contingent on the
consummation of the Offering.
USG expects to use a portion of the net proceeds from the Offering and the
Note Placement, together with approximately $150 million of existing cash
generated from operations, to pay $140 million of its bank debt and to redeem,
at 100% of principal amount, $75 million of its Senior 1995 Notes and $35
million of its Senior 1998 Notes. The Corporation also expects to use a portion
of the net proceeds to purchase up to a total of approximately $128 million
aggregate principal amount of its outstanding Senior 1996 Notes and Senior 1997
Notes. The remainder of the net proceeds will be available for general corporate
purposes, including capital expenditures for cost reduction, capacity
improvement and future growth opportunities.
Sources and uses of funds in the Transactions are estimated to be as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C>
Sources:
The Offering, net of the estimated underwriting discount and expenses.......... $ 169
The Note Placement............................................................. 150
Cash on hand................................................................... 150
-----
$ 469
-----
-----
Uses:
Payment of bank debt........................................................... $ 140
Redemption of Senior 1995 Notes and Senior 1998 Notes.......................... 110
Purchase of Senior 1996 Notes and Senior 1997 Notes............................ 128
General corporate purposes..................................................... 91
-----
$ 469
-----
-----
</TABLE>
Collectively, the Transactions are designed, among other things, to (i)
reduce the Corporation's financial leverage, (ii) reduce the amount of the
Corporation's debt maturing in 1995 through 1998, (iii) extend the final
maturity of a significant portion of the Corporation's debt, (iv) improve the
Corporation's financial and operating flexibility under the Credit Agreement and
(v) provide funds for general corporate purposes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Corporation and its subsidiaries as of September 30, 1993 and as adjusted to
give effect to the Transactions, including the sale of 6,000,000 shares of
Common Stock by the Corporation in the Offering, based on an assumed offering
price of $29.625 per share (the last reported sale price of the Common Stock on
the NYSE Composite Tape on January 3, 1994). This table should be read in
conjunction with the Pro Forma Condensed Consolidated Financial Statements
contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1993
--------------------------
HISTORICAL PRO FORMA(A)
----------- -------------
<S> <C> <C>
(UNAUDITED)
(DOLLARS IN MILLIONS)
Total Debt:
Bank debt.................................................................. $ 449 $ 309
Senior notes and debentures
8% Senior Notes due 1995................................................. 75 --
8% Senior Notes due 1996................................................. 90 26
8% Senior Notes due 1997................................................. 100 36
9% Senior Notes due 1998................................................. 35 --
9 1/4% Senior Notes due 2001............................................. -- 150
10 1/4% Senior Notes due 2002............................................ 478 478
7 7/8% Sinking Fund Debentures due 2004.................................. 38 38
8 3/4% Sinking Fund Debentures due 2017.................................. 200 200
Industrial revenue bonds and other secured debt............................ 78 78
----------- -------------
Total principal amount of debt............................................. 1,543 1,315
Less unamortized reorganization discount................................... (90) (69)
----------- -------------
Total carrying amount of debt.............................................. 1,453 1,246
----------- -------------
Stockholders' Equity/(Deficit):
Preferred Stock, $1 par value, 36,000,000 shares authorized, no shares
outstanding............................................................. -- --
Common Stock, $0.10 par value, 200,000,000 shares authorized, 37,157,553
shares outstanding prior to the Offering, 43,157,553 shares outstanding
upon consummation of the Offering (b)................................... 4 5
Capital received in excess of par value.................................. -- 168
Deferred currency translation............................................ (10) (10)
Reinvested earnings/(deficit)............................................ (46) (60)
----------- -------------
Total stockholders' equity/(deficit)................................... (52) 103
----------- -------------
Total capitalization................................................. $ 1,401 $ 1,349
----------- -------------
----------- -------------
<FN>
- ------------------------
(a) Assumes purchases by the Corporation of $64 million principal amount
of Senior 1996 Notes and $64 million principal amount of Senior 1997 Notes.
Such purchases are assumed to be made at 100% of principal amount. However,
the Senior 1996 Notes and Senior 1997 Notes are not callable and there can
be no assurance that the Corporation will be able to purchase the Senior
1996 Notes or Senior 1997 Notes as shown. Funds not used to purchase Senior
1996 Notes and Senior 1997 Notes within 12 months after the consummation of
the Offering may become subject to the cash sweep mechanism under the Credit
Agreement. See "Description of Credit Agreement."
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
(b) Does not include (i) warrants to purchase up to an aggregate of
2,602,472 shares of Common Stock which are immediately exercisable at a
price of $16.14 per share and (ii) options held by management to purchase up
to an aggregate of 1,673,000 shares of Common Stock which will become
exercisable at a price of $10.3125 per share in the years 1994 through 1996.
See "Management -- Executive Compensation and Benefits."
</TABLE>
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the NYSE under the symbol "USG." In connection
with the issuance of shares of Common Stock pursuant to the Prepackaged Plan,
trading of the Common Stock commenced on the NYSE on a when-issued basis on May
7, 1993 and a regular-way basis on May 21, 1993. During the period from May 6,
1993, the date the Corporation emerged from Chapter 11 bankruptcy proceedings,
through December 31, 1993, the high and low sales prices of Common Stock, as
reported on the NYSE Composite Tape, were $30 1/2 per share and $9 5/8 per
share, respectively. The last reported sale price of the Common Stock as
reported on the NYSE Composite Tape on January 3, 1994 was $29 5/8 per share.
The high and the low sales prices of the Common Stock by quarter during 1993, as
reported on the NYSE Composite Tape, were:
<TABLE>
<CAPTION>
MAY 7 JULY 1 OCTOBER 1
THROUGH THROUGH THROUGH
JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- -------------- -------------
<S> <C> <C> <C>
High.................................................................... $ 14 $ 22 5/8 $ 30 1/2
Low..................................................................... 9 5/8 13 20 1/4
</TABLE>
Although common stock of the Corporation was publicly traded prior to May 7,
1993, the historical sales prices are not comparable with the sales prices set
forth above due to the Restructuring. Potential investors are encouraged to
obtain current trading price information. As of December 31, 1993, there were
approximately 13,898 stockholders of record of Common Stock.
DIVIDEND POLICY
Since July 1988, the Corporation has not declared or paid any cash dividends
on its Common Stock. The Corporation does not presently intend to pay any
dividends in the foreseeable future. In addition, the Corporation's Credit
Agreement and certain other debt instruments currently restrict the
Corporation's ability to pay dividends to common stockholders. Moreover, the
Corporation is prohibited from paying any dividends without surplus earnings or
capital earmarked for this purpose under Delaware corporate law. See "Risk
Factors -- Restrictions on Common Stock Dividends," "Description of Capital
Stock," "Description of Credit Agreement" and "Description of Other Debt
Obligations."
15
<PAGE>
DILUTION
The following table presents certain information concerning the net tangible
book value per share of the Common Stock as of September 30, 1993, and as
adjusted to reflect the sale of 6,000,000 shares of Common Stock by the
Corporation in the Offering, at an assumed public offering price of $29.625 per
share (the last reported sale price of the Common Stock on the NYSE Composite
Tape on January 3, 1994) and after deducting the estimated offering expenses and
underwriting discounts:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.................. $ 29.63
Net tangible book value (deficit) per share before the
Offering (1)............................................ $ (22.28)
Increase per share attributable to payments by new
investors............................................... 6.69
---------
Pro forma net tangible book value (deficit) per share
after the Offering...................................... (15.59)
---------
Dilution per share to new investors (2).................. $ 45.22
---------
---------
<FN>
- ------------------------
(1) Net tangible book value per share of Common Stock is determined by
dividing the Corporation's tangible net worth at September 30,
1993 by the aggregate number of shares of Common Stock
outstanding.
(2) Dilution is determined by subtracting net tangible book value per
share after the Offering from the public offering price per share.
</TABLE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited Pro Forma Condensed Consolidated Statements of Earnings for
the nine months ended September 30, 1993 and the twelve months ended December
31, 1992 and the unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1993 illustrate the effect of the Transactions. The unaudited pro
forma condensed consolidated financial statements should be read in conjunction
with "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Corporation's
Consolidated Financial Statements and related notes thereto contained elsewhere
in this Prospectus.
The unaudited Pro Forma Condensed Consolidated Statements of Earnings for
the nine months ended September 30, 1993 and the twelve months ended December
31, 1992 were prepared as if the Transactions had occurred on January 1, 1993
and January 1, 1992, respectively. Due to the Restructuring and implementation
of fresh start accounting, financial statements for periods after May 6, 1993
are not comparable to financial statements prior to that date. However, for
presentation of the Pro Forma Condensed Consolidated Statement of Earnings,
results for the first nine months of 1993 are shown under the caption "Total
Before Adjustments." The adjustments set forth under the caption "Restructuring"
reflect the implementation of the Prepackaged Plan on May 6, 1993, including the
adoption of fresh start accounting prescribed by AICPA Statement of Position
90-7, and the issuance of $138 million in aggregate principal amount of Senior
2002 Notes on August 10, 1993 in exchange for bank debt as though those
transactions had also occurred on January 1, 1993 and January 1, 1992,
respectively.
The unaudited Pro Forma Condensed Consolidated Balance Sheet as of September
30, 1993 was prepared as if the consummation of the Transactions had occurred on
September 30, 1993.
16
<PAGE>
USG CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1993
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
TOTAL BEFORE --------------------------------
ADJUSTMENTS (A) RESTRUCTURING (C) TRANSACTIONS PRO FORMA
--------------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Net sales.......................................... $ 1,420 $ $ $ 1,420
Cost of products sold.............................. 1,143 1,143
------- ------- ------------- -----------
Gross profit....................................... 277 277
Selling and administrative expenses................ 163 163
Amortization of excess reorganization value........ 71 57(d) 128
------- ------- ------------- -----------
Operating profit/(loss)............................ 43 (57) (14)
Interest expense................................... 142 (39)(e) (17)(g) 86
Interest income.................................... (5) -- (5)
Other (income)/expense, net........................ -- (1) (1)
Reorganization items............................... (709) 709(f) --
------- ------- ------------- -----------
Earnings/(loss) before taxes on income,
extraordinary gain and changes in accounting
principles........................................ 615 (726) 17 (94)
Taxes on income.................................... 21 (16) 1 6
------- ------- ------------- -----------
Earnings/(loss) before extraordinary gain and
changes in accounting principles.................. 594 (710) 16 (100)
------- ------- ------------- -----------
------- ------- ------------- -----------
Earnings/(loss) before extraordinary gain and
changes in accounting principles per common
share............................................. --(b) (2.28)(h)
------- -----------
------- -----------
</TABLE>
See accompanying Notes to the Pro Forma Condensed Consolidated Statement of
Earnings.
17
<PAGE>
USG CORPORATION
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1993
(UNAUDITED)
(DOLLARS IN MILLIONS)
The following notes set forth the explanations and assumptions used in
preparing the unaudited Pro Forma Condensed Consolidated Statement of Earnings.
The pro forma adjustments are based on estimates by the Corporation's management
using information currently available.
(a) Due to the Restructuring and implementation of fresh start accounting,
financial statements for periods after May 6, 1993 are not comparable to
financial statements prior to that date. However, for presentation of
the Pro Forma Condensed Consolidated Statement of Earnings, results for
the first nine months of 1993 are shown under the caption "Total Before
Adjustments."
(b) Due to the Restructuring and implementation of fresh start accounting,
earnings/(loss) before extraordinary gain and changes in accounting
principles per common share for the first nine months of 1993 shown
under the caption "Total Before Adjustments" is not meaningful and
therefore has been omitted.
(c) The adjustments set forth under the caption "Restructuring" reflect the
implementation of the Prepackaged Plan on May 6, 1993, including the
adoption of fresh start accounting prescribed by AICPA Statement of
Position 90-7, and the issuance of Senior 2002 Notes on August 10, 1993
in exchange for bank debt, as if those transactions had occurred on
January 1, 1993.
(d) Reflects amortization of excess reorganization value which would have
been recorded during the period of January 1 through May 6, 1993 had the
Restructuring been consummated on January 1, 1993.
(e) Reflects net reduction of interest expense for the period of January 1
through May 6, 1993 as a result of the assumed implementation of the
Prepackaged Plan and issuance of Senior 2002 Notes on January 1, 1993.
The net reduction has been estimated as follows:
<TABLE>
<S> <C> <C>
Decrease in interest expense:
Bank debt................................................... $ (21)
7 3/8% senior notes due 1991................................ (3)
13 1/4% senior subordinated debentures...................... (22)
16% junior subordinated debentures.......................... (18)
---------
$ (64)
Increase in interest expense:
Senior 1995 Notes........................................... 2
Senior 1998 Notes........................................... 1
Senior 2002 Notes........................................... 18
---------
21
Amortization of reorganization discount....................... 4
---------
Net reduction of interest expense............................. (39)
---------
---------
</TABLE>
(f) Reflects the elimination of the net gain from reorganization items
associated with the implementation of the Prepackaged Plan and the
adoption of fresh start accounting, since this gain would have been
recorded in the period prior to January 1, 1993.
18
<PAGE>
USG CORPORATION
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED)
(g) Reflects net reduction of interest expense as a result of the
Transactions. The net reduction has been estimated as follows:
<TABLE>
<S> <C> <C>
Decrease in interest expense:
Bank debt................................................... $ (11)
Senior 1995 Notes........................................... (4)
Senior 1996 Notes........................................... (4)
Senior 1997 Notes........................................... (4)
Senior 1998 Notes........................................... (2)
---------
$ (25)
Increase in interest expense:
Senior 2001 Notes (assumed to bear interest at 9 1/4% per
annum)..................................................... 11
Write-off of unamortized reorganization discount.............. (3)
---------
Net reduction of interest expense............................. (17)
---------
---------
</TABLE>
(h) Pro forma earnings/(loss) before extraordinary gain and changes in
accounting principles per common share is computed based upon an average
of 43,157,468 shares of Common Stock assumed to be outstanding during
the nine months ended September 30, 1993. Amortization of excess
reorganization value and reorganization discount reduced pro forma
earnings/(loss) before extraordinary gain and changes in accounting
principles per common share by $3.11 (or $134 milllion in total).
19
<PAGE>
USG CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1992
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------
HISTORICAL RESTRUCTURING (A) TRANSACTIONS PRO FORMA
----------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Net sales.............................................. $ 1,777 $ $ $ 1,777
Cost of products sold.................................. 1,460 (4)(b) 1,456
----------- ------- ------------- -----------
Gross profit........................................... 317 4 321
Selling and administrative expenses.................... 218 (1)(c) 217
Amortization of excess reorganization value............ -- 170(d) 170
----------- ------- ------------- -----------
Operating profit/(loss)................................ 99 (165) (66)
Interest expense....................................... 334 (200)(e) (18)(i) 116
Interest income........................................ (12) 2(f) (10)
Other (income)/expense, net............................ 1 (6)(g) (5)
----------- ------- ------------- -----------
Earnings/(loss) before taxes on income, extraordinary
gain and changes in
accounting principles................................. (224) 39 18 (167)
Taxes on income/(income tax benefit)................... (33) 48 6 21
----------- ------- ------------- -----------
Earnings/(loss) before extraordinary gain
and changes in accounting principles.................. (191) (9) 12 (188)
----------- ------- ------------- -----------
----------- ------- ------------- -----------
Earnings/(loss) before extraordinary gain
and changes in accounting principles per
common share.......................................... --(h) (4.34 )(j)
----------- -----------
----------- -----------
</TABLE>
20
<PAGE>
USG CORPORATION
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1992
(UNAUDITED)
(DOLLARS IN MILLIONS)
The following notes set forth the explanations and assumptions used
preparing the unaudited Pro Forma Condensed Consolidated Statement of Earnings.
The pro forma adjustments are based on estimates by the Corporation's management
using information currently available.
(a) The adjustments set forth under the caption "Restructuring" reflect the
implementation of the Prepackaged Plan on May 6, 1993, including the
adoption of fresh start accounting prescribed by AICPA Statement of
Position 90-7, and the issuance of Senior 2002 Notes on August 10, 1993
in exchange for bank debt, as those transactions had occurred on January
1, 1992. The net gain from reorganization items associated with the
implementation of the Prepackaged Plan would have been recorded in the
period prior to January 1, 1992.
(b) Reflects (i) the reversal of 1992 goodwill amortization of $3 million;
(ii) adjusted depreciation expense of $2 million due to a write-down of
property, plant and equipment; and (iii) increased pension costs of $1
million.
(c) Reflects the adjustment of rent expense to the fair market value of
various operating leases.
(d) Reflects amortization of excess reorganization value which would have
been recorded during the period of January 1 through December 31, 1992
had the Restructuring been consummated on January 1, 1992.
(e) Reflects net reduction of interest expense for the period of January 1
through December 31, 1992 as a result of the assumed implementation of
the Prepackaged Plan and issuance of Senior 2002 Notes on January 1,
1992. The net reduction has been estimated as follows:
<TABLE>
<S> <C> <C>
Decrease in interest expense:
Bank debt.................................................. $ (86)
7 3/8% senior notes due 1991............................... (7)
13 1/4% senior subordinated debentures..................... (97)
16% junior subordinated debentures......................... (74)
---------
$ (264)
Increase in interest expense:
Senior 1995 Notes.......................................... 6
Senior 1998 Notes.......................................... 2
Senior 2002 Notes.......................................... 45
---------
53
Amortization of reorganization discount...................... 11
---------
Net reduction of interest expense............................ (200)
---------
---------
</TABLE>
(f) Reflects interest income that would not have been received on the
proceeds from the sale of the Corporation's DAP, Inc. subsidiary had
the Restructuring occurred on January 1, 1992.
(g) Reflects reversal of amortization of deferred financing costs associated
with the 1988 Recapitalization which were amortized in 1992.
(h) Due to the Restructuring and implementation of fresh start accounting,
historical earnings/ (loss) before extraordinary gain and changes in
accounting principles per common share for the year ended December 31,
1992 is not meaningful and therefore has been omitted.
21
<PAGE>
USG CORPORATION
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED)
(i) Reflects net reduction of interest expense as a result of the
Transactions. The net reduction has been estimated as follows:
<TABLE>
<S> <C> <C>
Decrease in interest expense:
Bank debt................................................... $ (8)
Senior 1995 Notes........................................... (6)
Senior 1996 Notes........................................... (5)
Senior 1997 Notes........................................... (5)
Senior 1998 Notes........................................... (3)
---------
$ (27)
Increase in interest expense:
Senior 2001 Notes (assumed to bear interest at 9 1/4% per
annum)..................................................... 14
Write-off of unamortized reorganization discount.............. (5)
---------
Net reduction of interest expense............................. (18)
---------
---------
</TABLE>
(j) Pro forma earnings/(loss) before extraordinary gain and changes in
accounting principles per common share is computed based upon an
average of 43,178,175 shares of Common Stock assumed to be outstanding
during the year ended December 31, 1992. Amortization of excess
reorganization value and reorganization discount reduced pro forma
earnings/(loss) before extraordinary gain and changes in accounting
principles per common share by $4.10 (or $177 million in total).
22
<PAGE>
USG CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1993
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 157 $ (59)(a) $ 98
Receivables............................................................. 292 292
Inventories............................................................. 147 147
----------- ------------- -----------
Total current assets.................................................. 596 (59) 537
Property, plant and equipment, net........................................ 754 754
Reorganization value in excess of identifiable assets..................... 776 776
Other assets.............................................................. 60 (1)(b) 59
----------- ------------- -----------
Total assets.......................................................... 2,186 (60) 2,126
----------- ------------- -----------
----------- ------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ 101 101
Accrued expenses........................................................ 211 211
Notes payable........................................................... 8 8
Long-term debt maturing within one year................................. 6 6
Taxes on income......................................................... 14 14
----------- ------------- -----------
Total current liabilities............................................. 340 340
----------- ------------- -----------
Long-term debt............................................................ 1,439 (207)(c) 1,232
Deferred income taxes..................................................... 173 (8)(d) 165
Other liabilities......................................................... 286 286
Stockholders' equity/(deficit):
Preferred stock......................................................... -- --
Common stock............................................................ 4 1(e) 5
Capital received in excess of par value................................. -- 168(e) 168
Deferred currency translation........................................... (10) -- (10)
Reinvested earnings/(deficit)........................................... (46) (14)(f) (60)
----------- ------------- -----------
Total stockholders' equity/(deficit).................................. (52) 155 103
----------- ------------- -----------
Total liabilities and stockholders' equity............................ 2,186 (60) 2,126
----------- ------------- -----------
----------- ------------- -----------
Book value/(deficit) per common share..................................... (1.40) 3.78 2.38
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
See accompanying Notes to the Pro Forma Condensed Consolidated Balance Sheet.
23
<PAGE>
USG CORPORATION
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1993
(UNAUDITED)
(DOLLARS IN MILLIONS)
The following notes set forth the explanations and assumptions used in
preparing the unaudited Pro Forma Condensed Consolidated Balance Sheet. The pro
forma adjustments are based on estimates by the Corporation's management using
information currently available.
(a) Reflects the reduction in cash and cash equivalents as follows:
<TABLE>
<S> <C>
Payment of bank debt............................................ $ (140)
Retirement of Senior 1995 Notes................................. (75)
Retirement of Senior 1996 Notes................................. (64)
Retirement of Senior 1997 Notes................................. (64)
Retirement of Senior 1998 Notes................................. (35)
Issuance for cash of Senior 2001 Notes in the Note Placement.... 150
Issuance of Common Stock in the Offering........................ 169
---------
Total........................................................... (59)
---------
---------
</TABLE>
Assumes purchases by the Corporation of $64 million principal amount
of Senior 1996 Notes and $64 million principal amount of Senior 1997
Notes. Such purchases are assumed to be made at 100% of principal
amount. However, the Senior 1996 Notes and Senior 1997 Notes are not
callable and there can be no assurance that the Corporation will be able
to purchase the Senior 1996 Notes or Senior 1997 Notes as shown. Funds
not used to purchase Senior 1996 Notes and Senior 1997 Notes within 12
months after the consummation of the Offering may become subject to the
cash sweep mechanism under the Credit Agreement. See "Description of
Credit Agreement."
(b) Write-off of deferred financing costs associated with debt to be repaid
in the Transactions.
(c) Reflects net reduction of long-term debt as follows:
<TABLE>
<S> <C>
Payment of bank debt............................................ $ (140)
Retirement of Senior 1995 Notes................................. (75)
Retirement of Senior 1996 Notes................................. (64)
Retirement of Senior 1997 Notes................................. (64)
Retirement of Senior 1998 Notes................................. (35)
Issuance of Senior 2001 Notes in the Note Placement............. 150
---------
(228)
Write-off of related unamortized reorganization discount........ 21
---------
Total........................................................... (207)
---------
---------
</TABLE>
(d) Reflects reduction in deferred taxes as a result of the write-off of
unamortized reorganization discount related to debt retired in the
Transactions.
(e) Reflects the issuance of 6,000,000 shares of Common Stock, par value
$0.10 per share, in the Offering, yielding net proceeds of $169 million.
24
<PAGE>
USG CORPORATION
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(CONTINUED)
(f) The extraordinary loss, net of taxes, is estimated as follows:
<TABLE>
<S> <C> <C>
Write-off of unamortized reorganization discount:
Bank debt............................................... $(13 )
Senior 1995 Notes....................................... (2)
Senior 1996 Notes....................................... (3)
Senior 1997 Notes....................................... (2)
Senior 1998 Notes....................................... (1)
-------
$ (21)
Write-off of deferred issuance costs.................... (1)
Estimated tax benefit................................... 8
-------
Total................................................... (14)
-------
-------
</TABLE>
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA AND WALLBOARD PRICES)
The following table sets forth selected historical consolidated financial
information of the Corporation for the post-Restructuring period of May 7
through September 30, 1993 and for the pre-Restructuring periods of January 1
through May 6, 1993, the nine months ended September 30, 1992 and the five years
ended December 31, 1992. Due to the Restructuring and implementation of fresh
start accounting, financial statements subsequent to May 6, 1993 are not
comparable to financial statements for periods prior to that date. Accordingly,
a vertical line has been added to separate such information. The information
provided below has not been audited. However, the selected annual historical
consolidated financial information presented below has been derived from the
Consolidated Financial Statements of the Corporation and its subsidiaries which
were examined by Arthur Andersen & Co., whose report with respect to certain of
such financial statements appears elsewhere in this Prospectus. The following
financial information should be read in conjunction with "Pro Forma Condensed
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Corporation's
Consolidated Financial Statements and notes thereto, all of which are included
elsewhere in this Prospectus. See "Index To Consolidated Financial Statements
and Supplemental Data."
<TABLE>
<CAPTION>
NINE
MONTHS
MAY 7 THROUGH JANUARY 1 ENDED YEARS ENDED DECEMBER 31
SEPTEMBER 30 THROUGH MAY SEPTEMBER --------------------------------------
1993 6 1993(A) 30 1992 1992 1991 1990 1989
--------------- ----------- ---------- -------- -------- -------- --------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $829 $591 $1,341 $1,777 $1,712 $1,915 $2,007
Cost of products sold................... 661 482 1,095 1,460 1,385 1,499 1,506
--------------- ----------- ---------- -------- -------- -------- --------
Gross profit............................ 168 109 246 317 327 416 501
Amortization of excess reorganization
value.................................. 71 -- -- -- -- -- --
Selling and administrative expenses..... 92 71 159 218 194 203 209
Restructuring expenses.................. -- -- -- -- -- 18 --
--------------- ----------- ---------- -------- -------- -------- --------
Operating profit........................ 5 38 87 99 133 195 292
Interest expense........................ 56 86 253 334 333 292 297
Interest income......................... (3) (2) (8) (12) (11) (8) (10)
Other (income)/expense, net............. (6) 6 -- 1 5 5 15
Reorganization items.................... -- (709)(b) -- -- -- -- --
Nonrecurring gain....................... -- -- -- -- -- (34) (33)
Taxes on income/(income tax benefit).... 4 17 (27) (33) (53) (6) 3
Extraordinary gain, net of taxes........ -- 944 --
Changes in accounting principles, net... -- (150) --
Earnings/(loss) from discontinued
operations, net........................ -- -- -- -- (20) (36) 8
--------------- ----------- ---------- -------- -------- -------- --------
Net earnings/(loss)..................... (46)(c) 1,434 (131) (191) (161) (90) 28
--------------- ----------- ---------- -------- -------- -------- --------
--------------- ----------- ---------- -------- -------- -------- --------
Average number of common shares (d)..... 37,157,477
Net loss per common share (d)........... (1.23)(c)
Dividends paid per common share (d)..... --
BALANCE SHEET DATA (as of the end of the
period):
Total assets............................ 2,186 2,194 1,676 1,659 1,626 1,675 1,585
Total debt.............................. 1,543(e) 1,555(e) 2,706 2,711 2,660 2,600 2,428
Total stockholders' equity/(deficit).... (52) 4 (1,812) (1,880) (1,680) (1,518) (1,438)
OTHER INFORMATION:
EBITDA (f).............................. 102 63 132 159 194 280 361
Capital expenditures.................... 16 12 27 49 49 64 76
Gross margin (g)........................ 20.3% 18.4% 18.3% 17.8% 19.1% 21.7% 25.0%
EBITDA margin (h)....................... 12.3 10.7 9.8 8.9 11.3 14.6 18.0
Gypsum wallboard shipments: (i)
Total U.S. Industry................... 9.2 6.7 15.3 20.3 18.4 20.7 21.3
U.S. Gypsum........................... 3.1 2.3 5.4 7.2 6.6 7.2 7.2
U.S. Gypsum wallboard price (j)......... $79.41 $75.81 $71.01 $71.58 $72.53 $79.08 $85.68
<CAPTION>
1988
--------
INCOME STATEMENT DATA:
<S> <C>
Net sales............................... $2,070
Cost of products sold................... 1,536
--------
Gross profit............................ 534
Amortization of excess reorganization
value.................................. --
Selling and administrative expenses..... 223
Restructuring expenses.................. 20
--------
Operating profit........................ 291
Interest expense........................ 178
Interest income......................... (13)
Other (income)/expense, net............. 16
Reorganization items.................... --
Nonrecurring gain....................... --
Taxes on income/(income tax benefit).... 43
Extraordinary gain, net of taxes........
Changes in accounting principles, net...
Earnings/(loss) from discontinued
operations, net........................ 58
--------
Net earnings/(loss)..................... 125
--------
--------
Average number of common shares (d).....
Net loss per common share (d)...........
Dividends paid per common share (d).....
BALANCE SHEET DATA (as of the end of the
period):
Total assets............................ 1,806
Total debt.............................. 2,643
Total stockholders' equity/(deficit).... (1,471)
OTHER INFORMATION:
EBITDA (f).............................. 383
Capital expenditures.................... 81
Gross margin (g)........................ 25.8%
EBITDA margin (h)....................... 18.5
Gypsum wallboard shipments: (i)
Total U.S. Industry................... 21.3
U.S. Gypsum........................... 7.3
U.S. Gypsum wallboard price (j)......... $90.65
</TABLE>
26
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(a) Fresh start accounting adjustments were recorded on May 6, 1993.
(b) Reflects one-time gain from reorganization items, including an $851 million
gain from recording reorganization value in excess of identifiable assets,
partially offset by other fresh start adjustments, fees and expenses
associated with the Restructuring and a write-off of deferred financing
costs associated with the 1988 Recapitalization.
(c) For the period of May 7 through September 30, 1993, amortization of excess
reorganization value and reorganization discount reduced reported net
earnings by $75 million, or $2.03 per share.
(d) Common shares and per share data for periods prior to May 7, 1993 have been
omitted because, due to the Restructuring and implementation of fresh start
accounting, they are not meaningful.
(e) Total debt as of September 30 and May 6, 1993 are shown at principal
amounts. The carrying amounts (net of unamortized reorganization discount)
as reflected on the Corporation's balance sheets as of those dates are
$1,453 million and $1,461 million, respectively.
(f) EBITDA represents earnings before interest, taxes, depreciation, depletion,
amortization, non-cash postretirement charges, reorganization items,
extraordinary gain, discontinued operations and changes in accounting
principles. The Corporation believes EBITDA is helpful in understanding cash
flow generated from operations that is available for taxes, debt service and
capital expenditures. In addition, EBITDA facilitates the monitoring of
covenants related to certain long-term debt and other agreements entered
into in conjunction with the Restructuring.
(g) Gross profit as a percentage of net sales.
(h) EBITDA as a percentage of net sales.
(i) In billions of square feet.
(j) Represents average price per thousand square feet realized by U.S. Gypsum
during the periods shown.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIODS ENDED SEPTEMBER 30, 1993 COMPARED WITH 1992 RESULTS OF OPERATIONS
On May 6, 1993, the Corporation completed a comprehensive restructuring of
its debt through implementation of the Prepackaged Plan as confirmed on April
23, 1993 by the Bankruptcy Court. As a result of the recording of the
Restructuring transaction and implementation of fresh start accounting, the
Corporation's results of operations after May 6, 1993 as presented in the
consolidated financial statements are not comparable to results reported in
prior periods. See Note 3 of the Notes to the Consolidated Interim Financial
Statements for information on consummation of the Restructuring and
implementation of fresh start accounting.
To facilitate a meaningful comparison of the Corporation's 1993 and 1992
operating performance, the following discussions of results of operations on a
consolidated basis and by segment are presented on a traditional third quarter
and nine months basis for both years. Consequently, 1993 information presented
below does not comply with accounting requirements for companies upon emergence
from bankruptcy which call for separate reporting for the newly-restructured
company and the predecessor company. Included in the following discussions are
comparisons of EBITDA. The Corporation believes that EBITDA, which represents
earnings before interest, taxes, depreciation, depletion, amortization, non-cash
postretirement charges, reorganization items, extraordinary gain and changes in
accounting principles, is a useful supplement to net income and other
consolidated income statement data as an indicator of the Corporation's
operating performance and is helpful in understanding cash flow generated from
operations that is available for taxes, debt service and capital expenditures.
CONSOLIDATED RESULTS OF OPERATIONS (DOLLARS IN MILLIONS):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS
ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------- --------------------
1993 1992 1993 1992
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales................................................................... $ 514 $ 474 $ 1,420 $ 1,341
Cost of products sold....................................................... 409 380 1,143 1,095
--------- --------- --------- ---------
Gross profit................................................................ 105 94 277 246
Selling and administrative expenses......................................... 56 55 163 159
Amortization of excess reorganization value................................. 43 -- 71 --
--------- --------- --------- ---------
Operating profit............................................................ 6 39 43 87
--------- --------- --------- ---------
--------- --------- --------- ---------
Calculation of EBITDA:
Operating profit.......................................................... $ 6 $ 39 $ 43 $ 87
Amortization of excess reorganization value............................... 43 -- 71 --
Depreciation and depletion................................................ 14 14 42 42
Other..................................................................... 2 1 9 3
--------- --------- --------- ---------
EBITDA.................................................................... 65 54 165 132
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Net sales of $514 million for the third quarter of 1993, the highest
quarterly net sales since the second quarter of 1989, increased $40 million, or
8.4%, over the third quarter of 1992. Gross profit rose $11 million, or 11.7%,
in the third quarter of 1993 over the 1992 period and, as a percentage of net
sales, improved to 20.4% from 19.8% . For the first nine months of 1993, net
sales and gross profit were up $79 million, or 5.9%, and $31 million, or 12.6%,
respectively, while gross profit as a percentage of net sales increased to 19.5%
from 18.3% for the first nine months of 1992. These improvements in 1993 results
primarily reflect increased gypsum wallboard pricing.
28
<PAGE>
Selling and administrative expenses increased slightly in each 1993 period
versus 1992. However, these expenses as a percentage of net sales declined to
10.9% and 11.5% in the third quarter and first nine months of 1993,
respectively, from 11.6% and 11.9% in the comparable 1992 periods.
As of May 7, 1993, the Corporation began amortizing its excess
reorganization value which was established in accordance with fresh start
accounting rules. This amortization amounted to $43 million and $71 million in
the third quarter and first nine months of 1993, respectively, with no 1992
counterpart. Consequently, 1993 operating profit is not comparable to the
prior-year periods.
EBITDA of $65 million in the third quarter of 1993, the highest quarterly
result since the third quarter of 1990, increased $11 million or 20.4% over the
third quarter of 1992. For the first nine months of 1993, EBITDA increased $33
million, or 25.0%, over the prior-year period. These increases reflect the
improved gross margin performance.
RESULTS OF OPERATIONS BY GEOGRAPHIC AREA (DOLLARS IN MILLIONS):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
--------------------------------------------
NET SALES EBITDA
-------------------- ----------------------
1993 1992 1993 1992
--------- --------- --------- -----
<S> <C> <C> <C> <C>
United States:
Gypsum Products............................................................... $ 263 $ 234 $ 44 $ 33
Interior Systems.............................................................. 102 99 13 15
Building Products Distribution................................................ 143 125 3 3
Corporate..................................................................... -- -- (7) (8)
Intrasegment eliminations..................................................... (64) (57) -- --
--------- --------- --------- ---
Total United States............................................................. 444 401 53 43
Total Canada.................................................................... 37 41 5 5
Total Other Foreign............................................................. 55 55 7 6
Transfers between geographic areas.............................................. (22) (23) -- --
--------- --------- --------- ---
Total USG Corporation........................................................... 514 474 65 54
--------- --------- --------- ---
--------- --------- --------- ---
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------------------------
NET SALES EBITDA
-------------------- ----------------------
1993 1992 1993 1992
--------- --------- --------- -----
<S> <C> <C> <C> <C>
United States:
Gypsum Products............................................................... $ 728 $ 670 $ 108 $ 80
Interior Systems.............................................................. 284 280 36 39
Building Products Distribution................................................ 387 345 5 4
Corporate..................................................................... -- -- (18) (21)
Intrasegment eliminations..................................................... (175) (163) -- --
--------- --------- --------- ---
Total United States............................................................. 1,224 1,132 131 102
Total Canada.................................................................... 108 117 14 12
Total Other Foreign............................................................. 154 157 20 18
Transfers between geographic areas.............................................. (66) (65) -- --
--------- --------- --------- ---
Total USG Corporation........................................................... 1,420 1,341 165 132
--------- --------- --------- ---
--------- --------- --------- ---
</TABLE>
29
<PAGE>
UNITED STATES
Comparing the third quarter of 1993 to the third quarter of 1992 for
domestic Gypsum Products (represented by U.S. Gypsum and USG International's
gypsum products exports), net sales increased $29 million, or 12.4%, and EBITDA
improved $11 million, or 33.3%. For the first nine months of 1993, net sales
rose $58 million, or 8.7%, and EBITDA increased $28 million, or 35.0%. These
improved results primarily reflect the sixth consecutive quarterly increase in
gypsum wallboard selling prices. U.S. Gypsum's wallboard prices increased 10.5%
and 9.7% in the third quarter and first nine months of 1993, respectively, over
the corresponding 1992 periods. Wallboard volume rose 1% to a record level in
the third quarter of 1993, while nine months 1993 volume was virtually unchanged
from a year ago. In the third quarter of 1993, unit manufacturing costs,
excluding non-cash postretirement charges, for wallboard were 3% higher than in
the comparable period in 1992, largely due to a higher level of maintenance
expenditures and higher energy costs in 1993. Improved sales of joint compound,
DUROCK cement board and other products used in residential construction
contributed to the favorable domestic Gypsum Products results.
Net sales for domestic Interior Systems, which is represented by USG
Interiors and USG International's interior systems exports, increased $3
million, or 3.0%, and $4 million, or 1.4%, in the third quarter and first nine
months of 1993, respectively, over the comparable 1992 periods. EBITDA in the
third quarter and first nine months of 1993 decreased $2 million, or 13.3%, and
$3 million, or 7.7%, from the respective 1992 periods. These results primarily
reflect increased sales of lower margin products and increased costs for raw
materials in 1993.
Building Products Distribution (L&W Supply) net sales increased $18 million,
or 14.4%, and $42 million, or 12.2% in the third quarter and first nine months
of 1993 over the respective 1992 periods. These increases reflect improved
gypsum wallboard selling prices and volume and increased sales of related
building materials products. EBITDA recorded in the third quarter of 1993 was
unchanged from the third quarter of 1992. For the first nine months of 1993,
EBITDA increased $1 million, or 25.0% from the comparable 1992 period. These
results reflect the aforementioned sales improvements in gypsum wallboard and
related building materials products partially offset by increased unit costs.
CANADA
Third quarter 1993 net sales for the Corporation's Canadian operations
(primarily CGC) declined $4 million, or 9.8%, from the third quarter of 1992.
Net sales for the first nine months of 1993 were down $9 million, or 7.7%, from
1992. These declines were primarily attributable to the strengthened U.S. dollar
compared with the Canadian dollar and lower levels of volume resulting from a
sluggish Canadian construction market. However, EBITDA was unchanged in the
third quarter of 1993 compared with the third quarter of 1992 and was up $2
million, or 16.7%, in the first nine months of 1993 versus 1992 due to higher
selling prices for gypsum wallboard. Canadian gypsum wallboard prices have been
impacted by the Canadian government's finding announced earlier this year that
dumping of U.S.-made gypsum wallboard had occurred and the resulting imposition
of duties for a period of five years on gypsum wallboard imported into Canada
from the United States at prices below certain levels.
OTHER FOREIGN
Net sales for the Corporation's Other Foreign businesses (primarily
operations in Europe, the Pacific and Latin America managed by USG
International) were unchanged in the third quarter of 1993 versus 1992 while
decreasing by $3 million, or 1.9%, in the first nine months of 1993 from the
comparable 1992 period. These results reflect the continuing recession in Europe
and the impact of the strengthened U.S. dollar compared with European
currencies. However, EBITDA improved slightly in both 1993 periods due to
organizational streamlining implemented in the fourth quarter of 1992 and from
improved cost control.
30
<PAGE>
OTHER EARNINGS INFORMATION
As a result of the Restructuring, interest expense was reduced compared to
prior periods. Interest expense of $34 million in the third quarter of 1993
represents a significant reduction versus the third quarter of 1992 when
interest expense was $81 million.
In connection with the Restructuring, the Corporation recorded in the period
of January 1 through May 6, 1993 a one-time reorganization items gain of $709
million, which primarily consisted of an $851 million gain from recording the
Excess Reorganization Value pursuant to SOP 90-7.
Income tax expense of $3 million and $1 million was recorded for the third
quarter and the period of May 7 through June 30, 1993, respectively. Income tax
expense of $17 million was recorded for the period of January 1 through May 6,
1993. Income tax benefits of $7 million and $27 million were recorded in the
third quarter and first nine months of 1992, respectively. See Note 8 of the
Notes to the Consolidated Interim Financial Statements for information on income
taxes.
Also in connection with the Restructuring, the Corporation recorded in the
period of January 1 through May 6, 1993 a one-time after-tax extraordinary gain
of $944 million resulting primarily from the exchange of subordinated debt for
Common Stock and warrants.
A one-time after-tax net charge of $150 million was recorded in the first
quarter of 1993 representing the cumulative impact of the adoption of SFAS 106
and SFAS 109. See Notes 7 and 8 of the Notes to the Consolidated Interim
Financial Statements for information related to these accounting changes.
Net losses of $25 million and $21 million were recorded in the third quarter
and the period of May 7 through June 30, 1993, respectively. These losses were
attributable to amortization of excess reorganization value amounting to $43
million and $28 million for the respective periods. Such amortization will
continue over the next five years. Net earnings of $1,434 million were recorded
in the period of January 1 through May 6, 1993, reflecting the aforementioned
reorganization items gain and extraordinary gain. Net losses of $33 million and
$131 million were recorded in the third quarter and first nine months of 1992,
respectively, primarily due to high levels of interest expense.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
As of September 30, 1993, working capital (current assets less current
liabilities) amounted to $256 million and the ratio of current assets to current
liabilities was 1.75 to 1, a substantial improvement versus December 31, 1992
when current liabilities exceeded current assets by $2.6 billion and the ratio
of current assets to current liabilities was .21 to 1. This improvement is due
to the impact of the Restructuring, which was completed on May 6, 1993. From
December 31, 1990 through May 6, 1993, the Corporation endured a deficit working
capital position, primarily resulting from the inclusion of most long-term debt
issues in current liabilities due to various defaults upon certain of the debt
issues. Upon consummation of the Restructuring, all previously existing defaults
were waived or cured and long-term debt included in current liabilities was
treated as follows: (i) $1.4 billion of subordinated debt, including accrued but
unpaid interest thereon, was exchanged for Common Stock and warrants; (ii)
certain other long-term debt was exchanged for new long-term debt; and (iii)
remaining long-term debt was reclassified to long-term liabilities. Also in
connection with the Restructuring, the Corporation repaid $140 million principal
of a revolving credit facility in the second quarter of 1993. See Note 3 of the
Notes to the Consolidated Interim Financial Statements for additional
information related to the Restructuring.
On August 10, 1993, the Corporation issued $138 million of Senior 2002 Notes
in exchange for $92 million of bank term loans and $46 million of capitalized
interest notes. The Corporation did not receive any cash proceeds from the
issuance of these securities. The transaction improved the Corporation's
financial flexibility and responded to strong market demand for the Senior 2002
Notes by replacing near-term maturities of the bank term loans and capitalized
interest notes with the longer term Senior 2002 Notes. Issuance of these notes
will cause a modest increase in future interest expense from the level
experienced since the Restructuring was consummated, but eliminated bank term
loan aggregate
31
<PAGE>
payments of $95 million due in 1994, 1995 and 1996 and all but approximately $1
million of $47 million of capitalized interest notes due in 2000. (The $3
million portion of the $95 million of bank term loans that was not exchanged for
Senior 2002 Notes was added to the final maturity of the bank term loan due in
2000.) Furthermore, in connection with this offering, the Corporation will be
permitted, at its option, to apply up to $165 million of cash otherwise subject
to the cash sweep mechanism of the Credit Agreement in 1994, 1995 and 1996 to
repayment or purchase of senior debt due prior to January 1, 1999 or bank term
loans, at the discretion of the Corporation. See Note 10 of the Notes to the
Consolidated Interim Financial Statements for more information on this
transaction.
Accrued expenses of $211 million as of September 30, 1993 were down $342
million, or 61.8%, from the December 31, 1992 level due to the cancellation and
discharge of $375 million of accrued interest in connection with the
Restructuring. Inventories of $147 million as of September 30, 1993, increased
$34 million, or 30.1%, from December 31, 1992 primarily due to a fresh start
accounting adjustment. Accounts payable of $101 million as of September 30,
1993, rose $10 million, or 11.0%, from December 31, 1992 due to the increased
level of business and improving trade credit.
CASH FLOWS
Cash flows for the period of May 7 through September 30, 1993 produced an
increase in cash and cash equivalents of $108 million. Cash provided by
operating activities of $126 million was only partially offset by cash outflows
to investing activities of $7 million and the net repayment of debt of $11
million.
CAPITAL EXPENDITURES
Capital expenditures amounted to $16 million in the period of May 7 through
September 30, 1993 and $12 million in the period of January 1 through May 6,
1993. For the first nine months of 1992, capital expenditures were $27 million.
Capital expenditure commitments for the replacement, modernization and expansion
of operations amounted to $14 million as of September 30, 1993, compared with
$24 million as of December 31, 1992.
PROJECTED LIQUIDITY
The Corporation believes that, as a result of completion of the
Restructuring and the exchange of Senior 2002 Notes for bank debt as described
above, the Corporation's cash generated by operations and the estimated levels
of liquidity available to the Corporation will be sufficient to permit the
Corporation to satisfy its debt service requirements and other capital
requirements for the foreseeable future. However, the Corporation is subject to
significant business, economic and competitive uncertainties, and satisfying
such requirements will require the continuation of the recovery in the
Corporation's construction-based markets which began in 1992. There can be no
assurance that the Corporation's financial resources will be sufficient for the
Corporation to satisfy its debt service obligations and other capital
requirements.
One of the Corporation's subsidiaries, U.S. Gypsum, is a defendant in
asbestos lawsuits alleging both property damage and personal injury. This
litigation has not had a material effect on the Corporation's liquidity or
earnings. Virtually all costs of the Personal Injury Cases are being paid by
insurance. However, many of U.S. Gypsum's insurance carriers are denying
coverage for the Property Damage Cases, although U.S. Gypsum believes that
substantial coverage exists and the trial court in U.S. Gypsum's Coverage Action
has so ruled (such ruling has been appealed). In view of the limited insurance
funding currently available to U.S. Gypsum for Property Damage Cases resulting
from continued resistance by a number of U.S. Gypsum's insurers to providing
coverage, the effect of the asbestos litigation on the Corporation will depend
upon a variety of factors, including the damages sought in Property Damage Cases
that reach trial prior to the completion of the Coverage Action, U.S. Gypsum's
ability to successfully defend or settle such cases, and the resolution of the
Coverage Action. As a result, management is unable to determine whether an
adverse outcome in the asbestos litigation will have a material adverse effect
on the results of operations or the consolidated financial position of the
Corporation. The Corporation and certain of its subsidiaries have been notified
by state and federal environmental protection agencies of possible involvement
as one of numerous "potentially responsible parties" in a number of so-called
"Superfund" sites in the United States. The Corporation believes that neither
32
<PAGE>
these matters nor any other known governmental proceeding regarding
environmental matters will have a material adverse effect upon its earnings or
consolidated financial position. See "Business -- General Information --
Asbestos Litigation."
1992 COMPARED WITH 1991 RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
Consolidated net sales of $1,777 million in 1992 increased $65 million, or
3.8%, over the comparable 1991 level of $1,712 million. This increase, which
represents the first year-to-year improvement in net sales in five years, was
attributable to increased volume for all major domestic gypsum and related
product lines. Demand for these products rose in 1992 due to the recovery in
U.S. housing starts which were up approximately 19% over 1991. While the average
selling price of domestic gypsum wallboard reached a 14-year low in the first
quarter of 1992, prices improved throughout the second, third and fourth
quarters of 1992 and, as a result, the average price for the full year 1992 was
down only 1% compared with 1991. However, continuing low levels of
nonresidential construction activity have had an unfavorable impact on the
Corporation's domestic interior systems business, and its non-domestic
businesses have had a difficult year due to recessions in Canada and Europe.
Consolidated gross profit as a percentage of net sales in 1992 was 17.8%,
down from 19.1% in 1991. This decline primarily reflects decreased Canadian
gypsum wallboard prices and lower margins for interior systems products, offset
in part by improved margins for domestic gypsum and related products.
Consolidated selling and administrative expenses of $218 million in 1992
increased $24 million, or 12.4%, over 1991 expenses of $194 million. The higher
level of 1992 expenses primarily reflects (i) increases in compensation and
benefits (up $10 million); (ii) a fourth quarter 1992 charge associated with
organizational streamlining activities ($6 million); (iii) rent, a non-cash
expense until 1994, and other expenses associated with the new corporate
headquarters building ($3 million combined); and (iv) expansion of certain
international operations (up $1 million). Selling and administrative expenses as
a percentage of net sales was 12.3% in 1992, up from 11.3% in 1991.
Consolidated operating profit of $99 million in 1992 declined $34 million,
or 25.6%, from the comparable 1991 level of $133 million. This decline was the
result of the aforementioned lower gross margin performance and higher level of
selling and administrative expenses.
Interest expense of $334 million in 1992 rose slightly over the comparable
1991 level of $333 million. In 1992, higher levels of interest expense were
incurred on (i) senior subordinated debentures (up $11 million) due to a higher
level of arrearage on such debentures in 1992 as a result of a default
condition; and (ii) junior subordinated debentures (up $10 million) due to an
increased level of such pay-in-kind debentures in 1992. These increases were
offset to a large extent by lower interest rates related to bank debt
obligations (down $20 million).
An income tax benefit of $33 million was recorded in 1992 due to losses from
continuing operations. This benefit is net of tax expense on foreign subsidiary
earnings. The effective income tax benefit rate was 15.0% for 1992 compared with
27.5% for the year-earlier period. The lower 1992 effective benefit rate was
primarily due to the inability to fully benefit the net operating loss
carryforward ("NOL Carryforward") as an offset to deferred taxes. Deferred taxes
were reduced by $5 million during 1991 for an NOL Carryforward of $14 million.
In 1992, deferred taxes were reduced by an additional $19 million for an NOL
Carryforward of $140 million, of which $84 million was unbenefited.
A net loss of $191 million was recorded in 1992 compared with a net loss of
$161 million in 1991. The net loss in 1991 included a $20 million after-tax
provision relating to the sale of the Corporation's subsidiary, DAP Inc.
("DAP").
33
<PAGE>
UNITED STATES
Net sales of $1,505 million in 1992 for the Corporation's domestic
operations were up $72 million, or 5.0%, over 1991 net sales of $1,433 million.
However, domestic operating profit of $76 million declined $13 million, or
14.6%, from the 1991 level of $89 million. EBITDA for domestic operations was
$123 million in 1992, down $14 million, or 10.2%, from 1991 EBITDA of $137
million. Results for the industry segment components of the Corporation's
domestic operations were as follows:
<TABLE>
<CAPTION>
DEPRECIATION
DEPLETION AND
OPERATING
NET SALES PROFIT AMORTIZATION EBITDA
------------------- --------------- ----------------- ---------------
1992 1991 1992 1991 1992 1991 1992 1991
-------- -------- ------ ------ ------- ------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States:
Gypsum Products....................... $ 889 $ 835 $ 69 $ 64 $ 30 $ 29 $ 99 $ 93
Interior System....................... 368 386 34 47 13 12 47 59
Building Products Distribution........ 464 424 3 -- 2 4 5 4
Intrasegment elimination.............. (216) (212) -- -- -- -- -- --
Corporate............................. -- -- (30) (22) 8 10 (28) (19)
-------- -------- ------ ------ ------- ------- ------ ------
Total............................... 1,505 1,433 76 89 53 55 123 137
-------- -------- ------ ------ ------- ------- ------ ------
-------- -------- ------ ------ ------- ------- ------ ------
</TABLE>
Net sales of $889 million in 1992 for domestic Gypsum Products (represented
by U.S. Gypsum and USG International's gypsum products exports) were up $54
million, or 6.5%, versus the 1991 level of $835 million. Following five
successive years of sales declines, U.S. Gypsum recorded increased sales in 1992
versus 1991. This improvement was attributable to increased volume for all major
product lines. Gypsum wallboard volume rose 8% as demand in the gypsum wallboard
industry increased in conjunction with the recovery in U.S. housing starts.
Domestic Gypsum Products operating profit of $69 million increased $5 million,
or 7.8%, over the prior-year amount of $64 million. U.S. Gypsum's increased
volume levels and lower unit costs (down 2% for gypsum wallboard) more than
offset the combination of slightly lower gypsum wallboard selling prices (down
1%) and increased selling and administrative expenses. The higher level of
selling and administrative expenses primarily resulted from increased
compensation and benefits, a fourth quarter 1992 charge of $4 million associated
with organizational streamlining activities and an increased provision for
doubtful accounts.
Average realized selling prices on U.S. Gypsum's gypsum wallboard declined
in 1992 for the seventh consecutive year and reached a 14-year low in the first
quarter of 1992. Production capacity in the gypsum industry remained quite high
relative to demand, and uncertainty about the timing and strength of a recovery
led to very competitive pricing in 1992. However, as shown in the table below,
gypsum wallboard pricing began an upward trend in the second quarter of 1992,
which continued in the third and fourth quarters.
Quarterly domestic gypsum wallboard average prices per thousand square feet
in 1992 compared with 1991 were as follows:
<TABLE>
<CAPTION>
1992 1991
--------- ---------
<S> <C> <C>
First Quarter............................................................ $ 67.77 $ 77.05
Second Quarter........................................................... 72.20 71.93
Third Quarter............................................................ 73.03 71.32
Fourth Quarter........................................................... 73.35 70.19
</TABLE>
Domestic Interior Systems (represented by USG Interiors and USG
International's interior systems exports) reported net sales of $368 million in
1992, a decline of $18 million, or 4.7%, from the comparable 1991 level of $386
million. Operating profit of $34 million for domestic Interior Systems was down
$13 million, or 27.7%, from $47 million recorded in 1991. These declines reflect
the continuing downturn in new nonresidential construction, the primary market
served by USG Interiors. In 1992, opportunity
34
<PAGE>
from new nonresidential construction, as measured by lagged contract awards,
declined by approximately 19%. Consequently, results for most of USG Interiors'
product lines were adversely affected by lower selling prices and decreased
volume. Higher selling and administrative expenses were recorded by USG
Interiors primarily due to a fourth quarter 1992 charge of $1 million associated
with organizational streamlining activities and increased compensation and
benefits.
Building Products Distribution (represented by L&W Supply) had net sales of
$464 million in 1992, an increase of $40 million, or 9.4%, over the comparable
1991 level of $424 million. Operating profit of $3 million in 1992 surpassed
breakeven operating profit last year. Demand for all of L&W Supply's product
lines rose in 1992 in response to the increase in U.S. housing starts. L&W
Supply's gypsum wallboard volume increased 9% over 1991, while sales and gross
profit for its other products, particularly ceiling products, roofing and
construction metal, also exceeded 1991 levels. While L&W Supply's average gypsum
wallboard price for 1992 was down slightly from 1991, improving prices from the
second quarter of 1992 through the end of the year paralleled that for U.S.
Gypsum.
Corporate expenses of $30 million in 1992 increased $8 million, or 36.4%,
over 1991 expenses of $22 million. This increase primarily reflects rent and
other expenses associated with the new corporate headquarters, the absence in
1992 of certain service transfers to the operating subsidiaries, increased
compensation and benefits and a $1 million charge associated with organizational
streamlining activities.
CANADA
The 1992 performance of the Corporation's Canadian operations (represented
primarily by CGC) was adversely affected by limited market opportunities.
Consequently, net sales of $149 million and operating profit of $7 million in
1992 fell $20 million, or 11.8%, and $15 million, or 68.2%, respectively, from
the corresponding 1991 levels. These declines were primarily attributable to
unfavorable changes in selling prices and volume for CGC's gypsum wallboard as
the Canadian economy remained weak and CGC's customers maintained inventories at
low levels. Gypsum wallboard pricing for CGC, as well as for other Canadian
manufacturers, was also adversely affected by competition from lower-priced U.S.
imports. The Canadian government has announced that, in connection with its
finding that dumping of U.S.-made gypsum wallboard had occurred, duties will be
imposed on all gypsum wallboard imported into Canada from the United States at
prices below certain levels for a period of five years. Also affecting CGC's
1992 results was the continuing decline in Canadian commercial construction
which resulted in lower net sales and operating profit for CGC's interior
systems business.
OTHER FOREIGN
Net sales and operating profit in 1992 were $208 million and $16 million,
respectively, for the Corporation's Other Foreign operations in Europe, the
Pacific and Latin America which are managed by USG International, and for a
shipping subsidiary headquartered in Bermuda. These results represent a net
sales increase of $15 million, or 7.8%, and an operating profit decline of $6
million, or 27.3%, versus 1991. The improvement in net sales largely reflects
increases in sales of interior systems products in certain European, Latin
America, Middle East and Pacific markets, as well as a favorable currency
translation. However, the decline in operating profit resulted from the
combination of (i) a slowdown in demand due to a severe and expanding recession
affecting most of Europe; (ii) continuing costs associated with the Aubange,
Belgium ceiling tile plant that opened in 1991; and (iii) increased selling and
administrative expenses due to a higher level of compensation and benefits and
expansion of certain international operations.
DISCONTINUED OPERATIONS
Results for DAP are set forth separately as discontinued operations in the
consolidated financial statements and supplementary data schedules up to
September 20, 1991, when the Corporation completed the sale of the business and
substantially all of the assets of DAP. See "Index To Financial Statements --
Significant Accounting Policies and Practices -- Discontinued Operations" for
information relating to this transaction.
35
<PAGE>
1991 COMPARED WITH 1990 RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
Consolidated net sales from continuing operations of $1,712 million in 1991
were down $203 million, or 10.6%, from the 1990 level of $1,915 million. This
decline reflects lower levels of new residential and nonresidential construction
activity in 1991 versus 1990 which had an adverse effect on demand for many of
the Corporation's product lines. As a result, average selling prices on domestic
gypsum wallboard declined in 1991 for the sixth consecutive year. While a
cyclical downturn in construction-based markets began in 1987, the deterioration
in these markets from mid-1990 through the end of 1991 had been particularly
rapid and acute.
Consolidated gross profit as a percentage of net sales in 1991 was 19.1%,
down from 21.7% in 1990 primarily due to gypsum wallboard's lower selling
prices.
For the fourth consecutive year, the Corporation was able to reduce its
selling and administrative expenses, as expenses of $194 million in 1991
represented a $9 million, or 4.4%, reduction from 1990 expenses of $203 million.
Decreased expenses in 1991 primarily reflected lower levels of compensation and
benefits as a result of employee reductions, most of which occurred in the
latter part of 1990. However, selling and administrative expenses as a
percentage of net sales in 1991 increased to 11.3% from 10.6% in 1990 due to the
decline in net sales.
In the fourth quarter of 1990, restructuring expenses amounting to $18
million were recorded, primarily for the implementation of a program that
improved operating efficiencies in each of the Corporation's businesses.
Consolidated operating profit of $133 million in 1991 was down $62 million,
or 31.8%, from the 1990 level of $195 million as a result of the aforementioned
lower levels of volume and gross margin performance.
Interest expense of $333 million in 1991 increased $41 million, or 14.0%,
over 1990. This was largely due to a $23 million increase in interest expense
incurred on the Bank Debt Obligations as a result of the default condition and
increased borrowings on the Revolving Credit Facility made in the fourth quarter
of 1990 and still outstanding as of December 31, 1991. In addition, a higher
level of pay-in-kind junior subordinated debentures resulted in a $9 million
increase in interest expense, while default interest in 1991 related to senior
subordinated debentures amounted to $7 million.
While there were no nonrecurring gains in 1991, the Corporation recorded a
nonrecurring pre-tax gain of $34 million on the sale of its corporate
headquarters building in the first quarter of 1990. See "Index To Financial
Statements -- Significant Accounting Policies and Practices -- Nonrecurring
Gain" for additional information related to this transaction.
An income tax benefit of $53 million was recorded in 1991 due to a loss from
continuing operations. This benefit is net of tax expense on foreign subsidiary
earnings. The effective income tax benefit rate for 1991 was 27.5% compared with
9.8% for 1990.
A net loss of $161 million was recorded in 1991, compared with a net loss of
$90 million in 1990. The net losses in 1991 and 1990 included after-tax
provisions of $20 million and $41 million, respectively, relating to the sale of
DAP.
UNITED STATES
Net sales of $1,433 million in 1991 for the Corporation's domestic
operations were down $170 million, or 10.6%, from 1990 net sales of $1,603
million. Domestic operating profit of $89 million declined $50 million, or
36.0%, from the 1990 level of $139 million. EBITDA for domestic operations was
$137 million in 1991, down $74 million, or 35.1%, from 1990 EBITDA of $211
million. Results for the industry segment components of the Corporation's
domestic operations are explained as follows.
Net sales of $835 million in 1991 for domestic Gypsum Products were down
$101 million, or 10.8%, versus the 1990 level of $936 million. Operating profit
of $64 million in 1991 was down $52 million, or
36
<PAGE>
44.8%, from $116 million recorded in 1990. These declines primarily reflected
lower levels of gypsum wallboard volume (down 7%) and prices (down 8%) versus
1990 for U.S. Gypsum. Reduced opportunity for domestic gypsum wallboard and
other building products in 1991 was reflective of a 15% decline in U.S. housing
starts compared with 1990. However, with respect to operating profit, these
factors were partially offset by U.S. Gypsum's excellent control of unit costs
which were unchanged from 1990 and by a 2.5% reduction in its selling and
administrative expenses. In addition, U.S. Gypsum incurred restructuring
expenses of $7 million in the fourth quarter of 1990, while there were no such
expenses in 1991.
Net sales of $386 million in 1991 for domestic Interior Systems declined $37
million, or 8.7%, from the 1990 level of $423 million, while operating profit of
$47 million was down $7 million, or 13.0%, versus the 1990 amount of $54
million. Net sales and operating profit in 1991 for most of USG Interiors'
product lines were down from 1990 due to lower volume resulting from softness in
nonresidential construction. However, the impact of declining economic
opportunities for USG Interiors was mitigated somewhat by a 6.9% reduction in
its 1991 selling and administrative expenses as compared with 1990. Operating
profit in 1990 for the USG Interiors was lowered by restructuring expenses of $4
million, while there were no such expenses in 1991.
Net sales of $424 million in 1991 for Building Products Distribution were
down $54 million, or 11.3%, from the 1990 level of $478 million. Breakeven
results were experienced at the operating profit level in 1991 for L&W Supply,
compared with operating profit of $4 million in 1990. Operating profit in 1990
for L&W Supply included restructuring expenses of $2 million, while there were
no such expenses in 1991. As a result of depressed market conditions for its
products and intense competition from independent distributors, net sales and
operating profit declines were recorded for virtually all of L&W Supply's
product lines in 1991 compared with 1990.
CANADA
Net sales in 1991 for the Corporation's Canadian operations amounted to $169
million and operating profit was $22 million, representing declines of $26
million, or 13.3%, and $9 million, or 29.0%, respectively, from the
corresponding 1990 levels. CGC's performance in 1991 suffered due to decreases
in gypsum wallboard volume and selling prices. This trend reflected the
continuing weakness in the Canadian economy, and in particular, the building
products sector which had to deal with surplus capacity and lower-priced gypsum
products imported from the United States. However, average unit costs for CGC's
gypsum wallboard were reduced slightly from 1990 and selling and administrative
expenses for CGC's gypsum business were reduced 1.8% in 1991 versus the prior
year. Results for CGC's interior systems business were down in 1991 due to the
slowdown in Canadian nonresidential construction.
OTHER FOREIGN
Net sales and operating profit in 1991 were $193 million and $22 million,
respectively, for the Corporation's Other Foreign operations. These results
represent a net sales decline of $7 million, or 3.5%, and a $3 million, or
12.0%, drop in operating profit versus 1990. Net sales and operating profit
reported by USG International were down primarily due to the weakening economy
in Europe. Start-up costs associated with the opening in mid-1991 of its new
ceiling tile plant in Aubange, Belgium also had an adverse effect on operating
profit.
37
<PAGE>
BUSINESS
INTRODUCTION
Through its subsidiaries, USG is a leading manufacturer of building
materials in North America which produces a wide range of products for use in
residential and nonresidential construction, repair and remodeling, as well as
products used in certain industrial processes. U.S. Gypsum is the largest
producer of gypsum wallboard in the United States and accounted for
approximately one-third of total domestic gypsum wallboard sales in 1992. USG
Interiors is a leading supplier of interior ceiling, wall and floor products
used primarily in commercial applications. In 1992, USG Interiors was the
leading producer of ceiling grid and the second largest producer of ceiling tile
in the United States, accounting for over one-half and approximately one-third
of total domestic sales of such products, respectively. L&W Supply is the
largest distributor of wallboard and related products in the United States and
in 1992 sold approximately 23% of U.S. Gypsum's wallboard production. In
addition to its United States operations, the Corporation's 76% owned
subsidiary, CGC, is the largest manufacturer of gypsum products in eastern
Canada and the Corporation's USG International unit supplies interior systems
and gypsum wallboard products in the Pacific, Europe and Latin America. In the
nine months ended September 30, 1993, the Corporation had net sales of $1.4
billion and generated EBITDA of $165 million. In the year ended December 31,
1992, the Corporation had net sales of $1.8 billion and generated EBITDA of $159
million.
The Corporation believes that its leading industry positions and low cost
structure position it to take advantage of the long-term potential in its three
industry segments: Gypsum Products, Interior Systems and Building Products
Distribution.
U.S. INDUSTRY OVERVIEW
USG's consolidated financial performance is largely influenced by changes in
the three major components of the construction industry in the United States:
new residential construction, new nonresidential construction, and repair and
remodel activity. In recent years, structural changes in residential
construction activity combined with growth in the repair and remodel component
have partially mitigated the impact of the cyclical demand of the overall new
construction components.
NEW RESIDENTIAL AND NONRESIDENTIAL CONSTRUCTION
Demand for the Corporation's products has historically been influenced
primarily by new residential (single and multi-family homes) and nonresidential
(offices, schools, stores, and other institutions) construction. Construction
activity is directly influenced by a variety of economic variables. In the short
term, the new residential segment is characterized by fluctuating activity
levels as builders and buyers respond to changes in funding costs, new home
prices, and the availability of new construction financing. Over the medium to
long term, new residential construction activity reflects the demand generated
by household formations, the home ownership rate, removals of housing stock, and
the growth of personal income.
Although new residential construction remains the largest single source of
demand for gypsum wallboard in the United States, it has declined significantly
as a percentage of gypsum wallboard demand since 1985 (a year where total gypsum
wallboard shipments were comparable to 1992 levels). Residential construction
has a nominal impact on demand for Interiors Systems products. The following
table sets forth demand for gypsum wallboard in the United States by end-use
segment as estimated by U.S. Gypsum based on publicly available data, internal
surveys and data from the Gypsum Association, an industry trade group.
Management estimates that the distribution of U.S. Gypsum's sales volume to
these four end-use segments is generally proportional to industry demand.
<TABLE>
<CAPTION>
1992 1985
--------- ---------
<S> <C> <C>
Residential construction....................................................... 46% 52%
Nonresidential construction.................................................... 10 11
Repair and remodel............................................................. 36 31
Export/other................................................................... 8 6
</TABLE>
38
<PAGE>
Over recent economic cycles, demand for gypsum wallboard has been favorably
impacted by a shift toward more single family housing within the new residential
construction segment and an increase in the average single family home size. New
single family homes, which typically require twice as much wallboard as
multi-family homes, accounted for 86% of total housing starts in 1992, as
compared to 62% in 1985. Additionally, the size of the average single family
home in the United States has increased approximately 17% to 2,095 square feet
in 1992 from 1,785 square feet in 1985. Largely as a result of these factors,
United States industry shipments of gypsum wallboard were 20.3 billion square
feet in 1992, as compared to 20.1 billion in 1985, despite an approximate 31%
decline in the number of housing starts from 1.7 million units in 1985 to 1.2
million units in 1992, as depicted in the following chart.
GYPSUM WALLBOARD INDUSTRY SHIPMENTS
AND TOTAL HOUSING STARTS
<TABLE>
<CAPTION>
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gypsum Wallboard Industry
shipments, in billions of
square feet 13.3 17.1 19.2 20.2 21.3 21.4 21.3 21.3 20.7 18.4 20.3
Housing Starts, in thousands
of units 1,062 1,703 1,750 1,742 1,805 1,621 1,488 1,376 1,193 1,014 1,200
</TABLE>
SOURCES: HOUSING STARTS ARE BASED ON DATA PUBLISHED BY THE U.S. BUREAU OF
THE CENSUS. GYPSUM WALLBOARD INDUSTRY SHIPMENTS ARE BASED ON DATA
PUBLISHED BY THE GYPSUM ASSOCIATION.
Nonresidential construction responds less quickly to changes in interest
rates than residential construction because long-term financing is normally
arranged in advance of the commencement of major building projects. In the
longer term, nonresidential construction activity levels are also affected by
the general rate of economic growth, the rate of new job formation and
population shifts. Continued weakness in the nonresidential construction segment
has negatively impacted demand for the products manufactured by both U.S. Gypsum
and USG Interiors. Demand for USG Interiors' products is particularly dependent
on new nonresidential construction activity. Management estimates that
approximately one-half of USG Interiors' 1992 sales were in the new
nonresidential construction segment as compared to approximately two-thirds in
1986 (the year in which USG Interiors was established as a separate subsidiary).
In recent years, nonresidential construction demand has accounted for
approximately 10% of gypsum wallboard industry demand in the United States.
REPAIR AND REMODEL
Based on data published by the U.S. Bureau of The Census, the size of the
total residential repair and remodel market grew to $104 billion in 1992 from
$80 billion in 1985 and $46 billion in 1980. Although data on nonresidential
repair and remodel activity is not readily available, management believes that
this segment grew significantly during the 1980s. The growth of the repair and
remodel market is primarily due to the aging of housing stock, remodeling of
existing buildings and tenant
39
<PAGE>
turnover in commercial space. The median age of housing stock was 27 years in
1990, and the National Association of Homebuilders forecasts that the median age
will increase to 32 years by 2000. Management believes that the continued aging
of housing stock will contribute to further growth in the repair and remodel
segment. In addition, management believes that the increase in the number of
commercial buildings over the last decade will provide a greater base for
nonresidential repair and remodel activity in the future, as building owners or
tenants replace ceiling, wall and floor systems as part of the tenant turnover
process. Demand in the repair and remodel component tends to be more stable than
in new construction, although it does fluctuate somewhat in response to general
economic conditions.
Management estimates that repair and remodel demand for gypsum wallboard has
increased more than 18% since 1985 and, in 1992, accounted for 36% of total
demand for gypsum wallboard in the United States. Management estimates that
approximately one-half of USG Interiors' 1992 sales were in the nonresidential
repair and remodel segment.
GYPSUM PRODUCTS
BUSINESS
The Gypsum Products segment consists primarily of the gypsum operations of
U.S. Gypsum in the United States, CGC in Canada and USG International in Mexico.
CGC is the largest manufacturer of gypsum wallboard in eastern Canada.
Management estimates that industry sales in eastern Canada, including the
Toronto and Montreal metropolitan areas, represent approximately two-thirds of
total Canadian sales volume. In 1992, CGC accounted for approximately 43% of
industry sales in eastern Canada.
PRODUCTS
The Gypsum Products segment manufactures and markets building and industrial
products used in a variety of applications. Gypsum panel products are used to
finish the interior walls and ceilings in residential, commercial and mobile
home construction. These products provide aesthetic as well as sound and fire
retarding value. The majority of these products are sold under the "SHEETROCK"
brand name. Also sold under the "SHEETROCK" brand name is a line of joint
compounds used for finishing wallboard joints. The "DUROCK" line of cement board
and accessories is produced to provide fire-resistant and water damage resistant
assemblies for both interior and exterior construction. The Corporation also
produces a variety of plaster products used to provide a custom finish for
residential and commercial interiors. Like "SHEETROCK" brand wallboard, these
products provide aesthetic and sound and fire retarding value. These products
are sold under the trade names of "RED TOP," "IMPERIAL" and "DIAMOND." The
Corporation also produces gypsum based products sold to agricultural and
industrial customers for use in a number of applications, including soil
conditioning, road repair, fireproofing and ceramics.
FINANCIAL PERFORMANCE
Summary financial results of the Gypsum Products segment are outlined in the
table below. Such results are not adjusted for intersegment sales eliminations
and corporate expenses.
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales..................... $1,068 $1,011 $1,134 $1,263 $1,367
Operating profit.............. 85 93 148 227 266
EBITDA........................ 123 131 194 266 307
EBITDA margin................. 11.5% 13.0% 17.1% 21.1% 22.5%
Capital expenditures.......... 31 25 25 41 60
</TABLE>
See "Selected Consolidated Financial Data." For additional information on
the Corporation's results by industry segment, including intersegment sales
eliminations and corporate expenses, see "Index to Financial Statements --
Significant Accounting Policies and Practices."
40
<PAGE>
MANUFACTURING
Gypsum products are produced by the Corporation at 26 plants located
throughout the United States, Eastern Canada and in central Mexico. The
Corporation believes several factors contribute to its low delivered cost,
including (i) the vertical integration of its key raw materials (gypsum and
paper); (ii) the technical expertise provided by its extensive research and
development efforts and its experienced employees and (iii) the proximity of its
plants to major metropolitan areas.
USG's vertically integrated gypsum and paper operations provide several cost
and quality advantages. Since the Corporation obtains substantially all of its
gypsum requirements from its own quarries and mines, it controls the cost,
quality and continuity of its supply. These factors are vital to producing
wallboard of a consistently high quality at a low cost. The Corporation's
geologists estimate that recoverable rock reserves are sufficient for more than
30 years of operation based on the Corporation's average annual production of
crude gypsum during the past five years. Proven reserves contain approximately
252 million tons, of which approximately 69% are located in the United States
and 31% in Canada. Additional reserves of approximately 153 million tons exist
on three properties not in operation. The Corporation's total average annual
production of crude gypsum in the United States and Canada during the past five
years was 9.6 million tons.
USG owns and operates seven modern paper mills located across the United
States for efficient distribution of paper to virtually all of its wallboard
plants. These mills have sufficient capacity to satisfy virtually all of the
Corporation's expected paper needs for the foreseeable future. All these mills
presently are designed to produce paper utilizing 100% recycled waste paper
fiber as opposed to more costly virgin pulp. Vertical integration in paper
ensures a continuous supply of high quality paper that is tailored to the
specific needs of USG's wallboard production processes.
As the leading producer of gypsum products for over 90 years, USG has
developed extensive knowledge of gypsum and the processes used in making its
products. Combined with USG's experienced work force, USG's technical expertise
provides significant cost efficiencies in the production of existing products
and development of new ones. USG maintains the largest research and development
facility in the gypsum industry in Libertyville, Illinois which conducts fire
and structural testing and product and process development. Research and
development activities involve technology related to gypsum, cellulosic fiber
and cement as the primary raw materials on which panel products and systems,
such as gypsum board and cement board, are based. Related technologies are those
pertaining to joint compounds and textures for wallboard finishing, specialty
plaster products for both construction and industrial applications, coatings and
latex polymers.
The number and location of the Corporation's gypsum plants enhance its cost
position by minimizing the distance and the transportation costs to major
metropolitan areas. Transportation costs can be a significant part of total
delivered cost of gypsum products.
MARKETING AND DISTRIBUTION
Distribution is carried out through L&W Supply's 130 distribution centers
located in 33 states, as well as mass merchandisers and other retailers,
building material dealers, contractors and distributors. Sales of gypsum
products are seasonal to the extent that sales are generally greater from spring
through the middle of autumn than during the remaining part of the year.
COMPETITION
The Corporation competes in North America as the largest of 18 producers of
gypsum wallboard products and, in 1992, accounted for approximately one-third of
total gypsum wallboard sales in the United States. In 1992, U.S. Gypsum's
shipments of gypsum wallboard totaled 7.2 billion square feet compared with
total domestic industry shipments of 20.3 billion square feet. Principal
competitors in the United States and Canada are: National Gypsum Company, which
emerged from Chapter 11 bankruptcy in July 1993, The Celotex Corporation, which
has operated under Chapter 11 of the Bankruptcy Code since 1990, Domtar, Inc.,
Georgia-Pacific Corporation and several smaller, regional competitors. Major
competitors of CGC in Eastern Canada include Domtar, Inc. and Westroc Industries
Ltd.
41
<PAGE>
INTERIOR SYSTEMS
BUSINESS
The Interior Systems segment consists of USG Interiors in the United States,
USG International in Europe, the Pacific and Latin America and CGC in Canada.
The Corporation has increased its emphasis on the interior systems business
since 1986 when Donn Inc. ("Donn"), a manufacturer of ceiling grid and other
interior products, was acquired. Already second behind Armstrong World
Industries, Inc. in the ceiling tile market, the acquisition of Donn positioned
the Corporation as the worldwide leader in ceiling suspension systems and the
only company to offer complete pre-designed, pre-engineered and fully integrated
ceiling systems. With the acquisition of Donn, USG Interiors was established as
a separate subsidiary to combine the operations of Donn and USG Acoustical
Products Company, formerly part of U.S. Gypsum and a leading producer of mineral
fiber ceiling products.
USG's international position was enhanced in late 1987 when it began to
export ceiling tile to Europe to complement Donn's established grid business and
to capitalize on the strength of its existing distribution channels. By
combining ceiling tile and grid as a system for distributors and contractors,
USG has used its leading position in grid to advance sales of ceiling tile. As a
result, management estimates that USG's share of the European ceiling tile
market has grown to approximately 8%. International sales are managed through
USG International on a regional basis consisting of Europe, the Pacific and
Latin America.
CGC manufactures and markets ceiling products and wall and floor systems and
accounted for over one-half of Canadian grid sales in 1992. CGC is the second
largest marketer of ceiling tile in Canada, behind Armstrong World Industries,
Inc., and accounted for approximately 25% of Canadian sales of such products in
1992. CGC markets ceiling tile produced by USG Interiors.
PRODUCTS
The Interior Systems segment manufactures and markets ceiling suspension
systems ("grid") and ceiling tile, access floor systems, wall systems and
mineral wool insulation and soundproofing products. USG's integrated line of
ceiling products provide qualities such as sound absorption, fire retardation,
and convenient access to the space above the ceiling for electrical and
mechanical systems, air distribution and maintenance. The Corporation believes
its ability to provide custom-designed and specially fabricated ceiling
solutions to meet specific job design installation conditions is increasingly
attractive to architects, designers and building owners. USG Interiors'
significant trade names include the "ACOUSTONE" and "AURATONE" brands of ceiling
tile and the "DX," "FINELINE," "CENTRICITEE" and "DONN" brands of ceiling grid.
USG's wall systems provide the versatility of an open floor plan with the
privacy of floor-to-ceiling partitions which are compatible with leading office
equipment and furniture systems. Wall systems are designed to be installed
quickly and reconfigured easily. In addition, USG manufactures a line of access
floor systems that permit easy access to wires and cables for repairs,
modifications, and upgrading of electrical and communication networks as well as
convenient movement of furniture and equipment.
FINANCIAL PERFORMANCE
Summary financial results for the Interior Systems segment are outlined in
the table below. Such results are not adjusted for intersegment sales
eliminations and corporate expenses.
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
------- ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales..................... $548 $576 $624 $610 $599
Operating profit.............. 41 62 78 89 83
EBITDA........................ 59 78 98 105 98
EBITDA margin................. 10.8% 13.5% 15.7% 17.2% 16.4%
Capital expenditures.......... 14 22 37 33 17
</TABLE>
42
<PAGE>
See "Selected Consolidated Financial Data." For additional information on
the Corporation's results by industry segment, including intersegment sales
eliminations and corporate expenses, see "Index to Financial Statements --
Significant Accounting Policies and Practices."
MANUFACTURING
Interior Systems products are manufactured at 16 plants throughout North
America, including 5 ceiling tile plants and 4 ceiling grid plants. The
remaining plants produce other interior products and raw materials for ceiling
tile and grid. Principal raw materials used in the production of Interior
Systems products include mineral fiber, steel, aluminum extrusions and
high-pressure laminates. Certain of these raw materials are produced internally,
while others are obtained from various outside suppliers. Shortages of raw
materials used in this segment are not expected.
USG Interiors maintains its own research and development facility in Avon,
Ohio, which provides product design, engineering and testing services in
addition to manufacturing development, primarily in metal forming, with tool and
machine design and construction services. Additional research and development is
carried out at the Corporation's research and development center in
Libertyville, Illinois and at its "Solutions Center"-SM- in Chicago.
MARKETING AND DISTRIBUTION
Interiors Systems products are sold primarily in markets related to the new
construction and renovation of commercial buildings as well as the retail market
for small commercial contractors. Marketing and distribution to large commercial
users is conducted through a network of distributors and installation
contractors as well as through L&W Supply and is oriented toward providing
integrated interior systems at competitive price levels. The Corporation
emphasizes educational and promotional materials designed to influence decision
makers who play a significant role in choosing material suppliers, such as
interior designers, contractors and facility managers. To this end, USG
Interiors maintains the "Solutions Center"-SM- located adjacent to Chicago's
Merchandise Mart which is used for product displays, educational seminars on
products and new product design and development. In recent years, the
Corporation has increased its emphasis on the retail market and as a result now
sells its products to seven of the ten largest building products retailers in
the United States.
COMPETITION
The Corporation estimates that it is the world's largest manufacturer of
ceiling suspension systems with approximately 40% of worldwide sales of such
products. USG's most significant competitor is Chicago Metallic Corporation,
which participates in the U.S. and European markets. Other competitors in
ceiling grid include W.A.V.E. (a joint venture of Armstrong World Industries,
Inc. and National Rolling Mills). The Corporation estimates that it accounts for
approximately one-third of sales of acoustical ceiling tile to the U.S. market.
Principal global competitors include Armstrong World Industries, Inc. (the
largest manufacturer), Odenwald of West Germany and the Celotex Corporation.
BUILDING PRODUCTS DISTRIBUTION
BUSINESS
The Building Products Distribution segment consists of the operations of the
Corporation's L&W Supply subsidiary. L&W Supply is the largest distributor of
wallboard and related building products for residential and non-residential
construction in the United States. L&W Supply distributes approximately 9% of
all the wallboard sold in the U.S. (including approximately 23% of U.S. Gypsum's
wallboard production). Wallboard accounts for approximately 46% of L&W Supply's
total sales.
Although L&W Supply specializes in distribution of wallboard, joint compound
and other products manufactured primarily by U.S. Gypsum, it also distributes
USG Interiors' products such as acoustical ceiling tile and ceiling grid and
products of other manufacturers, including construction metal, insulation,
roofing products and accessories.
43
<PAGE>
L&W Supply was founded in 1971 by U.S. Gypsum to address what management
perceived as a growing demand in the construction industry for a specialized
delivery service for construction materials, especially gypsum wallboard. U.S.
Gypsum management believed the construction industry could benefit from a
service-oriented organization which would not only deliver less than truckload
quantities of construction materials to a job site, but which also would place
them in the areas where the work was being done, thereby reducing or eliminating
the need for handling by contractors. To perform this service, U.S. Gypsum
established a number of distribution centers that could stock construction
materials and be able to deliver relatively large quantities with short lead
times.
L&W Supply has grown significantly over the past 22 years and now has 130
distribution centers located in 33 states.
FINANCIAL PERFORMANCE
Summary financial results for the Building Products Distribution segment are
outlined in the table below. Such results are not adjusted for intersegment
sales eliminations and corporate expenses.
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
------- ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales..................... $464 $424 $478 $485 $483
Operating profit.............. 3 0 4 7 12
EBITDA........................ 5 4 12 16 23
EBITDA margin................. 1.1% 0.9% 2.5% 3.3% 4.8%
Capital expenditures.......... 3 1 1 1 3
</TABLE>
See "Selected Consolidated Financial Data." For additional information on
the Corporation's results by industry segment, including intersegment sales
eliminations and corporate expenses, see "Index to Financial Statements --
Significant Accounting Policies and Practices."
DISTRIBUTION CENTERS
L&W Supply leases approximately 80% of its facilities from third parties,
which management believes provides it with the flexibility to enter and exit
fluctuating market areas. Usually, initial leases are for three to five years
with a five-year renewal option. Facilities are located in virtually every major
metropolitan area in the United States.
A typical L&W Supply facility has approximately 12,000 square feet of
warehouse space, 1,500 square feet of office space and is located on 1.5 paved
acres of land in prime industrial areas with good interstate highway access.
Each center is equipped with at least one flatbed truck, a boom truck and, in
some cases, a towable forklift. Boom trucks are standard flatbed trucks with
telescoping hydraulic booms installed on the front of the truckbed. By using
either the telescoping boom or the towable forklift, L&W Supply employees are
able to place wallboard, joint compound and other materials in various locations
on a job site.
COMPETITION
L&W Supply's closest competitor, Gypsum Management Supply, is an independent
distributor with approximately 70 locations in the southern, central and western
United States. There are several regional competitors, such as Gypsum Drywall
Management Association in the southern United States and Strober Building Supply
in the northeastern United States. L&W Supply's many local competitors include
lumber dealers, hardware stores, mass merchandisers, home improvement centers,
acoustical tile distributors and manufacturers.
Sales are seasonal to the extent that sales are generally greater from the
middle of spring through the middle of autumn than during the remaining part of
the year.
44
<PAGE>
PROPERTIES OF THE CORPORATION
The Corporation's plants, mines, transport ships, quarries and other
facilities are located in North America, Europe, Australia, New Zealand and
Malaysia. Many of these facilities are operating at or near full capacity. All
facilities and equipment are in good operating condition and, in management's
judgment, sufficient expenditures have been made annually to maintain them. The
locations of the production properties of the Corporation's subsidiaries,
grouped by industry segment, are as follows (plants are owned unless otherwise
indicated):
GYPSUM PRODUCTS
Gypsum Board and Other Gypsum Products
<TABLE>
<CAPTION>
UNITED STATES
---------------------------
<C> <S>
(*)(**) Baltimore, Maryland
* Boston (Charlestown),
Massachusetts
(*)(**) Detroit (River Rouge),
Michigan
(*)(**) East Chicago, Indiana
Empire (Gerlach), Nevada
Fort Dodge, Iowa
* Fremont, California
** Galena Park, Texas
* Gypsum, Ohio
* Jacksonville, Florida
(*)(**) New Orleans, Louisiana
* Norfolk, Virginia
Oakfield, New York
Plaster City, California
Plasterco (Saltville),
Virginia
* Santa Fe Springs,
California
Shoals, Indiana
Sigurd, Utah
Southard, Oklahoma
Sperry, Iowa
* Stony Point, New York
Sweetwater, Texas
CANADA
---------------------------
Hagersville, Ontario
* Montreal, Quebec
* St. Jerome, Quebec
MEXICO
---------------------------
*** Puebla, Puebla
</TABLE>
Gypsum plants utilize locally mined or quarried gypsum rock unless noted as
follows:
* These plants use rock from quarry operations at Alabaster, Michigan;
Empire, Nevada; Plaster City, California; Little Narrows and/or Windsor,
Nova Scotia; or Harbour Head, Jamaica, an outside source.
** These plants purchase synthetic gypsum from outside sources.
*** This plant purchases all rock from outside sources.
Joint Compound
Surface preparation and joint treatment products are produced in plants
located at Chamblee, Georgia; Dallas, Texas; East Chicago, Indiana; Fort Dodge,
Iowa; Gypsum, Ohio; Jacksonville, Florida; Port Reading, New Jersey (leased);
Sigurd, Utah; Tacoma, Washington; Torrance, California; Hagersville, Ontario,
Canada; Montreal, Quebec, Canada; Puebla, Mexico; and Selangor, Malaysia
(leased).
Paper
Paper for gypsum board is manufactured at Clark, New Jersey; Galena Park,
Texas; Gypsum, Ohio; Jacksonville, Florida; North Kansas City, Missouri;
Oakfield, New York; and South Gate, California.
Ocean Vessels
Gypsum Transportation Limited, a wholly owned subsidiary of the Corporation,
headquartered in Bermuda, owns and operates a fleet of three self-unloading
ocean vessels. Under contract of affreightment, these vessels haul gypsum rock
from Nova Scotia to the East Coast and Gulf port plants of U.S. Gypsum. Excess
ship time, when available, is offered for charter on the open market.
45
<PAGE>
Miscellaneous
A mica-processing plant is located at Spruce Pine, North Carolina. Perlite
ore is produced at Grants, New Mexico. These minerals are used in the production
of joint compound and gypsum products, respectively. Metal lath, plaster and
drywall accessories and light gauge steel framing products are manufactured at
Puebla, Mexico. Metal safety grating products are manufactured at Burlington,
Ontario, Canada (leased); and Delta, British Columbia, Canada (leased). Various
other building products are manufactured at La Mirada, California (adhesives)
and New Orleans, Louisiana (lime products).
INTERIOR SYSTEMS
Ceiling Tile
Acoustical ceiling tile and panels are manufactured at Cloquet, Minnesota;
Greenville, Mississippi; Gypsum, Ohio; Walworth, Wisconsin; San Juan Ixhautepec,
Mexico; and Aubange, Belgium.
Ceiling Grid
Ceiling grid products are manufactured at Cartersville, Georgia; Stockton,
California; Westlake, Ohio; Auckland, New Zealand (leased); Dreux, France;
Oakville, Ontario, Canada; Peterlee, England (leased); Selangor, Malaysia
(leased); and Viersen, Germany. A coil coater and slitter plant used in the
production of ceiling grid is also located in Westlake, Ohio.
Access Floor Systems
Access floor systems products are manufactured at Red Lion, Pennsylvania;
Dreux, France; Oakville, Ontario, Canada; Peterlee, England (leased); Selangor,
Malaysia (leased); and Viersen, Germany.
Mineral Wool
Mineral wool products are manufactured at Birmingham, Alabama; Red Wing,
Minnesota; Tacoma, Washington; Wabash, Indiana; Walworth, Wisconsin; and Weston,
Ontario, Canada.
Wall Systems
Wall system products are manufactured at Medina, Ohio (leased).
Commercial Interior Systems
Commercial interior systems are manufactured at Westlake, Ohio.
GENERAL INFORMATION
ASBESTOS LITIGATION
One of the Corporation's subsidiaries, U.S. Gypsum, is among numerous
defendants in lawsuits arising out of the manufacture and sale of
asbestos-containing building materials. U.S. Gypsum sold certain
asbestos-containing products beginning in the 1930's; in most cases the products
were discontinued or asbestos was removed from the product formula by 1972, and
no asbestos-containing products were sold after 1977. Some of these lawsuits
seek to recover compensatory and in many cases punitive damages for costs
associated with maintenance or removal and replacement of products containing
asbestos (the "Property Damage Cases"). Others of these suits (the "Personal
Injury Cases") seek to recover compensatory and in many cases punitive damages
for personal injury allegedly resulting from exposure to asbestos and
asbestos-containing products. It is anticipated that additional personal injury
and property damage cases containing similar allegations will be filed.
As discussed below, U.S. Gypsum has substantial personal injury and property
damage insurance for the years involved in the asbestos litigation. Prior to
1985, when an asbestos exclusion was added to U.S. Gypsum's policies, U.S.
Gypsum purchased comprehensive general liability insurance policies covering
personal injury and property damage in an aggregate face amount of approximately
$850
46
<PAGE>
million. Insurers that issued approximately $100 million of these policies are
presently insolvent. Because U.S. Gypsum's insurance carriers initially
responded to its claims for defense and indemnification with various theories
denying or limiting coverage and the applicability of their policies, U.S.
Gypsum filed a declaratory judgment action against them in the Circuit Court of
Cook County, Illinois on December 29, 1983. (U.S. GYPSUM CO. V. ADMIRAL
INSURANCE CO., ET AL.) (the "Coverage Action"). U.S. Gypsum alleges in the
Coverage Action that the carriers are obligated to provide indemnification for
settlements and judgments and, in some cases, defense costs incurred by U.S.
Gypsum in personal injury and property damage cases in which it is a defendant.
The current defendants are ten insurance carriers that provided comprehensive
general liability insurance coverage to U.S. Gypsum between the 1940's and 1984.
As discussed below, several carriers have settled all or a portion of the claims
in the Coverage Action.
U.S. Gypsum's aggregate expenditures for all asbestos-related matters,
including property damage, personal injury, insurance coverage litigation and
related expenses, exceeded aggregate insurance payments by $15.4 million in
1990, $10.9 million in 1991 and $25.8 million in 1992.
Property Damage Cases
The Property Damage Cases have been brought against U.S. Gypsum by a variety
of plaintiffs, including school districts, state and local governments, colleges
and universities, hospitals, and private property owners. U.S. Gypsum is one of
many defendants in four cases that have been certified as class actions and
others that request such certification. One class action suit is brought on
behalf of owners and operators of all elementary and secondary schools in the
United States that contain or contained friable asbestos-containing material.
(IN RE ASBESTOS SCHOOL LITIGATION, U.S.D.C., E.D.Pa.). Approximately 1,350
school districts opted out of the class, some of which have filed or may file
separate lawsuits or are participants in a state court class action involving
approximately 333 school districts in Michigan. (BOARD OF EDUCATION OF THE CITY
OF DETROIT, ET AL. V. THE CELOTEX CORP., ET AL., Cir. Ct. for Wayne County,
Mich.). On April 10, 1992, a state court in Philadelphia certified a class
consisting of all owners of buildings leased to the federal government. (PRINCE
GEORGE CENTER, INC. V. U.S. GYPSUM CO., ET AL., Ct. of Common Pleas,
Philadelphia, Pa.) On September 4, 1992, a Federal district court in South
Carolina conditionally certified a class comprised of all colleges and
universities in the United States, which certification is presently limited to
the resolution of certain allegedly "common" liability issues. (CENTRAL WESLEYAN
COLLEGE, V. W.R. GRACE & CO., ET AL., U.S.D.C., S.C.). On December 23, 1992, a
case was filed in state court in South Carolina purporting to be a "voluntary"
class action on behalf of owners of all buildings containing certain types of
asbestos-containing products manufactured by the nine named defendants,
including U.S. Gypsum, other than buildings owned by the federal or state
governments, single family residences, or buildings at issue in the four above
described class actions (ANDERSON COUNTY HOSPITAL V. W.R. GRACE & CO., ET AL.,
Court of Common Pleas, Hampton Co., S.C. (the "Anderson Case"). On January 14,
1993, the plaintiff filed an amended complaint that added a number of
defendants, including the Corporation. The amended complaint alleges, among
other things, that the guarantees executed by U.S. Gypsum in connection with the
1988 Recapitalization, as well as subsequent distributions of cash from U.S.
Gypsum to the Corporation, rendered U.S. Gypsum insolvent and constitute a
fraudulent conveyance. The suit seeks to set aside the guarantees and recover
the value of the cash flow "diverted" from U.S. Gypsum to the Corporation in an
amount to be determined. This case has not been certified as a class action and
no other threshold issues, including whether the South Carolina Courts have
personal jurisdiction over the Corporation, have been decided. The damages
claimed against U.S. Gypsum in the class action cases are unspecified. U.S.
Gypsum has denied the substantive allegations of each of the Property Damage
Cases and intends to defend them vigorously except when advantageous settlements
are possible.
As of September 30, 1993, 85 Property Damage Cases were pending against U.S.
Gypsum; however, the number of buildings involved is greater than the number of
cases because many of these cases, including the class actions referred to
above, involve multiple buildings. Approximately 42 property damage claims have
been threatened against U.S. Gypsum.
47
<PAGE>
In total, U.S. Gypsum has settled property damage claims of approximately
189 plaintiffs involved in approximately 74 cases. All settlements were paid out
of reserves. Twenty-four cases have been tried to verdict, 15 of which were won
by U.S. Gypsum and 7 lost; two other cases, one won at the trial level and one
lost, were settled after appeals. Another case that was lost at trial court
level has been reversed on appeal and a new trial ordered. Appeals are pending
in 4 of the tried cases. In the cases lost, compensatory damage awards against
U.S. Gypsum have totaled $11.5 million. Punitive damages totaling $5.5 million
were entered against U.S. Gypsum in four trials. Two of the punitive damage
awards, totaling $1.45 million, were paid after appeals were exhausted; a third
was settled after the verdict was reversed on appeal. The remaining punitive
award is on appeal.
In 1990, 24 new Property Damage Cases were filed against U.S. Gypsum, 21
were dismissed before trial, 14 were settled, 4 were closed following trial or
appeal, and 124 were pending at year end; $14.6 million was expended for the
defense and resolution of Property Damage Cases and insurance payments of $4.2
million were received in 1990. During 1991, 14 new Property Damage Cases were
filed against U.S. Gypsum, 7 were dismissed before trial, 8 were settled, 2 were
closed following trial or appeal, and 121 were pending at year end; U.S. Gypsum
expended $22.2 million for the defense and resolution of Property Damage Cases
and received insurance payments of $13.8 million in 1991. In 1992, 7 new
Property Damage Cases were filed against U.S. Gypsum, 9 were dismissed before
trial, 17 were settled, 2 were closed following trial or appeal, and 97 were
pending at year end. U.S. Gypsum expended approximately $34.9 million for the
defense and resolution of Property Damage Cases and received insurance payments
of $10.2 million in 1992.
In the Property Damage Cases litigated to date, a defendant's liability for
compensatory damages, if any, has been limited to damages associated with the
presence and quantity of asbestos-containing products manufactured by that
defendant which are identified in the buildings at issue, although plaintiffs in
some cases have argued that principles of joint and several liability should
apply. Because of the unique factors inherent in each of the Property Damage
Cases, including the lack of reliable information as to product identification
and the amount of damages claimed against U.S. Gypsum in many cases, including
the class actions described above, management is unable to make a reasonable
estimate of the cost of disposing of pending Property Damage Cases.
Personal Injury Cases
U.S. Gypsum was among numerous defendants in asbestos personal injury suits
and administrative claims involving 60,741 claimants pending as of September 30,
1993. All asbestos bodily injury claims pending in the federal courts, including
approximately one-third of the Personal Injury Cases pending against U.S.
Gypsum, have been consolidated in the United States District Court for the
Eastern District of Pennsylvania.
U.S. Gypsum is a member, together with 19 other former producers of
asbestos-containing products, of the Center for Claims Resolution (the
"Center"). The Center has assumed the handling, including the defense and
settlement, of all Personal Injury Cases pending against U.S. Gypsum and the
other members of the Center. Each member of the Center is assessed a portion of
the liability and defense costs of the Center for the Personal Injury Cases
handled by the Center, according to predetermined allocation formulas. Five of
U.S. Gypsum's insurance carriers that in 1985 signed an Agreement Concerning
Asbestos-Related Claims (the "Wellington Agreement") are supporting insurers
(the "Supporting Insurers") of the Center. The Supporting Insurers are obligated
to provide coverage for the defense and indemnity costs of the Center's members
pursuant to the coverage provisions in the Wellington Agreement. Claims for
punitive damages are defended but not paid by the Center; if punitive damages
are recovered, insurance coverage may be available under the Wellington
Agreement depending on the terms of particular policies and applicable state
law. Punitive damages have not been awarded against U.S. Gypsum in any of the
Personal Injury Cases. Virtually all of U.S. Gypsum's personal injury liability
and defense costs are paid by those of its insurance carriers that are
Supporting Insurers. The Supporting Insurers provided approximately $350 million
of the total coverage referred to above.
48
<PAGE>
On January 15, 1993, U.S. Gypsum and the other members of the Center were
named as defendants in a class action filed in the U.S. District Court for the
Eastern District Pennsylvania (CARLOUGH ET AL. V. AMCHEM PRODUCTS INC., ET AL.,
Case No. 93-CV-0215). The complaint generally defines the class of plaintiffs as
all persons who have been occupationally exposed to asbestos-containing products
manufactured by the defendants, who had not filed an asbestos personal injury
suit as of the date of the filing of the class action. Simultaneously with the
filing of the class action, the parties filed a settlement agreement in which
the named plaintiffs, proposed class counsel, and the defendants agreed to
settle and compromise the claims of the proposed class. The settlement, if
approved by the court, will implement for all future Personal Injury Cases,
except as noted below, an administrative compensation system to replace judicial
claims against the defendants, and will provide fair and adequate compensation
to future claimants who can demonstrate exposure to asbestos-containing products
manufactured by the defendants and the presence of an asbestos-related disease.
Class members will be given the opportunity to "opt out," or elect to be
excluded from the settlement, although the defendants reserve the right to
withdraw from the settlement if the number of opt outs is, in their sole
judgment, excessive. In addition, in each year a limited number of claimants
will have certain rights to prosecute their claims for compensatory (but not
punitive) damages in court in the event they reject compensation offered by the
administrative processing of their claim.
The Center members, including U.S. Gypsum, have instituted proceedings
against those of their insurance carriers that had not consented to support the
settlement, seeking a declaratory judgment that the settlement is reasonable
and, therefore, that the carriers are obligated to fund their portion of it.
Consummation of the settlement is contingent upon, among other things, court
approval of the settlement and a favorable ruling in the declaratory judgment
proceedings against the non-consenting insurers. It is anticipated that appeals
will follow the district court's ruling on the fairness and reasonableness of
the settlement.
Each of the defendants has committed to fund a defined portion of the
settlement, up to a stated maximum amount, over the initial ten-year period of
the agreement (which is automatically extended unless terminated by the
defendants). Taking into account the provisions of the settlement agreement
concerning the number of claims that must be processed in each year and the
total amount that must be made available to the claimants, the Center estimates
that U.S. Gypsum will be obligated to fund a maximum of approximately $125
million of the class action settlement, exclusive of expenses, with a maximum
payment of less than $18 million in any single year; of the total amount of U.S.
Gypsum's obligation, all but approximately $13 million or less is expected to be
paid by U.S. Gypsum's insurance carriers.
During 1990, 11,095 new Personal Injury Cases were filed against U.S. Gypsum
and 7,272 were settled or dismissed. U.S. Gypsum incurred expenses of $14.2
million in 1990 with respect to Personal Injury Cases, $13.9 million of which
was paid directly by insurance. During 1991, 13,077 Personal Injury Cases were
filed against U.S. Gypsum and 6,273 were settled or dismissed. U.S. Gypsum
incurred expenses of $15.1 million in 1991 with respect to Personal Injury
Cases, of which $15.0 million was paid by insurance. During 1992, 20,117
Personal Injury Cases were filed against U.S. Gypsum and 10,631 were settled or
dismissed. U.S. Gypsum incurred expenses of $21.6 million in 1992 with respect
to Personal Injury Cases of which $21.5 million was paid by insurance. As of
December 31, 1992, 1991 and 1990, 54,188, 42,652 and 36,967 Personal Injury
Cases were outstanding against U.S. Gypsum, respectively.
U.S. Gypsum's average settlement cost for Personal Injury Cases over the
past three years has been approximately $1,350 per claim, exclusive of defense
costs. Management anticipates that its average settlement cost is likely to
increase due to such factors as the possible insolvency of co-defendants,
although this increase may be offset to some extent by other factors, including
the possibility for block settlements of large numbers of cases and the apparent
increase in the percentage of asbestos personal injury cases that appear to have
been brought by individuals with little or no physical impairment. In
management's opinion, based primarily upon U.S. Gypsum's experience in the
Personal Injury Cases disposed of to date and taking into consideration a number
of uncertainties, it is probable
49
<PAGE>
that asbestos-related Personal Injury Cases pending against U.S. Gypsum as of
December 31, 1992, can be disposed of for an amount estimated to be between $80
million and $100 million, including both indemnity costs and legal fees and
expenses. The estimated cost of resolving pending claims takes into account,
among other factors, (i) an increase in the number of pending claims; (ii) the
settlements of certain large blocks of claims for higher per-case averages than
have historically been paid; and (iii) a slight increase in U.S. Gypsum's
historical settlement average. No accrual has been recorded for this amount
because, pursuant to the Wellington Agreement, U.S. Gypsum's Supporting Insurers
are obligated to pay these costs.
Assuming that the CARLOUGH class action settlement referred to above is
approved substantially in its current form, management estimates, based on
assumptions supplied by the Center, U.S. Gypsum's maximum total exposure in
Personal Injury Cases during the next ten years (the initial term of the
agreement), including liability for pending claims, claims resolved as part of
the class action settlement, and opt out claims, as well as defense costs and
other expenses, at approximately $271 million, of which at least $254 million is
expected to be paid by insurance. Management is unable to make a reasonable
estimate of the cost of disposing of Personal Injury cases that will be filed in
the future in the event that the CARLOUGH settlement is not implemented because
of the inability to predict the number of such filings.
Coverage Action
As indicated above, all of U.S. Gypsum's carriers initially denied coverage
for the Property Damage Cases and the Personal Injury Cases, and U.S. Gypsum
initiated the Coverage Action to establish its right to such coverage. U.S.
Gypsum has voluntarily dismissed the Supporting Insurers referred to above from
the personal injury portion of the Coverage Action because they are committed to
providing personal injury coverage in accordance with the Wellington Agreement.
U.S. Gypsum's claims against the remaining carriers for coverage for the
Personal Injury Cases have been stayed since 1984.
On January 7, 1991, the trial court in the Coverage Action ruled on the
applicability of U.S. Gypsum's insurance policies to settlements and one adverse
judgment in eight Property Damage Cases. The court ruled that the eight cases
were generally covered, and imposed coverage obligations on particular policy
years based upon the dates when the presence of asbestos-containing material was
"first discovered" by the plaintiff in each case. The court awarded
reimbursement of approximately $6.2 million spent by U.S. Gypsum to resolve the
eight cases. U.S. Gypsum has appealed the court's ruling with respect to the
policy years available to cover particular claims, and the carriers have
appealed most other aspects of the court's ruling. The appeal process may take
up to a year or more from the date of this Prospectus.
U.S. Gypsum's experience in the Property Damage Cases suggests that "first
discovery" dates in the eight cases referred to above (1978 through 1985) are
likely to be typical of most pending cases. U.S. Gypsum's total insurance
coverage for the years 1978 through 1984 totals approximately $350 million
(after subtracting insolvencies and discounts given to settling carriers).
However, some pending cases, as well as some cases filed in the future, may be
found to have first discovery dates later than August 1, 1984, after which U.S.
Gypsum's insurance policies did not provide coverage for asbestos-related
claims. In addition, as described below, the first layer excess carrier for the
years 1980 through 1984 is insolvent and U.S. Gypsum may be required to pay
amounts otherwise covered by those and other insolvent policies. Accordingly, if
the court's ruling is affirmed, U.S. Gypsum will likely be required to bear a
portion of the cost of the property damage litigation.
Eight carriers, including two of the Supporting Insurers, have settled U.S.
Gypsum's claims for both property damage and personal injury coverage and have
been dismissed from the Coverage Action entirely. Four of these carriers have
agreed to pay all or a substantial portion of their policy limits to U.S. Gypsum
beginning in 1991 and continuing over the next four years. Three other excess
carriers, including the two settling Supporting Insurers, have agreed to provide
coverage for the Property Damage Cases and the Personal Injury Cases subject to
certain limitations and conditions, when and if underlying primary and excess
coverage is exhausted. It cannot presently be determined when such coverage
might be reached. Taking into account the above settlements, including
participation of certain
50
<PAGE>
of the settling carriers in the Wellington Agreement, and consumption through
December 31, 1992, carriers providing a total of approximately $97 million of
unexhausted insurance have agreed, subject to the terms of the various
settlement agreements, to cover both Personal Injury Cases and Property Damage
Cases. Carriers providing an additional $276 million of coverage that was
unexhausted as of December 31, 1992 have agreed to cover Personal Injury Cases
under the Wellington Agreement, but continue to contest coverage for Property
Damage Cases and remain defendants in the Coverage Action. U.S. Gypsum will
continue to seek negotiated resolutions with its carriers in order to minimize
the expense and delays of litigation.
Insolvency proceedings have been instituted against four of U.S. Gypsum's
insurance carriers. Midland Insurance Company, declared insolvent in 1986,
provided excess insurance ($4 million excess of $1 million excess of $500,000
primary in each policy year) from February 15, 1975 to February 15, 1978;
Transit Casualty Company, declared insolvent in 1985, provided excess insurance
($15 million excess of $1 million primary in each policy year) from August 1,
1980 to December 31, 1985; Integrity Insurance Company, declared insolvent in
1986, provided excess insurance ($10 million quota share of $25 million excess
of $90 million) from August 1, 1983 to July 31, 1984; and American Mutual
Insurance Company, declared insolvent in 1989, provided the primary layer of
insurance ($500,000 per year) from February 1, 1963 to April 15, 1971. It is
possible that U.S. Gypsum will be required to pay a presently indeterminable
portion of the costs that would otherwise have been covered by these policies.
It is not possible to predict the number of additional lawsuits alleging
asbestos-related claims that may be filed against U.S. Gypsum. The number of
Personal Injury Claims pending against U.S. Gypsum has increased in each of the
last several years. In addition, many Property Damage Cases are still at an
early stage and the potential liability therefrom is consequently uncertain. In
view of the limited insurance funding currently available for the Property
Damage Cases resulting from the continued resistance by a number of U.S.
Gypsum's insurers to providing coverage, the effect of the asbestos litigation
on the Corporation will depend upon a variety of factors, including the damages
sought in the Property Damage Cases that reach trial prior to the completion of
the Coverage Action, U.S. Gypsum's ability to successfully defend or settle such
cases, and the resolution of the Coverage Action. As a result, management is
unable to determine whether an adverse outcome in the asbestos litigation will
have a material adverse effect on the results of operations or the consolidated
financial position of the Corporation.
Accounting Change
Effective January 1, 1994, the Corporation will adopt the requirements of
FASB Interpretation No. 39. In accordance with Interpretation No. 39, U.S.
Gypsum will record an accrual for its liabilities for asbestos-related matters
which are deemed probable and can be reasonably estimated, and will separately
record an asset equal to the amount of such liabilities that is expected to be
paid by uncontested insurance. Due to management's inability to reasonably
estimate U.S. Gypsum's liability for Property Damage Cases and (until the
implementation of CARLOUGH is deemed probable) future Personal Injury Cases, it
is presently anticipated that the liabilities and assets to be recorded in 1994
will relate only to pending Personal Injury Cases. This implementation of
Interpretation No. 39 is not expected to have a material impact on reported
earnings or net assets.
ENVIRONMENTAL LITIGATION
The Corporation and certain of its subsidiaries have been notified by state
and federal environmental protection agencies of possible involvement as one of
numerous "potentially responsible parties" in a number of so-called "Superfund"
sites in the United States. The Corporation believes that appropriate reserves
have been established for its potential liability in connection with all
Superfund sites but is continuing to review its accruals as additional
information becomes available. The Corporation believes that neither these
matters nor any other known governmental proceeding regarding environmental
matters will have a material adverse effect upon its earnings or consolidated
financial position.
51
<PAGE>
OTHER
The Corporation's plants are substantial users of thermal energy. Five major
fuel types are used in a mix consisting of 81% natural gas, 10% electricity, 3%
coke, 3% coal and 3% oil. With few exceptions, plants which use natural gas are
equipped with fuel stand-by systems, principally oil. Primary fuel supplies have
been adequate and no curtailment of plant operations has resulted from
insufficient supplies. Supplies are likely to remain sufficient for projected
requirements.
Loss of one or more of the patents or licenses held by the Corporation would
not have a major impact on the Corporation's business or its ability to continue
operations.
None of the industry segments has any special working capital requirements.
None of the industry segments is materially dependent on a single customer
or a few customers on a regular basis. No single customer of the Corporation
accounted for more than 4% of the Corporation's 1992 or 1991 consolidated net
sales.
Because of the nature of the manufacturing processes, none of the industry
segments has any significant backlog; rather, they fill orders upon receipt.
No material part of any industry segment's business is subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of the government.
All of the Corporation's products regularly require improvement to remain
competitive. The Corporation also develops and produces comprehensive systems
employing several of its products. In order to maintain its high standards and
remain a leader in the building materials industry, the Corporation has
performed extensive research and development activities and makes the necessary
capital expenditures to maintain production facilities in sufficient operating
condition.
The average number of persons employed by the Corporation during 1992 and
1991 was 11,850 and 11,800, respectively.
MANAGEMENT
DIRECTORS OF THE CORPORATION
In connection with the consummation of the Prepackaged Plan, the number of
persons comprising the Board was increased by five effective May 6, 1993 which,
after the May 1993 retirement of one director, brought the total Board
membership to 15. Another director retired in August 1993 and that position
remains vacant. Of the five new directors (the "New Directors"), two, Messrs.
Crutcher and Lesser, were nominated by a committee representing holders of the
Corporation's senior subordinated debentures which were converted into Common
Stock under the Prepackaged Plan (each a "Senior Subordinated Director"); two,
Messrs. Fetzer and Zubrow, were nominated by Water Street (each a "Water Street
Director"); and one, Mr. Brown, was nominated by a committee representing
holders of the Corporation's junior subordinated debentures which were converted
into Common Stock and warrants under the Prepackaged Plan (a "Junior
Subordinated Director").
As the respective terms of office of the New Directors expire, the
Prepackaged Plan provides that each such New Director will be renominated. If a
New Director declines or is unable to accept such nomination, or in the event a
New Director resigns during his term or otherwise becomes unable to continue his
duties as a director, such New Director or, in the case of a Water Street
Director, Water Street, shall recommend his successor to the Committee on
Directors of the Board. In the event of the death or incapacity of a New
Director, his successor shall be recommended, in the case of a Water Street
Director, by Water Street, in the case of a Senior Subordinated Director, by the
remaining Senior Subordinated Director, and in the case of a Junior Subordinated
Director, by the remaining New Directors. Any such nominee shall be subject to
approval by the Board's Committee on Directors and the Board, which approval
shall not be unreasonably withheld.
52
<PAGE>
Until June 22, 1997, the time at which the director nomination and selection
procedures established by the Prepackaged Plan terminate, no more than two
employee directors may serve simultaneously on the Board. An "employee director"
is defined for this purpose as any officer or employee of the Corporation or any
direct or indirect subsidiary, or any director of any such subsidiary who is not
also a director of the Corporation.
<TABLE>
<CAPTION>
YEAR FIRST
PRINCIPAL OCCUPATION, BECAME
FIVE YEAR EMPLOYMENT HISTORY DIRECTOR
NAME AND AGE AND OTHER DIRECTORSHIPS AND CLASS
- ------------------------------ ------------------------------------------------------------------- -------------
<S> <C> <C>
Eugene B. Connolly, 61 Chairman and Chief Executive Officer, since April 1993; Chairman of 1988
the Board and Chief Executive Officer (June 1990-March 1993); Class 1994
President and Chief Executive Officer (January 1990-May 1990);
Executive Vice President of the Corporation (1987-1989); and
President and Chief Executive Officer of USG Interiors, Inc. (March
1987-March 1989). He also was President and Chief Executive Officer
of DAP Inc. (July 1988-March 1989). Prior to that, he served as
President and Chief Operating Officer of United States Gypsum
Company. He joined the Corporation in 1958, was appointed General
Manager of the Southern Construction Products Division in 1980, and
was elected a Group Vice President, Subsidiaries in 1983 and Group
Vice President, International and Industrial in 1984. Mr. Connolly
is a director of BPB Industries plc, London, England, a director of
U.S. Can Corporation and is a member of the Advisory Board of the
Kellogg Graduate School of Management, Northwestern University, the
Dean's Advisory Council, School of Business, Indiana University and
the Governing Council, Good Shepherd Hospital (Barrington,
Illinois). Mr. Connolly has been a director of the Corporation
since May 1988 and is Chairman of the Board's Executive Committee.
Keith A. Brown, 42 President (since 1987) of Chimera Corporation, a private management 1993
holding company. Mr. Brown is a director (since 1988) of Adelphia Class 1994
Incorporated, a director (since 1988) of Global Film & Packaging
Corporation, a director (since 1989) of Mansfield Foundry
Corporation, and a director (since 1993) of Ashland Castings
Corporation. Mr. Brown has been a director of the Corporation since
May 1993 and is a member of the Board's Audit Committee and Public
Affairs Committee.
James C. Cotting, 60 Chairman and Chief Executive Officer (since April 1987) of Navistar 1987
International Corporation. Mr. Cotting is a director of Asarco Class 1994
Incorporated and The Interlake Corporation. He is a director of the
National Association of Manufacturers and is a member of the
Conference Board. Mr. Cotting has been a director of the
Corporation since October 1987, is a member of the Board's
Executive Committee and is Chairman of its Finance Committee.
Philip C. Jackson, Jr., 65 Formerly Vice Chairman and a director of Central Bank of the South, 1979
Birmingham, Alabama, and of its parent company, Class 1994
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
PRINCIPAL OCCUPATION, BECAME
FIVE YEAR EMPLOYMENT HISTORY DIRECTOR
NAME AND AGE AND OTHER DIRECTORSHIPS AND CLASS
- ------------------------------ ------------------------------------------------------------------- -------------
<S> <C> <C>
Central Bancshares of the South (1980-1989); presently Adjunct
Professor, Birmingham-Southern College, Birmingham, Alabama (since
January 1989). From April 1990 to April 1993 he served as a member
of the Thrift Depositors Protection Oversight Board, Washington,
D.C. He is Director, Saul Centers, Inc., Washington D.C. His past
affiliations include: member of the Board of Governors of the
Federal Reserve System, Washington, D.C., from July 1975 to No-
vember 1978 and Vice President and a director of the Jackson
Company (mortgage banking operations) of Birmingham, Alabama, from
October 1949 to June 1975. Mr. Jackson is Trustee,
Birmingham-Southern College, Birmingham, Alabama. He has been a
director of the Corporation since May 1979, is a member of the
Board's Executive Committee and is Chairman of its Public Affairs
Committee.
John B. Schwemm, 59 Retired Chairman (1983-1989) and Chief Executive Officer 1988
(1983-1988) of R.R. Donnelley & Sons Company. He joined that Class 1994
Company in 1965, prior to which he was with the law firm of Sidley
& Austin. Mr. Schwemm was appointed General Counsel in 1969 and
elected Group Vice President, Book Group in 1976. He serves as a
director of Walgreen Company and William Blair Mutual Funds; he
also serves as a Trustee of Northwestern University. Mr. Schwemm
has been a director of the Corporation since May 1988 and is a
member of the Board's Audit Committee and Compensation and Or-
ganization Committee.
W.H. Clark, 61 Chairman of the Board (since 1984) and Chief Executive Officer 1985 Class
(since 1982) and President (1984-1990) of Nalco Chemical Company of 1995
Naperville, Illinois. He joined the company in 1960 and served in
various capacities until his appointment as a General Manager in
1978. Mr. Clark was elected Group Vice President and President,
Industrial Division (both in 1978); director in 1980; and Executive
Vice President, Domestic Operations, in 1982. He is a director of
Northern Trust Corporation and The Northern Trust Bank, Nicor
Corporation, Bethlehem Steel Corporation, James River Corporation
and Northern Illinois Gas Company. Mr. Clark has been a director of
the Corporation since August 1985, is a member of the Board's
Executive Committee and Compensation and Organization Committee and
is Chairman of its Committee on Directors and Audit Committee.
Lawrence M. Crutcher, 51 Managing Director (since 1990) of Veronis, Suhler & Associates, 1993
investment bankers. From 1967 to 1989, Mr. Crutcher was with Time Class 1995
Inc. He was President of Book-of-the-Month Club (1985-1989), Vice
President for Financial Planning (1984), Vice President, Magazines
(1981-1983), and Vice President, Circulation (1976-1980). Mr.
Crutcher has been
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
PRINCIPAL OCCUPATION, BECAME
FIVE YEAR EMPLOYMENT HISTORY DIRECTOR
NAME AND AGE AND OTHER DIRECTORSHIPS AND CLASS
- ------------------------------ ------------------------------------------------------------------- -------------
<S> <C> <C>
director of the Corporation since May 1993 and is a member of the
Board's Committee on Directors and Public Affairs Committee.
Anthony J. Falvo, Jr., 63 Vice Chairman, since April 1993; President (June 1990-March 1993) 1988
and Chief Operating Officer (January 1990-March 1993); Executive Class 1995
Vice President of the Corporation (1988-1989). He previously served
as President and Chief Executive Officer of United States Gypsum
Company (June 1988 to March 1989), President and Chief Executive
Officer of Masonite Corporation (April 1986-June 1988), and
President and Chief Operating Officer of Masonite Corporation
(March 1985 -- April 1986). He joined the Corporation in 1955 and
was elected Vice President, Marketing (1982), and Group Vice
President, Consumer Products (1984). He previously served as
President, L&W Supply Corporation (1976) and Director, Group Staff
Services (1980). He serves as a director of Urban Gateways and is
on the Development Council of Good Shepherd Hospital (Barrington,
Illinois). Mr. Falvo has been a director of the Corporation since
May 1988 and is a member of the Board's Executive Committee.
Wade Fetzer III, 56 Partner (since 1986) of Goldman, Sachs & Co., investment bankers. 1993
Mr. Fetzer is a member of the Board of Trustees and the Executive Class 1995
Committee of Rush-Presbyterian St. Luke's Medical Center, a Trustee
of Northwestern University and the University of Wisconsin
Foundation, and a member of the Board of United Charities of
Chicago. Mr. Fetzer has been a director of the Corporation since
May 1993 and is a member of the Board's Compensation and
Organization Committee, Public Affairs Committee and Committee on
Directors.
Robert L. Barnett, 53 Formerly Vice Chairman of Ameritech (1991-1992) and President of 1990
the Ameritech Bell Group (1989-1992), which includes eight Class 1996
wholly-owned subsidiaries of American Information Technologies
Corporation (Ameritech) and the Bell Group staff. Mr. Barnett also
served as President of Ameritech Enterprise Group (1987-1989),
President and Chief Executive Officer of Wisconsin Bell Company
(1985-1987), Vice President of Operations for Wisconsin Bell
Company (1984-1985), President of Ameritech Mobile Communications
Company (1983-1984), and in various other capacities with the Bell
System, which he joined in 1964. He is a director of Johnson
Controls, Inc. and is a member of the Advisory Council of the
Robert R. McCormick School of Engineering and Applied Science at
Northwestern University and of the University's Electrical
Engineering and Computer Science Industrial Advisory Board. He is
affiliated with the Institute of Electrical and Electronics
Engineers. Mr. Barnett has been a
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
PRINCIPAL OCCUPATION, BECAME
FIVE YEAR EMPLOYMENT HISTORY DIRECTOR
NAME AND AGE AND OTHER DIRECTORSHIPS AND CLASS
- ------------------------------ ------------------------------------------------------------------- -------------
<S> <C> <C>
director of the Corporation since May 1990 and is a member of the
Board's Compensation and Organization Committee, Audit Committee
and Committee on Directors.
David W. Fox, 62 Chairman and Chief Executive Officer (since 1990) of Northern Trust 1987
Corporation and The Northern Trust Company. He has been with The Class 1996
Northern Trust Company since 1955 and served as Senior Vice
President (1974-1978), Executive Vice President (1978-1981), Vice
Chairman (1981-1987) and President (1987-1993). Mr. Fox is a
director of The Federal Reserve Bank of Chicago, Northern Trust of
Florida Corp., Banque Rivaud (Paris, France), INROADS/Chicago and
the Chicago Central Area Committee. He is a Governor of the Chicago
Stock Exchange and a trustee of Northwestern Memorial Hospital, the
Adler Planetarium, The Orchestral Association, and DePaul
University. Mr. Fox has been a director of the Corporation since
May 1987, is a member of the Board's Executive Committee, Finance
Committee and Committee on Directors and is Chairman of its
Compensation and Organization Committee.
Marvin E. Lesser, 52 Managing Partner (since 1989) of Cilluffo Associates, L.P., a 1993
private investment partnership. Managing Partner (since 1993) of Class 1996
Sigma Partners, L.P., a private investment partnership. Mr. Lesser
has also been a private consultant since 1992. He was Senior Vice
President (1986-1988) of Bessemer Securities Corporation, a private
investment company and a director (1989-1991) of Amdura
Corporation. Mr. Lesser has been a director of the Corporation
since May 1993 and is a member of the Board's Finance Committee,
Committee on Directors and Public Affairs Committee.
Alan G. Turner, 60 Chairman and Chief Executive of BPB Industries plc, London, 1984
England, a manufacturer of gypsum products and other building Class 1996
materials and paper and packaging products. Prior to September
1993, Mr. Turner was Chairman (November 1992-August 1993), Chairman
and Chief Executive (1985-1992), Chief Executive (1978-1985),
Deputy Chief Executive (1974-1978), and served in various other
capacities since his association with BPB Industries plc in 1962.
He has been a director of that company since 1972. Mr. Turner is
also a director and Vice President of the National Council of
Building Material Producers Limited, United Kingdom; director of
The Manufacturers Life Insurance Company, Toronto; director of
Jaguar Limited, United Kingdom; and a member of the European
Advisory Board of Boral Limited, Australia. He is an honorary
president of Eurogypsum; a member of the Council and Treasurer of
the Royal Society for the Encouragement of Arts, Manufactures &
Commerce, United Kingdom and a member of the Institution of
Chemical Engineers. Mr. Turner has been a director of the
Corporation
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
PRINCIPAL OCCUPATION, BECAME
FIVE YEAR EMPLOYMENT HISTORY DIRECTOR
NAME AND AGE AND OTHER DIRECTORSHIPS AND CLASS
- ------------------------------ ------------------------------------------------------------------- -------------
<S> <C> <C>
since May 1984 and is a member of the Board's Audit Committee and
Committee on Directors. (BPB Industries plc, London, England,
beneficially owns 1,000 shares of common stock of the Corporation).
Barry L. Zubrow, 40 Partner (since 1988) of Goldman, Sachs & Co., investment bankers. 1993
Mr. Zubrow is a member of the Board of Managers of Haverford Class 1996
College. He has been a director of the Corporation since May 1993
and is a member of the Board's Finance Committee and Committee on
Directors.
</TABLE>
EXECUTIVE OFFICERS OF THE CORPORATION (WHO ARE NOT DIRECTORS)
<TABLE>
<CAPTION>
HAS HELD
NAME, AGE PRESENT
AND PRESENT POSITION PRIOR BUSINESS EXPERIENCE IN PAST FIVE YEARS POSITION SINCE
- ----------------------------------------- -------------------------------------------------- -------------------
<S> <C> <C>
William C. Foote, 42 Senior Vice President, USG Interiors, Inc. to January 1994
President and Chief Operating Officer March 1989; Senior Vice President and General
Manager, Central Construction Products Region,
United States Gypsum Company to November 1990;
Executive Vice President and Chief Operating
Officer, L&W Supply Corporation to September 1991;
President and Chief Executive Officer, L&W Supply
Corporation from September 1991 through December
1993; President and Chief Executive Officer, USG
Interiors, Inc. from January 1993 through December
1993.
Arthur G. Leisten, 52 Vice President and General Counsel to January March 1993
Senior Vice President, General Counsel 1990; Senior Vice President and General Counsel to
and Secretary March 1993.
P. Jack O'Bryan, 57 Senior Vice President and General Manager, Central January 1993
Senior Vice President and Chief Construction Products Region, United States Gypsum
Technology Officer Company to March 1989; President and Chief
Executive Officer, United States Gypsum Company to
January 1993.
Harold E. Pendexter, Jr., 59 Vice President, Human Resources and Ad- January 1991
Senior Vice President and Chief ministration to January 1990; Senior Vice
Administrative Officer President, Human Resources and Administration to
January 1991.
Raymond T. Belz, 52 Vice President Finance, United States Gypsum January 1994
Vice President and Controller; Vice Company to December 1990; Vice President Financial
President Financial Services, U.S. Gypsum Services, United States Gypsum Company since
Company January 1991.
Brian W. Burrows, 54 Same position. March 1987
Vice President, Research and Development
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
HAS HELD
NAME, AGE PRESENT
AND PRESENT POSITION PRIOR BUSINESS EXPERIENCE IN PAST FIVE YEARS POSITION SINCE
- ----------------------------------------- -------------------------------------------------- -------------------
<S> <C> <C>
Richard H. Fleming, 46 Vice President Finance and Chief Financial January 1994
Vice President and Chief Financial Officer, Masonite Corporation to February 1989;
Officer Director, Corporate Finance, USG Corporation to
January 1991; Vice President and Treasurer to
December 1993.
Matthew P. Gonring, 38 Director, Public Relations to January 1991; March 1993
Vice President, Corporate Communications Director Corporate Communications to March 1993.
J. Bradford James, 46 Vice President, Finance & Administration, USG January 1994
Vice President; President and Chief Interiors, Inc. to March 1989; Director, Corporate
Executive Officer, USG Interiors, Inc. Strategic Planning, USG Corporation and Vice
President, Finance & Administration, USG
Interiors, Inc. to January 1990; Vice President,
Financial and Strategic Planning, USG Corporation
to January 1991; Vice President and Chief
Financial Officer, USG Corporation to March 1993;
Senior Vice President and Chief Financial Officer
to December 1993.
John E. Malone, 50 Vice President and Controller, USG Corporation to January 1994
Vice President and Treasurer; Vice December 1993; Vice President -- Finance, USG
President -- Finance, USG International, International, Ltd. since March 1993.
Ltd.
James S. Phillips, 63 Vice President, National Accounts, United States December 1990
Vice President, Corporate Accounts Gypsum Company to March 1989; Vice President
National Accounts, USG Corporation to December
1990.
Donald E. Roller, 55 Executive Vice President and Chief Operating January 1994
Vice President; President and Chief Officer, USG Interiors, Inc. to March 1989;
Executive Officer, United States Gypsum President and Chief Executive Officer, USG
Company Interiors, Inc. to January 1993; President and
Chief Executive Officer, United States Gypsum
Company since January 1993.
Stanley R. Sak, 52 Group Vice President, Ceiling Group, USG January 1994
Vice President; President and Chief Interiors, Inc. to March 1989; Executive Vice
Executive Officer, USG International, President, USG Interiors, Inc. to October 1990;
Ltd. President and Chief Executive Officer, USG
International, Ltd since October 1990.
S. Gary Snodgrass, 42 Vice President Human Resources, USG Interiors, January 1994
Vice President, Human Inc. to December 1989; Director, Corporate Human
Resources -- Operations Resources Planning, USG Corporation and Vice
President, Human Resources, USG Interiors, Inc. to
November 1990; Director, Human Resources, USG
Corporation to September 1992; Vice President,
Management Resources and Employee Relations to
December 1993.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
HAS HELD
NAME, AGE PRESENT
AND PRESENT POSITION PRIOR BUSINESS EXPERIENCE IN PAST FIVE YEARS POSITION SINCE
- ----------------------------------------- -------------------------------------------------- -------------------
<S> <C> <C>
Dean H. Goossen, 46 General Counsel and Secretary, Arthur J. Gal- February 1993
Assistant Secretary lagher & Co. to 1989; Vice President, General
Counsel and Secretary, Xerox Financial Services
Life Insurance Company to February 1993.
William R.C. Macdonald, 47 Executive Vice President, Operations, CGC Inc. to March 1989
President and Chief Executive Officer, March 1989.
CGC, Inc.
Frank R. Wall, 60 Senior Vice President and General Manager, Western January 1994
President and Chief Executive Officer, Construction Products Region, United States Gypsum
L&W Supply Corporation Company to January 1990; Senior Vice President,
Operating Services, United States Gypsum Company
to April 1993; Executive Vice President and Chief
Operating Officer, L&W Supply Corporation to
December 1993.
</TABLE>
EXECUTIVE COMPENSATION AND BENEFITS
The discussion that follows has been prepared based on the actual
compensation paid and benefits provided by the Corporation and its subsidiaries
to the five most highly compensated executive officers of the Corporation,
including for this purpose two executive officers of the Corporation's operating
subsidiaries (collectively, the "Named Executives") for services performed
during 1992 and the other periods indicated. This historical data is not
necessarily indicative of the compensation and benefits that may be provided to
such persons in the future.
In general, the Prepackaged Plan provided for the assumption and
continuation by the Corporation of its existing employment, compensation and
benefit arrangements. However, the consummation of the Prepackaged Plan resulted
in a substantial reduction in the amounts otherwise potentially payable to the
Named Executives in 1994 under the Corporation's three-year Incentive Recovery
Program (the "IRP") and the concurrent cash settlement of such reduced awards.
The Named Executives received the following amounts (which will be taken into
account for purposes of computing benefits under the retirement plan and
supplemental retirement plan described below) upon the settlement of such
reduced awards: Mr. Connolly: $1,164,005; Mr. Falvo: $800,168; Mr. O'Bryan:
$470,448; Mr. Roller: $446,614; and Mr. Pendexter: $408,524. Although no further
awards will be made to the Named Executives under the IRP, the Named Executives
are eligible for incentive awards under the Corporation's 1993 Annual Incentive
Program.
In addition, the consummation of the Prepackaged Plan resulted in the
cancellation of all existing stock options held by the Named Executives without
the payment of any consideration therefor and in extreme dilution of their
existing restricted and deferred stock awards. However, the Management
Performance Plan has been continued and the Prepackaged Plan provides that
options to purchase up to [2,788,000] shares of Common Stock (representing 7.5%
of the number of shares of Common Stock outstanding immediately after the
consummation of the Prepackaged Plan) will be reserved for management
incentives, and that options to purchase up to 1,673,000 of those shares of
Common Stock (representing 4.5% of such number of outstanding shares) could be
granted immediately after the consummation of the Prepackaged Plan. Accordingly,
options for 1,673,000 shares of Common Stock were granted on June 1, 1993 to 45
individuals at an exercise price of $10.3125 per share. These options vest at
the rate of one-third of the aggregate grant on each of June 1, 1994, June 1,
1995 and June 1, 1996 (except for a grant of 50,000 shares to one individual
which is expected to vest in full in 1994 in conjunction with that individual's
retirement). The Prepackaged Plan also provides that, prior to June 22, 1997,
the Corporation will not issue, award or grant, for compensatory purposes, any
stock (including
59
<PAGE>
restricted and deferred stock grants and awards), stock options, stock
appreciation rights or other stock-based awards, except for the options
described above or pursuant to a new approval by the Corporation's stockholders.
THREE-YEAR COMPENSATION SUMMARY
The following table summarizes for the years indicated the compensation
awarded to, earned by or paid to the Named Executives for services rendered in
all capacities to the Corporation and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION
---------------------- AWARDS
OTHER -------------------- PAYOUTS
ANNUAL RESTRICTED ------- ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
NAME AND SALARY BONUS SATION AWARD(S)* SARS** PAYOUTS SATION***
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ------------------------------ ---- ------- ----- ------ ---------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eugene B. Connolly ........... 1992 555,000 -- -- -- -- -- 530
Chairman of the Board, and 1991 475,000 -- -- 213,750 -- -- 530
CEO 1990 404,167 -- -- 215,325 87,100 -- --
Anthony J. Falvo, Jr. ........ 1992 432,500 -- -- -- -- -- 530
Vice Chairman 1991 376,667 -- -- 142,500 -- -- 530
1990 320,000 -- -- 86,625 35,200 -- --
P. Jack O'Bryan .............. 1992 256,000 -- -- -- -- -- 530
Senior Vice President and 1991 236,750 -- -- 83,125 -- -- 530
Chief Technology Officer 1990 216,000 -- -- 87,038 35,200 -- --
Donald E. Roller ............. 1992 250,000 -- -- -- -- -- 530
President and CEO, United 1991 233,333 -- -- 83,125 -- -- 530
States Gypsum Company 1990 214,000 -- -- 44,138 17,800 -- --
Harold E. Pendexter, Jr. ..... 1992 242,500 -- -- -- -- -- 530
Senior Vice President and 1991 210,000 -- -- 83,125 -- -- 530
Chief Administrative Officer 1990 180,000 -- -- 22,688 9,200 -- --
<FN>
- ------------------------------
* The amounts shown reflect the value (determined by the closing price of the
Corporation's common stock on the New York Stock Exchange on the date of
grant) of grants of restricted stock awards made in 1990 and 1991,
respectively, under the Management Performance Plan. The shares subject to
some of these awards will vest no later than the tenth anniversary of the
applicable date of grant, subject to acceleration upon the attainment of
specified performance objectives, and include the right to receive dividends
paid to stockholders generally. None of the restricted stock awards vests in
less than three years from the date of grant. As of December 31, 1992, none
of such shares had vested and no dividends were paid by the Corporation in
1990, 1991 or 1992. As of December 31, 1992, the aggregate number of
restricted shares held by each of the Named Executives and the aggregate
value thereof, determined with reference to closing prices on such date,
were as follows: Mr. Connolly: 142,200 shares, $79,988; Mr. Falvo: 81,000
shares, $45,563; Mr. O'Bryan: 56,100 shares, $31,556; Mr. Roller: 45,700
shares, $25,706, and Mr. Pendexter: 40,500 shares, $22,781. Upon
consummation of the Restructuring, the restricted stock awards were
subjected to a one for 50 reverse stock split. The closing sales price of
the Common Stock on the NYSE on May 6, 1993, before the reverse stock split
and the issuance of Common Stock in conjunction with the Restructuring, was
$0.28.
** All of these options were cancelled on May 6, 1993 without payment of any
consideration therefor to the holders thereof.
*** All other compensation for the Named Executives includes matching
contributions from the Corporation to the account of each such Named
Executive in the USG Corporation Investment Plan.
</TABLE>
EMPLOYMENT AGREEMENTS
In order to assure continued availability of services of the Named
Executives, on various dates prior to 1992, the Corporation (or, in the case of
Mr. Roller, U.S. Gypsum) entered into employment agreements (the "Employment
Agreements") with the Named Executives. The Employment Agreements, which do not
by their terms provide for renewal or extension, terminate on December 31, 1996.
60
<PAGE>
The Employment Agreements provide for minimum annual salaries to be paid at
normal pay periods and at normal intervals to Mr. Connolly ($450,000), Mr. Falvo
($360,000), Mr. O'Bryan ($235,000), Mr. Roller ($230,000) and Mr. Pendexter
($200,000). The Employment Agreements require that each Named Executive devote
his full attention and best efforts during the term of his Agreement to the
performance of assigned duties. If a Named Executive during the term of his
Agreement is discharged without cause by the Corporation, he may elect to be
treated as a continuing employee under his Agreement, with salary continuing at
the minimum rate specified in such Agreement or at the rate in effect at the
time of discharge, if greater, for the balance of the term of such Agreement or
for a period of two years, whichever is greater. In the event of any such salary
continuation, certain benefits will be continued at corresponding levels and for
the same period of time. If a Named Executive becomes disabled during the term
of his Agreement, his compensation continues for the unexpired term of the
Agreement at the rate in effect at the inception of the disability. In the event
of a Named Executive's death during the term of his Agreement, one-half of his
full rate of compensation in effect at the time of his death will be paid to his
beneficiary for the remainder of the term of the Agreement.
Each of the Named Executives has undertaken, while employment under his
Employment Agreement continues and for a period of three years thereafter, not
to participate, directly or indirectly, in any enterprise which competes with
the Corporation or any of its subsidiaries in any line of products in any region
of the United States. Each Named Executive has also agreed not to, at any time,
use for his benefit or the benefit of others or disclose to others any of the
Corporation's confidential information except as required by the performance of
his duties under his Employment Agreement.
TERMINATION COMPENSATION AGREEMENTS
The Corporation is a party to termination compensation agreements
("Termination Compensation Agreements") with the Named Executives. Each
Termination Compensation Agreement provides that it will terminate at the close
of business on December 31, 1995, or upon the Named Executive attaining age 65,
whichever comes first.
The Termination Compensation Agreements provide certain benefits in the
event any change in control occurs and termination of employment follows within
three years thereafter or prior to the Named Executive attaining age 65,
whichever is earlier, but only if such termination occurs under one of several
sets of identified circumstances. Such circumstances include termination by the
Corporation other than for cause and termination by the Named Executive for good
reason. Each change in control will begin a new three-year period for the
foregoing purposes. For purposes of the Termination Compensation Agreements, (i)
a "change in control" is deemed to have occurred, in general, if any person or
group of persons acquires beneficial ownership of 20% or more of the combined
voting power of the Corporation's then-outstanding voting securities, if there
is a change in a majority of the members of the Board within a two-year period,
and in certain other events; (ii) the term "cause" is defined as, in general,
the willful and continued failure by the Named Executive substantially to
perform his duties after a demand for substantial performance has been delivered
or the willful engaging of the Named Executive in misconduct which is materially
injurious to the Corporation; and (iii) "good reason" for termination by the
Named Executive with a right to benefits under the Termination Compensation
Agreements means, in general, termination subsequent to a change in control
based on specified changes in the Named Executive's duties, responsibilities,
titles, offices or office location, reductions in base salary, specified changes
to bonus, benefit, compensation, retirement or similar plans or to the Named
Executive's participation therein or a reduction in any fringe benefits or paid
vacation days.
Under the Termination Compensation Agreements, upon the Corporation's
termination of the Named Executive following a change in control other than for
cause or the Named Executive's termination following a change in control for
good reason, the Corporation is obligated to pay the Named Executive his full
base salary through the date of termination at the rate in effect at the time of
notice of termination, any unpaid bonus for a past fiscal year, and the pro rata
portion of bonus for the then-current fiscal year, and to continue for the
benefit of the Named Executive through the date of termination all stock
ownership, purchase and option plans and insurance and other benefit plans. The
Termination
61
<PAGE>
Compensation Agreements also provide that in the event of a change in control
and termination of the kind which gives rise to benefits, the Named Executive
involved will be entitled to payment of a lump sum amount equal to 2.99 times
the sum of (i) his then-annual base salary, computed at 12 times his then-
current monthly pay and (ii) his full year position par bonus for the
then-current fiscal year. Such lump sum amount will be subject to all applicable
federal and state income taxes; provided that if such lump sum amount or any
other payments or benefits which such Named Executive has received or has the
right to receive from the Corporation, would, either alone or together,
constitute an "excess parachute payment" under the Internal Revenue Code, the
total of such lump sum amount plus any such payments or benefits will be
increased by an amount sufficient to provide, after all federal excise taxes and
federal and state income taxes attributable to such increase, a net amount equal
to the federal excise tax on such total calculated as described above and before
any such excise tax. In addition, under the Termination Compensation Agreements,
the Corporation is required to maintain in full force and effect until the
earlier of (i) two years after the date of any termination which gives rise to
benefits under any of the Termination Compensation Agreements and (ii)
commencement by the Named Executive of full-time employment with a new employer,
all insurance plans and arrangements in which the Named Executive was entitled
to participate immediately prior to his termination in a manner which would give
rise to benefits under his Agreement, provided that if such participation is
barred the Corporation will be obligated to provide substantially similar
benefits. In the event of any termination which gives rise to benefits under any
of the Termination Compensation Agreements, the Corporation is required to
credit the Named Executive with three years of benefit and credited service in
addition to the total number of years of benefit and credited service the Named
Executive accrued under the USG Corporation Retirement Plan. See "Retirement
Plans" below. If the Named Executive, after credit for the additional three
years, has a total of less than five years of credited service, he nonetheless
will be treated as if he were fully vested under that Plan, but with benefits
calculated solely on the basis of such total benefit service. Under the
Termination Compensation Agreements, the Corporation is obligated to pay to the
Named Executive all legal fees and expenses incurred by him as a result of the
kind of termination which gives rise to benefits under the Agreement, including
all fees and expenses incurred in contesting or disputing any such termination
or in seeking to obtain or enforce any right or benefit provided under such
Agreement. No amounts are payable under the Termination Compensation Agreements
if the Named Executive's employment is terminated by the Corporation for "cause"
or if the Named Executive terminates his employment and "good reason" does not
exist.
Although Water Street's receipt of Common Stock under the Prepackaged Plan
constituted a "change in control" under the Termination Compensation Agreements,
each of the Named Executives agreed that Water Street's receipt of Common Stock
under the Prepackaged Plan did not constitute a "change in control". Their
agreement does not constitute a waiver of any other occurrence of a change in
control.
The Corporation has established a so-called "rabbi trust" to provide a
source of payment for benefits payable under each Termination Compensation
Agreement. Immediately upon any change in control, the Corporation may deposit
with the trustee under such trust an amount the proper officers of the
Corporation reasonably estimate could potentially be payable under all such
Agreements, taking into account any previous deposits. The Corporation, however,
did not make any such deposit to the trust as a result of Water Street's current
ownership. In the event that the assets of such trust in fact prove insufficient
to provide for benefits payable under all Termination Compensation Agreements,
the shortfall would be paid directly by the Corporation from its general assets.
RETIREMENT PLANS
The following table shows the annual pension benefits on a straight-life
annuity basis for retirement at normal retirement age under the terms of the
Corporation's contributory retirement plan (the "Retirement Plan"), before the
applicable offset of one-half of the primary social security benefits at time of
retirement. The table has been prepared for various compensation classifications
and representative years of credited service under the Plan. Each participating
employee contributes towards the cost of his
62
<PAGE>
or her retirement benefit. Retirement benefits are based on the average rate of
annual covered compensation during the three consecutive years of highest annual
compensation in the ten years of employment immediately preceding retirement.
Participants become fully vested after five years of continuous credited
service.
RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
COVERED --------------------------------------------------
COMPENSATION 10 20 30 40
- ----------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$200,000................................. $ 32,000 $ 64,000 $ 96,000 $ 128,000
300,000................................. 48,000 96,000 144,000 192,000
400,000................................. 64,000 128,000 192,000 256,000
500,000................................. 80,000 160,000 240,000 320,000
600,000................................. 96,000 192,000 288,000 384,000
700,000................................. 112,000 224,000 336,000 448,000
800,000................................. 128,000 256,000 384,000 512,000
</TABLE>
The Named Executives participate in the Retirement Plan. The Named
Executives' full years of continuous credited service at December 31, 1992 were
as follows: Mr. Connolly: 34; Mr. Falvo: 37; Mr. O'Bryan: 34; Mr. Roller: 32;
and Mr. Pendexter: 35. Compensation under the Retirement Plan includes salary
and incentive compensation for the year in which payments are made.
Pursuant to a supplemental retirement plan, the Corporation has undertaken
to pay any retirement benefits otherwise payable to certain individuals,
including the Named Executives, under the terms of the Corporation's
contributory Retirement Plan but for provisions of the Internal Revenue Code
limiting amounts payable under tax-qualified retirement plans in certain
circumstances. The Corporation has established a so-called "rabbi trust" to
provide a source of payment for benefits under this supplemental plan. Amounts
have been deposited in this trust from time to time as necessary to assure that
it is adequately funded in light of changes in amounts of compensation paid,
participants in the supplemental retirement plan and other appropriate factors.
In addition, the Corporation has authorized establishment by certain
individuals, including the Named Executives, of special retirement accounts with
independent financial institutions as an additional means of funding the
Corporation's obligations to make such supplemental payments.
DIRECTOR COMPENSATION
Directors who are not employees of the Corporation are presently entitled to
receive a retainer of $6,000 per quarter, plus a fee of $900 for each Board or
Board committee meeting attended. A non-employee director serving as chairman of
a committee is entitled to receive an additional retainer of $1,000 per quarter
for each such chairmanship. Additional fees for pre-meeting consultations may be
paid as applicable to non-employee directors, the amount of such fees to bear a
reasonable relationship to the regular meeting fee of $900 and the customary
length of a meeting of the Board committee involved. No director of the
Corporation has received any compensation of any kind for serving as a director
while also serving as an officer or other employee of the Corporation or any of
its Subsidiaries.
In the past, the Corporation has entered into consulting agreements with
retiring non-employee directors who had specified minimum periods of service on
the Board. Those agreements continued the annualized retainer which was in
effect in each instance at the time of retirement from the Board in return for
an undertaking to serve in an advisory capacity and to refrain from any activity
in conflict or in competition with the Corporation. The Board has determined to
continue to offer such agreements on a case-by-case basis but also has
determined to limit any such agreement to a term not to exceed five years.
63
<PAGE>
OWNERSHIP OF COMMON STOCK
SELLING STOCKHOLDER AND ITS AFFILIATES
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Selling Stockholder and its affiliates as
of December 31, 1993 and as adjusted to reflect its sale of shares in the
Offering. See "Certain Relationships and Related Transactions."
<TABLE>
<CAPTION>
SHARES OWNED BEFORE THE SHARES OWNED AFTER THE
OFFERING(A) SHARES OFFERING(A)
---------------------------- BEING ----------------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Water Street Corporate Recovery Fund I,
L.P. and affiliates.................... 16,105,840 43% 2,500,000 13,605,840 32%
85 Broad Street
New York, New York 10004
<FN>
- ------------------------
(a) Water Street owns directly 15,893,231 shares of Common Stock and 116,070
Warrants that are currently exercisable. Goldman, Sachs & Co. owns
directly 96,539 shares of Common Stock and, as the general partner of
Water Street, may be deemed to be the beneficial owner of the 15,893,231
shares of Common Stock and 116,070 Warrants owned directly by Water
Street. Such shares and Warrants may also be deemed to be beneficially
owned by The Goldman Sachs Group, L.P., one of the general partners of
Goldman, Sachs & Co. Goldman, Sachs & Co. and The Goldman Sachs Group,
L.P. disclaim beneficial ownership of shares and Warrants held by Water
Street to the extent partnership interests in Water Street are held by
persons other than Goldman, Sachs & Co., The Goldman Sachs Group, L.P. and
their affiliates.
</TABLE>
OTHER 5% STOCKHOLDERS
In addition to the Selling Stockholder and its affiliates, the Corporation
believes that affiliates of Fidelity Investments of Boston, Massachusetts
beneficially own in excess of 5% of the outstanding Common Stock.
64
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of September 30, 1993
regarding the beneficial ownership of Common Stock by each director and by all
directors and executive officers of the Corporation as a group (29 persons).
Such information is derived from the filings made with the SEC by such persons
under Section 16(a) of the Exchange Act. The totals include any shares allocated
to the accounts of those individuals through September 30, 1993 under the USG
Corporation Investment Plan.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME OWNED OF CLASS
- ---------------------------------------------------------- ------------- -----------
<S> <C> <C>
Robert L. Barnett......................................... 20
Keith A. Brown............................................ 119,256
W. H. Clark............................................... 1,248
Eugene B. Connolly........................................ 7,789
James C. Cotting.......................................... 20
Lawrence M. Crutcher...................................... 1,800
Anthony J. Falvo, Jr...................................... 6,852
Wade Fetzer III........................................... ** *
David W. Fox.............................................. 112
Philip C. Jackson, Jr..................................... 1,963
Marvin E. Lesser.......................................... 500
John B. Schwemm........................................... 154
Alan G. Turner............................................ 0
Barry L. Zubrow........................................... **
All current directors and present executive officers as a
group (29 persons), including those current directors
named above.............................................. 167,021
<FN>
- ------------------------
* Total beneficial ownership of 167,021 shares of Common Stock by members of
the group identified above represents approximately 0.5% of the total
outstanding shares of Common Stock, excluding the shares that Messrs.
Fetzer and Zubrow may be deemed to beneficially own as described in the
following note. No director had a right to acquire beneficial ownership of
any shares of Common Stock within 60 days after September 30, 1993 except
as described in the following note and except pursuant to Warrants that
are currently exercisable as follows: Mr. Brown, 16,458 Warrants; Mr.
Connolly, 1,003 Warrants; Mr. Falvo, 1,003 Warrants; Mr. Fox, 19 Warrants;
Mr. Jackson, 879 Warrants; Mr. Schwemm, 25 Warrants. The above table also
excludes options to purchase an aggregate of 1,293,000 shares of Common
Stock which are not exercisable within 60 days after September 30, 1993.
** Messrs. Fetzer and Zubrow are general partners of Goldman, Sachs & Co. As
general partners, Messrs. Fetzer and Zubrow may be deemed to be the
beneficial owners of shares beneficially owned or held by Goldman, Sachs &
Co. and its affiliates, including Water Street and The Goldman Sachs
Group, L.P. As described above, Goldman, Sachs & Co. owns directly 96,539
shares of Common Stock and, as the general partner of Water Street, may be
deemed to be the beneficial owner of the 15,893,231 shares of Common Stock
and 116,070 Warrants owned directly by Water Street. Messrs. Zubrow and
Fetzer disclaim beneficial ownership of such shares and Warrants other
than to the extent such ownership corresponds to their respective
percentage interests in Goldman, Sachs & Co., The Goldman Sachs Group,
L.P. and Water Street.
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENT WITH WATER STREET ENTITIES
On February 25, 1993, the Corporation entered into the Water Street
Agreement. The Water Street Agreement, among other things, (i) restricts the
Water Street Entities from purchasing, or offering or agreeing to purchase, any
shares of Common Stock or other voting securities of the Corporation, except
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<PAGE>
for Permitted Acquisitions (as defined in the Water Street Agreement) and
acquisitions by any Water Street Entity other than Water Street of up to an
aggregate of 10% of the then outstanding shares of Common Stock in the ordinary
course of its business; (ii) requires (a) Water Street to vote all shares of
Common Stock and other voting securities of the Corporation beneficially owned
by it and (b) the other Water Street Entities to vote all shares of Common Stock
beneficially owned by them in excess of 10% of the then outstanding shares of
Common Stock, in each case, in the same proportion as the votes cast by all
other holders of Common Stock and other voting securities of the Corporation,
subject to certain exceptions described below; (iii) places restrictions on the
ability of the Water Street Entities to transfer shares of Common Stock to any
person, except for (a) sales consistent with Rule 144 of the Securities Act of
1933, (b) underwritten public offerings, (c) persons not known to be 5% holders,
(d) pledgees who agree to be bound by certain provisions of the Water Street
Agreement, (e) in the case of Water Street, distributions to Water Street's
partners in accordance with the governing partnership agreement, (f) pursuant to
certain tender or exchange offers for shares of Common Stock and (g) pursuant to
transactions approved by the Board; (iv) provides Water Street with certain
rights to nominate directors to the Board and Finance Committee (as described
below); (v) requires the maintenance of directors' and officers' liability
insurance and indemnification rights; (vi) requires that the Corporation's
shareholder rights plan provide temporary exemptions for ownership of Common
Stock by the Water Street Entities; (vii) provides Water Street with four demand
registrations and unlimited piggyback registrations, subject to certain
limitations described below; and (viii) provides for indemnification by the
Corporation of Water Street, its underwriters and related parties for securities
law claims related to any demand or piggyback registration contemplated in
clause (vii) above.
In connection with the Restructuring, Water Street nominated two New
Directors to the Board, Wade Fetzer III and Barry L. Zubrow. See "Management --
Directors of the Corporation." In the event that the Water Street Directors are
removed from office without the consent of Water Street, then the restrictions
on the Water Street Entities relating to (i) the purchases of voting securities
of the Corporation other than Permitted Acquisitions, (ii) the voting of
securities of the Corporation and (iii) the transfer of shares of Common Stock,
as described above, shall terminate. These restrictions shall also terminate
upon the earliest to occur of: (i) the consummation of a merger, consolidation
or other business combination to which the Corporation is a constituent
corporation, if the stockholders of the Corporation immediately before such
merger, consolidation or combination do not own more than 50% of the combined
voting power of the then outstanding voting securities of the surviving
corporation, (ii) the Board consisting of a majority of directors not approved
by a vote of the directors serving at the time the Water Street Agreement was
executed, and (iii) the tenth anniversary of the Water Street Agreement. In
addition, the restrictions on purchases of voting securities and transfers of
Common Stock shall also terminate upon the Water Street Entities owning less
than 5% of the then outstanding shares of Common Stock.
Furthermore, the Water Street Entities will not be subject to the voting
restrictions contained in the Water Street Agreement if, among other things: (i)
the Corporation defaults on the payment of principal or interest required to be
paid pursuant to any indebtedness if the aggregate amount of such indebtedness
is $25 million or more; (ii) the principal of any of the Corporation's
indebtedness is declared due and payable prior to the date on which it would
otherwise become due and payable if the aggregate amount of such indebtedness is
$25 million or more; (iii) any person other than Water Street becomes the
beneficial owner of more than 10% of the then outstanding shares of Common
Stock; or (iv) the Corporation fails to comply with (x) the following financial
covenants: a minimum senior interest coverage ratio, a minimum total interest
coverage ratio, a minimum fixed charge coverage ratio, a minimum adjusted
cumulative net worth, and a maximum leverage ratio or (y) a minimum total
interest coverage ratio of 0.63 for a specified coverage period in 1993 and for
the first quarter of 1994, 0.84 for the second quarter of 1994, 0.97 for the
third quarter of 1994 and 1.14 for the fourth quarter of 1994, provided that (a)
such financial covenants shall be calculated based only on domestic revenues
unless the Corporation's non-domestic consolidated revenues exceed 35% of its
total consolidated revenues, and (b) the Corporation shall not be deemed out of
compliance in the event of a breach, after 1994 and prior to 1998, of the senior
interest coverage ratio or the total interest coverage ratio unless there shall
also exist at such time a breach of the fixed charge coverage ratio or in the
event of a breach, after 1994 and prior to
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<PAGE>
1998, of the fixed charge coverage ratio unless there shall also exist at such
time a breach of either the senior interest coverage ratio or the total interest
coverage ratio. See "Description of Credit Agreement." If the Corporation
complies with the financial covenants within the two fiscal quarters following
the first failure to comply, the voting restrictions shall apply again. However,
if the Corporation thereafter fails to comply with any of the financial
covenants, the voting restrictions shall terminate.
The provision of registration rights to Water Street under the Water Street
Agreement is subject to certain limitations, including but not limited to the
following: (i) of Water Street's four demand registrations, the Corporation
shall pay the registration expenses (other than commissions and discounts of
underwriters) for two registrations, and the Corporation and Water Street shall
each pay one-half of the registration expenses (other than commissions and
discounts of underwriters) for two registrations; and (ii) Water Street (and any
Water Street Entity that receives a distribution of Common Stock from Water
Street and owns 5% or more of the then outstanding shares of Common Stock) shall
not request a demand registration of Common Stock during the 180-day period
after the effective date of the Offering, or during any period in which the
Corporation is actively engaged in a subsequent registered distribution of
Common Stock and until 90 days after the effective date of the registration
statement relating to such subsequent distribution. Except in the case of the
Offering, the Corporation and Water Street have mutual piggyback rights on
registrations initiated by either, generally on a 50-50 basis.
OTHER MATTERS
The aggregate amount of other compensation in the nature of personal
benefits in 1992 for each of the Named Executives did not exceed $25,000, or
10%, of the amount of cash compensation shown for such individual, and the
aggregate amount of other compensation in the nature of personal benefits in
1992 for the all executive officers of the Corporation (the "Executive Group")
did not exceed 10% of the compensation for the entire Executive Group.
The Corporation had entered into consulting agreements with two individuals
included in the Executive Group who retired in 1991. The agreement with one of
those individuals, which provided for a retainer payable in installments of
$4,000 per month, terminated on December 31, 1992. The agreement with the other
individual terminated at the close of business on January 31, 1992, and provided
for an annual retainer of $36,000 for 25 work days, supplemented by a per day
rate of $1,000 for each day in excess of 25 work days.
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<PAGE>
DESCRIPTION OF CREDIT AGREEMENT
INTRODUCTION
Pursuant to the Prepackaged Plan, the Credit Agreement was entered into by
the Corporation, USG Interiors and the Bank Group. The Credit Agreement amended
and restated a previous credit agreement which was entered into in connection
with the 1988 Recapitalization. In connection with the Prepackaged Plan and the
implementation of the Credit Agreement, the following transactions occurred: (i)
$324 million of principal and accrued but unpaid interest on outstanding term
loans were exchanged for Senior 2002 Notes; (ii) the final maturity of the
remaining principal of the term loans was extended from 1996 to 2000 and all
scheduled principal payments were deferred until December 1994; (iii) $51
million in interest originally due on or after December 31, 1991 was capitalized
and the Corporation issued capitalized interest notes ("Capitalized Interest
Notes") to represent the capitalized amounts; (iv) making available (at the
Corporation's option but subject to certain limitations on the availability of
LIBOR pricing) an annual interest rate applicable to the term loans and the
Extended Revolving Credit Facility of LIBOR plus 1 7/8% or Citibank's Alternate
Base Rate III ("Base Rate") plus 7/8%, with the option to capitalize the amount
of such interest in excess of LIBOR plus 1% per annum (such capitalized interest
to bear interest at an annual rate of LIBOR plus 2 1/4% or Citibank's Base Rate
plus 1 1/4% and mature in the years 1998 and 2000); (v) implementation of
mandatory prepayment provisions, including an excess cash flow sweep, that takes
into account certain liquidity thresholds; (vi) the suspension of all financial
covenants through January 1, 1995 and providing for new covenants thereafter;
(vii) the extension to 1998 of the maturity date of, and the establishment of a
maximum borrowing capacity of $175 million under, the then existing revolving
credit facility, including a $110 million letter of credit subfacility (the
"Extended Revolving Credit Facility"); and (viii) the exchange of $16 million
owed in connection with certain interest rate swap contracts for an equal
principal amount of Senior 2002 Notes and, in addition, the exchange of
approximately $5 million owed in connection with such interest rate swap
contracts for an equal principal amount of Capitalized Interest Notes. In
connection with the Restructuring, all existing defaults under the previous
credit agreement were waived or cured. Whenever defined terms under the Credit
Agreement, as amended, are referred to but not defined herein, such defined
terms are incorporated herein by reference.
On August 10, 1993, the parties to the Credit Agreement entered into an
amendment to the Credit Agreement (the "1993 Amendments"), pursuant to which (i)
scheduled bank term loan amortization payments totaling $95 million due in 1994,
1995 and 1996 were eliminated ($3 million was added to the final maturity of the
bank term loan due in 2000); (ii) $9 million of Capitalized Interest Notes
originally due in 1998 were paid; and (iii) the cash sweep mechanism was
modified to apply up to $165 million of cash otherwise subject to the cash sweep
mechanism in 1994, 1995 and 1996 to repayment or purchase of senior debt due
prior to January 1, 1999 or Bank Term Loans, at the discretion of the
Corporation. In addition, $46 million of Capitalized Interest Notes and $92
million of Bank Term Loans were exchanged for Senior 2002 Notes. Following such
transactions, approximately $1 million principal amount of Capitalized Interest
Notes remained outstanding. Such remaining amount was repaid in December 1993
and accordingly, no Capitalized Interest Notes are outstanding.
In connection with the Transactions, the parties to the Credit Agreement are
entering into the Credit Agreement Amendments, pursuant to which, among other
things, the mandatory prepayment provisions and cash sweep mechanism will be
modified as described below. The Credit Agreement Amendments require that (i)
$75 million of the proceeds of the Note Placement be used to prepay Bank Term
Loans in the order of maturity (thus fully prepaying the scheduled amortization
payment due December 31, 1997 and partially prepaying the scheduled amortization
payment due December 31, 1998) and (ii) $65 million of the proceeds of the
Offering be used to prepay Bank Term Loans in the order of maturity (thus fully
prepaying the remaining portion of the scheduled amortization payment due
December 31, 1998). Giving effect to such prepayments, the remaining scheduled
amortization of the Bank Term Loans will consist of $125 million in 1999 and
$180 million in 2000.
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<PAGE>
CREDIT AGREEMENT OVERVIEW
ELIMINATION OF ABILITY TO CAPITALIZE INTEREST
The Credit Agreement Amendments provide that USG's ability to defer the
payment of interest in excess of LIBOR plus 1% by issuing Capitalized Interest
Notes will be terminated.
EXTENDED REVOLVING CREDIT FACILITY
The maximum borrowing capacity under the Extended Revolving Credit Facility,
as currently in effect, is $175 million. The Extended Revolving Credit
Facility's maturity date is July 13, 1998. Material conditions precedent to
borrowing under the Extended Revolving Credit Facility are limited to the
accuracy of certain representations and warranties, the absence of injunctions
and of certain events of default, such as payment defaults, bankruptcy and
certain cross-defaults to other indebtedness of the Corporation exceeding $25
million in principal amount, unstayed judgments and intentional breaches of
negative covenants, but prior to January 1, 1995 do not include the satisfaction
of financial covenants or a material adverse change condition precedent.
LETTER OF CREDIT SUBFACILITY
The Extended Revolving Credit Facility also includes a letter of credit
subfacility (the "Letter of Credit Subfacility"). The Issuing Bank or Banks will
issue letters of credit under the Letter of Credit Subfacility ("Facility
Letters of Credit") in amounts not to exceed $110 million in the aggregate.
CASH SWEEP MECHANISM
Under the Credit Agreement as currently in effect, within 30 days after
January 15th of each year (a "Test Date"), commencing on January 15, 1994, the
amount of "Cash Available for Sweep" is calculated in accordance with a
pre-determined formula and paid to holders of the Bank Term Loans on or before
February 15th of each year; provided that, in the case of Test Dates occurring
on January 15, 1994, 1995 and 1996: (i) first, up to $165 million to either the
Corporation's public debt having maturities prior to January 1, 1999 or Bank
Term Loans in order of maturity, as the Corporation shall elect in its
discretion (PROVIDED, that after the payment or repurchase in full of such
public debt (which may occur as a result of an equity or debt offering), such
$165 million of Cash Available for Sweep (or remaining portion thereof) shall be
applied 90% to the Bank Term Loans in order of maturity and 10% to the
Corporation as Retained Amounts); and (ii) second, two-thirds to the Bank Term
Loans in order of maturity and one-third to the Corporation as Retained Amounts
(until such Retained Amounts, when added to the Retained Amounts described in
clause (i), equal $50 million, at which time 100% of Cash Available for Sweep
would be applied to the Bank Term Loans in order of maturity). Cash sweep
payments applied to the Bank Term Loans are applied one-third to the scheduled
installments in the order of maturity and two-thirds to the scheduled
installments in the inverse order of maturity with respect to such payments made
on or before February 15th in each year. "Cash Available for Sweep" means, with
respect to each Test Date, an amount equal to the product of (i) the "Sweep
Percentage" applicable to such Test Date and (ii) the excess, if any, of the
"Available Liquidity" for such Test Date over the "Minimum Liquidity" for such
Test Date. The "Sweep Percentage" is 100% for the 1994 Test Date, 90% for the
1995 through 1998 Test Dates, inclusive, and 85% for the 1999 and subsequent
Test Dates. "Available Liquidity" for any Test Date means (i) the daily average
of all domestic cash and cash balances during the applicable Test Period,
excluding net proceeds of certain debt and equity issuances (which are
separately required to be applied to repay the Bank Term Loans and/or senior
debt securities); PLUS (ii) the daily average of all cash of the Corporation's
non-domestic Subsidiaries in excess of certain minimum cash balances during the
applicable Test Period, subject to certain limitations and adjustments for
repatriation taxes and exchange rates; PLUS (iii) the average daily amount
available for borrowing under the Extended Revolving Credit Facility during the
applicable Test Period; SUBJECT TO (iv) certain adjustments for changes in
working capital. "Minimum Liquidity" for any Test Date means (i) the sum of the
Retained Amount for all prior Test
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<PAGE>
Dates, net of the amount thereof utilized to fund additional Capital
Expenditures and repurchases of senior debt securities (through the maturity
dates thereof); plus (ii) the amount set forth below opposite such Test Date;
minus (iii) the Senior Note Prepayment Amount for such Test Date:
<TABLE>
<CAPTION>
TEST DATE MINIMUM LIQUIDITY
- ------------------------------------------ ----------------------------------------------------
<S> <C>
1/15/94................................... $100,000,000 (PLUS the Asbestos Adjustment)
1/15/95................................... 100,000,000
1/15/96................................... 100,000,000
1/15/97................................... 200,000,000
1/15/98................................... 135,000,000
Thereafter................................ 100,000,000
</TABLE>
The "Asbestos Adjustment" will equal $40 million minus the actual aggregate
amount of payments made by U.S. Gypsum to settle property damage asbestos cases
in 1992 and 1993. The amount of such settlement payments for 1992 was $21.7
million. "Retained Amount" means, for any Test Date, an amount equal to the
product of (i) 100% minus the Sweep Percentage for such Test Date and (ii) the
excess, if any, of the Available Liquidity for such Test Date over the Minimum
Liquidity for such Test Date. "Senior Note Prepayment Amount" means, for any
Test Date on or after January 15, 1997, the principal amount of the
Corporation's public debt originally due during the same calendar year which has
been prepaid as of such Test Date out of funds other than any Retained Amounts.
The Credit Agreement Amendments will provide that the Sweep Percentage for
the January 15, 1997 Test Date and for each Test Date thereafter shall be 50% if
(i) the aggregate outstanding amount of Bank Term Loans at such time does not
exceed $148 million and (ii) USG's public senior debt is then rated at least BB
by Standard & Poor's Corporation and Ba2 by Moody's Investors Service, Inc.
EVENTS OF DEFAULT
The Credit Agreement provides that if an event of default occurs, then, in
the case of an event of default involving certain bankruptcy or insolvency
events, the maturity of loans made under the Credit Agreement will automatically
be accelerated and the obligation of the Senior Lenders to make future revolving
loans or issue letters of credit will terminate or, in the case of any other
event of default, so long as such event of default exists, the Requisite Senior
Lenders will be entitled to accelerate the maturity of loans made under the
Credit Agreement and terminate their obligation to make future revolving loans
or issue letters of credit.
Events of default include: failure to pay any principal, interest or other
amount due to the Senior Lenders; failure to pay other indebtedness, including
subordinated debt, if the aggregate amount of such other indebtedness is $25
million or more or any breach or default under any instrument, agreement or
indenture relating to such indebtedness if the effect thereof is to accelerate
or permit the holders of such indebtedness to accelerate the maturity of such
indebtedness; any single stockholder or group acquiring 50% or more of the
Corporation's stock (directly or indirectly); failure to discharge a judgment or
writ of attachment involving an amount exceeding $5 million, net of insurance;
certain events involving the bankruptcy or insolvency of the Corporation or
certain significant Restricted Subsidiaries; the invalidation or ineffectiveness
of any security agreement governing, or any lien upon, collateral securing the
obligations under the Credit Agreement; the incurrence of certain termination
liabilities under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"); and failure of the Corporation to meet covenants (subject to
certain grace periods), including various financial covenants described below.
The events of default are applicable only to the Corporation and its Restricted
Subsidiaries.
AFFIRMATIVE COVENANTS
Affirmative covenants under the Credit Agreement require the Corporation to,
among other things, submit periodic financial, labor, environmental and
litigation reports; maintain its corporate existence and franchises; remain
qualified to do business in all appropriate jurisdictions; comply with all
requirements of law; pay all taxes and material claims unless contested in good
faith and covered by reserves in
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<PAGE>
accordance with GAAP; permit members of the Bank Group to inspect its
properties, books and records; maintain its properties in good repair and
maintain proper insurance policies; and maintain licenses, permits, governmental
approvals and authorizations.
NEGATIVE COVENANTS
The Credit Agreement contains negative covenants that cover: restrictions on
the incurrence of additional indebtedness, subject to certain exceptions; sales
of assets outside the ordinary course of business, subject to certain exceptions
including a blanket exception for up to $20 million in any fiscal year and $5
million in any single transaction or group of related transactions; the
incurrence of liens and encumbrances on the property of the Corporation and its
Restricted Subsidiaries; investments; guarantees; dividends and distributions,
and payments upon securities junior in right to the Bank Debt Obligations;
operating leases; mergers, consolidations or sales, leases or transfers of all
or any substantial part of the business, property or assets of the Corporation
or any of its Restricted Subsidiaries; acquisitions of the business, property or
assets of any person, except for acquisitions not exceeding certain permitted
capital expenditure limits; ERISA prohibited transactions; amendments to
corporate charter and by-laws; sale of subsidiaries; amendments of material debt
documents; sale and leaseback transactions; prepayment (including acquisitions
for value) of long-term debt; and certain other transactions and activities.
The negative covenants in the Credit Agreement permit the prepayment or
purchase with Cash Available for Sweep of the Corporation's senior debt
securities having maturities prior to January 1, 1999; PROVIDED, that to the
extent such prepayment or purchase involves the payment of a premium in excess
of 100% of the face amount of any such security, such excess will reduce the
Corporation's existing or future Retained Amounts.
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<PAGE>
FINANCIAL COVENANTS
From and after January 1, 1995, the Corporation will be required to satisfy
the Financial Covenants set forth below:
MINIMUM SENIOR INTEREST COVERAGE RATIO. The Senior Interest Coverage Ratio
for the Coverage Period ending with each fiscal quarter of each Fiscal Year set
forth below (commencing with the first fiscal quarter of 1995), shall not be
less than the minimum ratio set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
MINIMUM MINIMUM
1995 RATIO 1996 RATIO
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Quarter 1 1.00 1 2.20
2 1.25 2 2.30
3 1.75 3 2.40
4 2.00 4 2.50
</TABLE>
<TABLE>
<CAPTION>
MINIMUM MINIMUM
1997 RATIO 1998 RATIO
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Quarter 1 2.50 1 2.80
2 2.60 2 2.80
3 2.70 3 2.80
4 2.80 4 2.80
</TABLE>
<TABLE>
<CAPTION>
MINIMUM MINIMUM
1999 RATIO 2000 RATIO
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Quarter 1 2.80 1 2.80
2 2.80 2 2.80
3 2.80 3 2.80
4 2.80 4 2.80
</TABLE>
MINIMUM TOTAL INTEREST COVERAGE RATIO. The Total Interest Coverage Ratio
for the Coverage Period ending with each fiscal quarter of each Fiscal Year set
forth below (commencing with the first fiscal quarter of 1995), shall not be
less than the minimum ratio set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
MINIMUM MINIMUM
1995 RATIO 1996 RATIO
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Quarter 1 1.00 1 2.05
2 1.25 2 2.10
3 1.75 3 2.15
4 2.00 4 2.20
</TABLE>
<TABLE>
<CAPTION>
MINIMUM MINIMUM
1997 RATIO 1998 RATIO
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Quarter 1 2.25 1 2.40
2 2.30 2 2.40
3 2.35 3 2.40
4 2.40 4 2.40
</TABLE>
<TABLE>
<CAPTION>
MINIMUM MINIMUM
1999 RATIO 2000 RATIO
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Quarter 1 2.40 1 2.40
2 2.40 2 2.40
3 2.40 3 2.40
4 2.40 4 2.40
</TABLE>
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<PAGE>
MINIMUM FIXED CHARGE COVERAGE RATIO. The Fixed Charge Coverage Ratio for
the Coverage Period ending with each fiscal quarter of each Fiscal Year set
forth below (commencing with the first fiscal quarter of 1995), shall not be
less than the minimum ratio set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
MINIMUM MINIMUM
1995 RATIO 1996 RATIO
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Quarter 1 1.0 1 1.3
2 1.1 2 1.4
3 1.1 3 1.4
4 1.2 4 1.5
</TABLE>
<TABLE>
<CAPTION>
MINIMUM
1997 RATIO
--------- -------------
<S> <C> <C>
Quarter 1 1.5
2 1.5
3 1.5
4 1.5
</TABLE>
MINIMUM ADJUSTED CUMULATIVE NET WORTH. The Adjusted Cumulative Net Worth as
of the end of each Fiscal Year set forth below and the end of the three
immediately succeeding fiscal quarters shall not be less than the minimum amount
set forth below opposite such year:
<TABLE>
<CAPTION>
END OF FISCAL YEAR MINIMUM AMOUNT
- ----------------------------------------------------------------------------- -----------------
<S> <C>
1995......................................................................... $ 51,000,000
1996......................................................................... 102,000,000
1997......................................................................... 179,000,000
1998......................................................................... 244,000,000
1999......................................................................... 296,000,000
2000......................................................................... 345,000,000
</TABLE>
LEVERAGE RATIO. The Leverage Ratio as of the end of each Fiscal Year set
forth below and the end of the three immediately succeeding fiscal quarters
shall not be greater than the maximum amount set forth below opposite such year:
<TABLE>
<CAPTION>
END OF FISCAL YEAR MAXIMUM RATIO
- ------------------------------------------------------------------------------- -----------------
<S> <C>
1995........................................................................... 0.97
1996........................................................................... 0.93
1997........................................................................... 0.87
1998........................................................................... 0.81
1999........................................................................... 0.76
2000........................................................................... 0.70
</TABLE>
MINIMUM CURRENT RATIO. The ratio of Consolidated Current Assets to
Consolidated Current Liabilities as of the end of each calendar quarter shall
not be less than the minimum ratio set forth below opposite such Fiscal Year in
which such quarter occurs:
<TABLE>
<CAPTION>
FISCAL YEAR MINIMUM RATIO
- ------------------------------------------------------------------------------- -----------------
<S> <C>
1995........................................................................... 1.05
1996........................................................................... 1.10
1997........................................................................... 1.15
1998........................................................................... 1.20
1999........................................................................... 1.20
2000........................................................................... 1.20
</TABLE>
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<PAGE>
MAXIMUM CAPITAL EXPENDITURES. Domestic Capital Expenditures made by the
Corporation and its U.S. Subsidiaries on a consolidated basis shall not exceed,
for any Fiscal Year, the sum of the following items:
(i) The Base Capital Expenditure Allowance for such year LESS the amount,
if any, of such Base Capital Expenditure Allowance which was used during the
immediately preceding Fiscal Year under clause (ii) below;
(ii) (a) the excess of the actual cumulative principal repayments of the
Capitalized Interest Notes and the Bank Term Loans as a result of mandatory
amortization payments and cash flow sweep prepayments over the Projected
Cumulative Principal Payments (the "Excess Principal Payments") LESS (b) the
cumulative amount of such Excess Principal Payments used for Capital
Expenditures in all prior years, PROVIDED, that in no event shall the amount
included under this clause (ii) for any Fiscal Year exceed 50% of the Base
Capital Expenditure Allowance for the immediately succeeding Fiscal Year;
(iii) (a) the excess of the actual cumulative net cash proceeds arising from
the sale of assets occurring after January 1, 1992 over the Projected Cumulative
Asset Sale Proceeds (the "Excess Sale Proceeds") LESS (b) the cumulative amount
of such Excess Sale Proceeds used for Capital Expenditures and Investments in
all prior years, PROVIDED, that in no event shall any amount be included under
this clause (iii) for any Fiscal Year if the actual cumulative principal
repayments of the Capitalized Interest Loans and the Bank Term Loans as a result
of mandatory amortization payments and cash flow sweep prepayments as of the end
of the immediately preceding Fiscal Year (but including any cash sweep
prepayment made on or before February 15th of the current Fiscal Year) does not
exceed the Projected Cumulative Principal Payments as of the end of the
immediately preceding Fiscal Year;
(iv) all amounts used for Capital Expenditures the source of which
constitutes Project Financing;
(v) the cumulative amount of the portion of the Cash Available for Sweep
which has been retained by the Company in all prior Fiscal Years (the "Cash
Sweep Retention Amount") LESS the cumulative amount of such Cash Sweep Retention
Amount used for Capital Expenditures and other permitted purposes in all prior
years;
(vi) the amount of Capital Expenditures used for creating additional plant
capacity, PROVIDED, that (a) the aggregate amount of such Capital Expenditures
under this clause (vi) for all Fiscal Years shall not exceed $30,000,000 and (b)
at least thirty days prior to making or becoming committed to make any such
Capital Expenditures, the Corporation has notified the Agents thereof in a
writing which describes the additional plant capacity and the business purpose
therefor;
(vii) Capital Expenditures for assets the purchase price of which is paid
with the Common Stock of the Company; and
(viii) the aggregate amount of the Base Capital Expenditures Allowances for
all prior Fiscal Years which have not been used for Capital Expenditures.
The Credit Agreement Amendments will permit the Corporation to make
additional Strategic Capital Expenditures in an aggregate amount equal to the
net proceeds of the offering in excess of $100,000,000 PLUS the Cash Available
for Sweep with respect to the January 15, 1994 Test Date in excess of
$100,000,000.
DEFINED TERMS USED IN FINANCIAL COVENANTS. Capitalized terms used in the
financial covenants in the Credit Agreement shall have the meanings set forth
below or, if not defined below, the meanings set forth in the Old Credit
Agreement:
"Adjusted Cumulative Net Worth" of the Corporation, at the end of any
quarter, shall mean the cumulative after tax net income (adjusted to exclude
fresh start accounting) from January 1, 1995 through the end of such quarter
PLUS the aggregate net cash proceeds received by the Corporation from the
issuance of equity securities after May 6, 1993.
74
<PAGE>
"Base Capital Expenditure Allowance" for each Fiscal Year, shall mean
the amount set forth below opposite such Fiscal Year:
<TABLE>
<S> <C>
1993.............................................. $33,900,000
1994.............................................. 34,200,000
1995.............................................. 39,300,000
1996.............................................. 39,800,000
1997.............................................. 51,900,000
1998.............................................. 52,200,000
1999.............................................. 52,200,000
</TABLE>
"Consolidated Current Assets" on any date, shall mean the total
consolidated assets of the Corporation and its Subsidiaries (with
inventories being stated on a FIFO basis) which may properly be classified
as current assets in conformity with GAAP.
"Consolidated Current Liabilities" on any date, shall mean the total
consolidated liabilities of the Corporation and its Subsidiaries which may
properly be classified as current liabilities in conformity with GAAP, not
including current maturities of long-term debt, but including any Revolving
Loans which may, in accordance with GAAP, be considered long-term.
"Coverage Period" means (i) with respect to the first fiscal quarter of
1995, the three-month period ending on March 31, 1995, (ii) with respect to
the second fiscal quarter of 1995, the six-month period ending on June 30,
1995, (iii) with respect to the third fiscal quarter of 1995, the nine-month
period ending on September 30, 1995, and (iv) with respect to any succeeding
fiscal quarter, the twelve-month period ending on the last day of such
fiscal quarter.
"Debt" at any time, shall mean, with respect to the Corporation and its
Subsidiaries on a consolidated basis, the sum of (i) the outstanding
principal balance of the Revolving Loans at such time or any indebtedness at
such time arising from a permitted revolving credit facility replacement
thereof (less the aggregate amount of cash held by the Corporation and its
consolidated Subsidiaries located in the United States at such time), (ii)
the aggregate amount of long-term indebtedness at such time (including the
current portions thereof), (iii) the outstanding amount of capital leases
(classified as such according to GAAP) shown as a liability on the
Corporation's consolidated balance sheet at such time and (iv) the aggregate
amount of all Accommodation Obligations with respect to third-party
indebtedness of the type described in clauses (ii) and (iii) above at such
time.
"EBITDA" for any period, means the consolidated operating earnings from
continuing operations of the Corporation and its subsidiaries before
interest, taxes, depreciation, amortization, other income and expense,
minority interests, the impact of fresh start accounting and other non-cash
adjustments to income for such period.
"Fixed Charge Coverage Ratio" of the Corporation as of the end of any
fiscal quarter shall mean the ratio of (a) EBITDA for the 12-month period
ending on the last day of such fiscal quarter, excluding the impact of
non-cash fresh start accounting adjustments for such 12-month period, MINUS
actual Capital Expenditures during such 12-month period (excluding Capital
Expenditures under clauses (iv) and (vi) of the Capital Expenditures
covenant described above) to (b) the total net consolidated interest expense
of the Corporation and its Subsidiaries during such 12-month period,
excluding the impact of non-cash amortizations resulting from fresh start
accounting during such period plus the aggregate scheduled principal
payments due (and not previously prepaid) on senior indebtedness of the
Corporation and its Subsidiaries during the 12-month period immediately
succeeding the end of such fiscal quarter.
"Leverage Ratio" of the Corporation on any date, shall mean the ratio of
Debt to Total Capital on such date.
"Projected Cumulative Principal Payments" means the following amounts as
of February 15 of each Fiscal Year below of projected cumulative principal
payments of (i) the Capitalized Interest
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<PAGE>
Notes and the Bank Term Loans as a result of mandatory amortization payments
and cash sweep prepayments and (ii) any prepayments on or purchases of the
Corporation's public debt securities having maturities prior to January 1,
1999 through such date:
<TABLE>
<CAPTION>
FEBRUARY 15 OF FISCAL YEAR CUMULATIVE PAYMENTS
- ------------------------------------------------------- ---------------------
<S> <C>
1994................................................... $ 0
1995................................................... 57,000,000
1996................................................... 133,000,000
1997................................................... 220,000,000
1998................................................... 332,000,000
1999................................................... 456,000,000
2000................................................... 579,000,000
</TABLE>
"Projected Cumulative Asset Sale Proceeds" means the following amounts
as of the end of each Fiscal Year below of projected cumulative cash
proceeds arising from the sale of assets PLUS for the Fiscal Year in which
the Libertyville facility is sold and each Fiscal Year thereafter, an amount
equal to the net cash proceeds received from the sale of the Libertyville
facility:
<TABLE>
<CAPTION>
END OF FISCAL YEAR CUMULATIVE PROCEEDS
- ------------------------------------------------------- ---------------------
<S> <C>
1992................................................... $ 7,000,000
1993................................................... 16,000,000
1994................................................... 21,000,000
1995................................................... 26,000,000
1996................................................... 31,000,000
1997................................................... 36,000,000
1998................................................... 41,000,000
1999................................................... 46,000,000
</TABLE>
"Senior Interest Coverage Ratio" of the Corporation for any Coverage
Period shall mean the ratio of (i) EBITDA for such period, excluding the
impact of non-cash fresh start accounting adjustments for such period to
(ii) the total net consolidated interest expense (excluding interest on
Subordinated Debt) of the Corporation and its Subsidiaries during such
period, excluding the impact of non-cash amortizations resulting from fresh
start accounting during such period.
"Total Capital" on any date, shall mean the sum of (i) Debt on such date
and (ii) Adjusted Cumulative Net Worth on such date.
"Total Interest Coverage Ratio" of the Corporation for any Coverage
Period shall mean the ratio of (i) EBITDA for such period, excluding the
impact of non-cash fresh start accounting adjustments for such period to
(ii) the total net consolidated interest expense of the Corporation and its
Subsidiaries during such period, excluding the impact of non-cash
amortizations resulting from fresh start accounting during such period.
DOMESTIC NATURE OF COVENANTS. Each of the financial covenants will be
calculated on a domestic basis only, PROVIDED, that, if at anytime the
Corporation's non-domestic consolidated revenues for a Fiscal Year constitute
35% or more of the Corporation's total consolidated revenues for such year,
then, effective as of the first test date in the immediately succeeding Fiscal
Year, such financial covenants shall be calculated to include the financial
performance of the Corporation and all of its consolidated Subsidiaries,
PROVIDED further, that, if such event occurs and the Corporation so requests,
the Corporation, the Bank Group, the Agents and the Administrative Agent shall
in good faith recast the foregoing financial covenants to account for the
inclusion of the financial performance of the non-domestic Subsidiaries.
CERTAIN LIMITS ON COMPLIANCE WITH FINANCIAL COVENANTS. No Event of Default
or Potential Event of Default would be deemed to exist or be continuing with
respect to a breach of the Senior Interest Coverage Ratio and/or the Total
Interest Coverage Ratio for any quarter during Fiscal Years 1995, 1996 and 1997
unless there would also exist a breach of the Fixed Charge Coverage Ratio for
such quarter. Conversely, no Event of Default or Potential Event of Default
would be deemed to exist or be continuing
76
<PAGE>
with respect to a breach of the Fixed Charge Coverage Ratio for any quarter
during fiscal years 1995, 1996 and 1997 unless there would also exist a breach
of either the Senior Interest Coverage Ratio or the Total Interest Coverage
Ratio for such quarter. No Event of Default or Potential Event of Default would
be deemed to exist or be continuing with respect to the financial covenants
described above unless either (i) such Event of Default shall be disclosed in or
determinable on the basis of the financial statements, compliance statements or
officer's certificates delivered to the Bank Group pursuant to the Credit
Agreement or (ii) the Administrative Agent, at the direction of the Requisite
Senior Lenders, shall have given written notice of such Event of Default to the
Corporation. All calculations of the foregoing financial covenants shall be
rounded to the nearest 1/100. For purposes of calculating the foregoing
covenants, GAAP shall be constant from and after the date of the Credit
Agreement, unless the Corporation and the Requisite Senior Lenders agree to
modify such covenants to account for any subsequent changes to GAAP.
COLLATERAL
Borrowings under the Credit Agreement are all secured by first priority
security interests in the capital stock of certain Subsidiaries. Such security
interests were granted pursuant to the Collateral Trust Agreement and related
Pledge Agreements which provide that the collateral will also equally and
ratably secure certain other debt of the Corporation and one of the
Subsidiaries, including the Senior 2002 Notes. See "Description of Other Debt
Obligations" and "Description of Collateral Trust Agreement."
AMENDED GUARANTEES
The Corporation has guaranteed all obligations of USG Interiors under the
Credit Agreement. Each of United States Gypsum Company, USG Industries, Inc.,
USG Interiors, Inc., USG Foreign Investments, Ltd., L&W Supply Corporation,
Westbank Planting Company, USG Interiors International, Inc., American Metals
Corporation and La Mirada Products Co., Inc. (together, the "Subsidiary
Guarantors") in turn has guaranteed pursuant to the Amended Subsidiary
Guarantees both the obligations of the Corporation under the Credit Agreement
and the Senior 2002 Notes and the obligations of USG Interiors under the Credit
Agreement. In connection with the 1993 Amendments, the Subsidiary Guarantors
executed the Amended Subsidiary Guarantees, which entitle the Senior 2002 Notes
to participate on a PARI PASSU basis in the benefits of the Amended Subsidiary
Guarantees. The Amended Subsidiary Guarantees are full and unconditional
guarantees of prompt payment and performance, when due, of all (i) the
Obligations (as defined in the Credit Agreement) of the Borrowers (as defined
therein) and (ii) all obligations of the Corporation under the Senior 2002
Notes. The Bank Group has the right to enforce the Amended Subsidiary Guarantees
and seek collection thereunder (for the ratable benefit of the Bank Group and
holders of the Senior 2002 Notes) at any time when one or more Events of Default
have occurred and are continuing under the Credit Agreement (which Events of
Default will include the occurrence and continuation of any event of default
under the Senior 2002 Notes Indenture). The Bank Group will have the right to
(i) determine whether, when and to what extent the Amended Subsidiary Guarantees
will be enforced (provided that each Amended Subsidiary Guarantee payment will
be applied to the Bank Term Loans, Extended Revolving Credit Facility,
Capitalized Interest Notes and Senior 2002 Notes pro rata based on the
respective principal amounts owed thereon) and (ii) amend or eliminate the
Amended Subsidiary Guarantees; provided that the pro rata sharing requirement
contemplated in (i) above is not waivable (in the absence of a complete release
of the Amended Subsidiary Guarantees) without the approval of the holders of a
majority in principal amount of each of the two series of Senior 2002 Notes,
voting separately. The Amended Subsidiary Guarantees will terminate when the
Bank Term Loans, the Extended Revolving Credit Facility and the Capitalized
Interest Notes are retired, regardless of whether any portion of the Senior 2002
Notes then remains outstanding. The liability of each Subsidiary Guarantor on
its Amended Subsidiary Guarantee is limited to the greater of (i) 95% of the
lowest amount, calculated as of the date of delivery of the original Amended
Subsidiary Guarantee, sufficient to render the guarantor insolvent, leave the
guarantor with unreasonably small capital or leave the guarantor unable to pay
its debts as they become due (each as defined under applicable law) and (ii) the
same amount calculated as of the date any demand for payment under such
guarantee is made, in each case plus collection costs.
77
<PAGE>
See "Index To Financial Statements Significant Accounting Policies and
Practices" for condensed consolidating financial statements of the Subsidiary
Guarantors and non-guarantors.
INTEREST
The Corporation may elect, subject to the availability of LIBOR pricing, to
have interest on the Bank Term Loans and Revolving Loans calculated either at
reserve adjusted LIBOR plus 1 7/8% or at Citibank's Base Rate plus 7/8% per
annum. An increase of 2% on all of the above interest rates would automatically
take place five business days after notice of the occurrence of an Event of
Default, and will remain at such increased level for so long as the default
continues. Interest is calculated on the basis of the actual number of days
elapsed in the period during which interest accrues and a year of 360 days.
Interest is payable as follows: (i) for loans bearing interest calculated by
reference to LIBOR, interest is payable on the last day of each interest period,
consisting of one, two, three or, when available, six month periods (interest is
also payable after three months in the latter case); (ii) for the Bank Term
Loans bearing interest calculated by reference to Citibank's Base Rate, interest
is payable on the last day of each calendar quarter; and (iii) for Revolving
Loans bearing interest calculated by reference to Citibank's Base Rate, interest
is payable on the last day of each calendar month. The Corporation may purchase
interest rate caps, swaps, collars or similar devices on terms mutually
acceptable to the Corporation and the Agents.
VOLUNTARY PREPAYMENTS
Voluntary prepayments of the Bank Term Loans, Revolving Loans and
Capitalized Interest Loans may be made upon two business days' prior notice,
PROVIDED THAT the Bank Group shall be indemnified for any breakage costs
resulting from such voluntary prepayment.
MANDATORY PREPAYMENTS
In addition to the excess cash sweep described above, the Corporation is
required to make mandatory prepayments on the Bank Term Loans as a result of the
issuance for cash of new debt and equity securities. Prior to the payment in
full of all outstanding senior debt securities having maturity dates before
January 1, 1999 (other than the Bank Term Loans), 100% of the net proceeds
resulting from the issuance for cash of new debt and equity securities (the
"Refinancing Proceeds") would be applied to the outstanding principal balance of
the Corporation's Bank Term Loans and senior debt securities in order of
maturity; PROVIDED that to the extent such Refinancing Proceeds are insufficient
to repay all of such Bank Term Loans and other senior debt securities due in any
given calendar year, the amount of such Refinancing Proceeds available for such
year will be applied pro rata to the mandatory amortization of the Bank Term
Loans and senior debt securities due during such year based on the principal
amount of Bank Term Loans and senior debt securities due during such year.
Subject to the following sentence, following the payment in full of all existing
senior debt securities having maturity dates before January 1, 1999, 100% of the
Refinancing Proceeds would be applied as follows: (i) first, to the outstanding
principal balance of the Bank Term Loans in the order of maturity, but only to
the extent that the principal balance of the Bank Term Loans has not been
reduced by at least $300 million, and (ii) second, to any of the Corporation's
senior debt securities having a final maturity prior to December 31, 2002,
including the Bank Term Loans (to scheduled installments in the order of
maturity), as determined by the Corporation in its discretion; provided that the
minimum amount of such Refinancing Proceeds applied to the Bank Term Loans under
this clause (ii) shall be a percentage of such Refinancing Proceeds obtained by
dividing the outstanding principal balance of the Bank Term Loans at such time
by the sum of such outstanding principal balance of the Bank Term Loans and the
outstanding principal balance of the Senior 2002 Notes at such time. In the
event that all existing senior debt securities having maturity dates before
January 1, 1999 have been paid in full, the outstanding principal balance of the
Bank Term Loans has been reduced by at least $300 million and the Corporation's
senior debt securities are rated at least BB+ by Standard & Poor's Corporation
or Ba1 by Moody's Investors Service, Inc., the amount of Refinancing Proceeds
subject to the immediately preceding sentence shall be reduced from 100% to
66 2/3%, with the remaining 33 1/3% of such Refinancing Proceeds not being
subject to the mandatory prepayment provisions.
78
<PAGE>
The Credit Agreement Amendments (i) permit, prior to the repayment in full
of all existing senior public debt due before 1999, the use by USG of any
Refinancing Proceeds for the prepayment, at USG's option, of any such public
debt and/or Bank Term Loans in any order of maturity; (ii) require the
application of any such Refinancing Proceeds within one year of issuance; and
(iii) provide that USG may retain 33 1/3% of future Refinancing Proceeds if all
existing senior public debt due before 1999 has been paid in full, the aggregate
outstanding Bank Term Loans at such time does not exceed $148,000,000 and USG's
public senior debt is then rated at least BB by Standard & Poor's Corporation
and Ba2 by Moody's Investors Service, Inc.
FEES
Commitment fees on the unused portion of the Extended Revolving Credit
Facility accrue at a per annum rate of 3/8% and are payable quarterly in
arrears. Commitment fees on the undrawn face amount of all Facility Letters of
Credit accrue at a per annum rate of 1 1/2% and are payable quarterly in
advance.
DESCRIPTION OF OTHER DEBT OBLIGATIONS
THE 1986 INDENTURE SECURITIES
The Senior 1996 Notes, the Senior 1997 Notes and the Senior 2017 Debentures
were issued under an indenture and certain related instruments delivered
thereunder (collectively, the "1986 Indenture"), dated as of October 1, 1986,
between the Corporation and the Harris Trust and Savings Bank, as trustee (the
"1986 Indenture Trustee"). As part of the Restructuring, the 1986 Indenture was
supplemented by resolutions adopted by the Board (the "Bond Board Resolutions")
and an officer's certificate delivered in accordance therewith to provide for
the Senior 1995 Notes and the Senior 1998 Notes. In connection with the Note
Placement, the 1986 Indenture is being supplemented by further resolutions
adopted by the Board (the "1994 Bond Board Resolutions") and an officer's
certificate delivered in accordance therewith to provide for the Senior 2001
Notes. The Senior 1995 Notes, the Senior 1996 Notes, the Senior 1997 Notes, the
Senior 1998 Notes, the Senior 2001 Notes and the Senior 2017 Debentures are
collectively referred to herein as the "1986 Indenture Securities." Conformed
copies of the 1986 Indenture, the Bond Board Resolutions and the 1994 Bond Board
Resolution have been filed as exhibits to the Registration Statement and are
available as described under "Available Information." Whenever particular
provisions or defined terms of the 1986 Indenture Securities or the 1986
Indenture, as supplemented by the Bond Board Resolutions and the 1994 Bond Board
Resolutions, are referred to, such provisions or defined terms are deemed
incorporated herein by reference and such statements are qualified in their
entirety by such reference. Initial capitalized terms which are defined in the
1986 Indenture are used herein as so defined.
GENERAL
The Senior 1995 Notes are a series of securities which are limited to $75
million aggregate principal amount. The Senior 1995 Notes bear interest at the
rate of 8% per annum and will mature on December 15, 1995. Interest is payable
semiannually on June 15 and December 15 of each year, to the persons in whose
names the Senior 1995 Notes are registered at the close of business on the next
preceding June 1 or December 1, as the case may be.
The Senior 1996 Notes bear interest at 8% per annum and will mature on
December 15, 1996. Interest is payable semiannually on June 15 and December 15
of each year to the persons in whose names the Senior 1996 Notes are registered
at the close of business on the next preceding June 1 or December 1, as the case
may be.
The Senior 1997 Notes bear interest at 8% per annum and will mature on March
15, 1997. Interest is payable semiannually on September 15 and March 15 of each
year to the persons in whose names the Senior 1997 Notes are registered at the
close of business on the next preceding September 1 or March 1, as the case may
be.
79
<PAGE>
The Senior 1998 Notes are a series of securities which are limited to $35
million aggregate principal amount. The Senior 1998 Notes bear interest at the
rate of 9% per annum and will mature on December 15, 1998. Interest is payable
semi-annually on June 15 and December 15 of each year to the persons in whose
names the Senior 1998 Notes are registered at the close of business on the next
preceding June 1 or December 1, as the case may be.
The Senior 2001 Notes are a series of securities which are limited to $150
million aggregate principal amount. The Senior 2001 Notes will bear interest at
9 1/4% per annum and will mature on December 15, 2001. Interest will be payable
semi-annually on June 15 and December 15 of each year, beginning June 15, 1994,
to the persons in whose names the Senior 2001 Notes are registered at the close
of business on the next preceding June 1 or December 1, as the case may be.
The Senior 2017 Debentures bear interest at 8.75% per annum and will mature
on March 1, 2017. Interest is payable semiannually on September 1 and March 1 of
each year to the persons in whose names the Senior 2017 Debentures are
registered at the close of business on the next preceding August 15 or February
15, as the case may be.
Principal (and premium, if any) and interest is payable, and the transfer of
the 1986 Indenture Securities is registrable, at the office or agency of the
Corporation maintained for such purpose in the City of Chicago, State of
Illinois, currently the Corporate Trust Office of the 1986 Indenture Trustee,
Harris Trust and Savings Bank, 311 West Monroe Street, Chicago, Illinois 60690;
provided, however, that payment of interest may be made at the option of the
Corporation by check or draft mailed to the person entitled thereto as such
person's address appears in the security register maintained for such purpose
pursuant to the 1986 Indenture. No service charge will be made for any transfer
or exchange except the Corporation may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
The Senior 1995 Notes and the Senior 1998 Notes are issued in fully
registered form without coupons and in denominations of $250 and integral
multiples thereof. The Senior 1996 Notes, the Senior 1997 Notes, Senior 2001
Notes and the Senior 2017 Debentures are issued in fully registered form without
coupons and in denominations of $1,000 and integral multiples thereof.
The 1986 Indenture Securities rank PARI PASSU with all senior secured
indebtedness of the Corporation.
SECURITY
The 1986 Indenture Securities are secured by first priority security
interests in capital stock of certain Subsidiaries which were granted pursuant
to the Collateral Trust Agreement and related pledge and security agreements.
The Collateral Trust Agreement provides that the collateral thereunder equally
and ratably secures certain other debt of the Corporation and one of the
Subsidiaries, including the Senior 2002 Notes and the Bank Debt Obligations.
Holders of the Bank Debt Obligations primarily control the operation of the
Collateral Trust. See "Description of Collateral Trust."
REDEMPTION
The Senior 1995 Notes and the Senior 1998 Notes may be redeemed by the
Corporation in whole or in part at any time without penalty or premium.
The Senior 1996 Notes, the Senior 1997 Notes and the Senior 2001 Notes may
not be redeemed at the option of the Corporation prior to maturity.
80
<PAGE>
The Senior 2017 Debentures may be redeemed at the option of the Corporation
in whole or in part from time to time on at least 30 and not more than 90 days'
notice by mail to registered holders thereof at the following redemption prices
(expressed in percentages of principal amount):
If redeemed during the 12-month period commencing March 1 of each of the
years indicated:
<TABLE>
<CAPTION>
YEAR PERCENTAGE YEAR PERCENTAGE
- ------------------------------ ------------ ------------------------------ ------------
<S> <C> <C> <C>
1993.......................... 105.974% 2000.......................... 102.987%
1994.......................... 105.547 2001.......................... 102.560
1995.......................... 105.120 2002.......................... 102.134
1995.......................... 104.694 2003.......................... 101.707
1997.......................... 104.267 2004.......................... 101.280
1998.......................... 103.840 2005.......................... 100.853
1999.......................... 103.414 2006.......................... 100.427
</TABLE>
and thereafter at 100% of the principal amount thereof, in each case together
with accrued and unpaid interest to the date fixed for redemption.
Notwithstanding the foregoing provisions, the Corporation may not redeem any
of the Senior 2017 Debentures prior to March 1, 1997, directly or indirectly,
from or in anticipation of moneys borrowed by or for the account of the
Corporation or any of its Subsidiaries at an interest cost of less than 8.77%
per annum, except for Senior 2017 Debentures redeemed pursuant to the provisions
described below under "Sinking Fund."
SINKING FUND
As a mandatory sinking fund for the Senior 2017 Debentures, the Corporation
will pay to the 1986 Indenture Trustee before March 1, in each of the years 1998
to 2016, inclusive, an amount in cash sufficient to redeem, at the Sinking Fund
Redemption Price, $10,000,000 aggregate principal amount of the Senior 2017
Debentures. At its option, the Corporation may pay to the 1986 Indenture Trustee
before each mandatory sinking fund payment date an additional amount in cash
sufficient to redeem at the Sinking Fund Redemption Price up to an additional
$15,000,000 aggregate principal amount of the Senior 2017 Debentures. The right
to make such optional sinking fund payments is not cumulative, but any optional
sinking fund payment may be used to reduce the amount of any subsequent
mandatory sinking fund payment. The Corporation may, at its option, credit
against mandatory sinking fund payments the principal amount of Senior 2017
Debentures acquired or redeemed other than through the operation of the
mandatory sinking fund, provided that such Senior 2017 Debentures have not
theretofore been used for any such credit or delivered to the 1986 Indenture
Trustee for cancellation in connection with certain sale and leaseback
transactions as described below under "Limitation Upon Sale and Leaseback
Transactions."
RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The various restrictive provisions of the 1986 Indenture, as supplemented by
the Bond Board Resolutions and the 1994 Bond Board Resolutions, summarized
below, while applicable to the Corporation and its Restricted Subsidiaries, do
not apply to Unrestricted Subsidiaries. A "Subsidiary" is any corporation, a
majority of the Voting Stock of which is at the time owned directly or
indirectly by the Corporation and its other Subsidiaries. "Voting Stock," as
applied to the stock of any corporation, is stock of any class or classes having
ordinary voting power for the election of a majority of the directors of such
corporation, other than stock having such power only by reason of the happening
of a contingency. A "Restricted Subsidiary" is any Subsidiary which owns any
Principal Operating Property. "Principal Operating Property" is any principal
manufacturing plant, or distribution or research facility, and related
facilities located in the United States and owned and operated by the
Corporation or any Subsidiary for more than 90 days, other than (i) any facility
acquired for the control or abatement of atmospheric pollutants or contaminants,
water pollution, noise, odor or other pollution or (ii) any plant or other
facility
81
<PAGE>
which, in the opinion of the Board, is not of material importance to the
business of the Corporation and its Restricted Subsidiaries taken as a whole. An
"Unrestricted Subsidiary" is any Subsidiary other than a Restricted Subsidiary.
RESTRICTIONS ON MERGER
So long as any 1986 Indenture Securities are outstanding, the Corporation
may not consolidate with or merge into any other corporation or sell or transfer
all or substantially all of its properties and assets to another Person unless
(i) the successor is a corporation organized and existing under the laws of the
United States of America or a state thereof and expressly assumes the due and
punctual payment of the principal of (and premium, if any), interest, if any,
and Additional Amounts, if any, on all the 1986 Indenture Securities and any
coupons and the due and punctual performance and observance of all covenants and
conditions of the Corporation in the 1986 Indenture, as supplemented by the Bond
Board Resolutions, and (ii) such successor corporation shall not, immediately
after such merger or consolidation, or such sale or conveyance, be in default in
the performance of any covenant or condition of the 1986 Indenture, as
supplemented by the Bond Board Resolutions.
LIMITATION UPON SECURED DEBT OF THE CORPORATION AND ITS RESTRICTED
SUBSIDIARIES
So long as any 1986 Indenture Securities are outstanding, the Corporation
will not itself, and will not permit any Restricted Subsidiary to, incur, issue,
assume, guarantee or suffer to exist any indebtedness for money borrowed
("Debt") secured by a mortgage, pledge, lien or security interest ("Mortgage")
on any Principal Operating Property or on any shares of stock or Debt of any
Restricted Subsidiary, without effectively providing that such 1986 Indenture
Securities (together with, if the Corporation so determines, any other Debt of
the Corporation or such Restricted Subsidiary then existing or thereafter
created which is not subordinated Debt) shall be secured equally and ratably
with (or, at the Corporation's option, prior to) such secured Debt so long as
such secured Debt shall be so secured, unless the aggregate amount of all such
secured Debt, together with all Attributable Debt of the Corporation and its
Restricted Subsidiaries in respect of sale and leaseback transactions involving
Principal Operating Properties (other than those exempt under clauses (ii)
through (iv) under "Limitation Upon Sale and Leaseback Transactions" below),
would not exceed 5% of Consolidated Net Tangible Assets. "Consolidated Net
Tangible Assets" means the Corporation's aggregate amount of assets minus (a)
all liabilities except (i) indebtedness for money borrowed maturing on, or
extendable at the option of the obligor to, a date more than one year from the
date of determination thereof, (ii) deferred income taxes and (iii)
stockholders' equity and (b) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles. This
restriction does not apply to, and there will be excluded from secured Debt in
any computation under such restriction, Debt secured by (i) Mortgages on
property of, or on any shares of stock or Debt of, any corporation existing at
the time such corporation becomes a Restricted Subsidiary; (ii) Mortgages in
favor of the Corporation or a Restricted Subsidiary; (iii) Mortgages in favor of
governmental bodies to secure progress, advance or other payments pursuant to
any contract or provision of any statute; (iv) certain Mortgages created (A) in
the ordinary course of business, (B) in connection with taxes, assessments or
other governmental charges or (C) in connection with legal proceedings; (v)
Mortgages on property (including leasehold estates), shares of stock or Debt
existing at the time of acquisition thereof (including acquisition through
merger or consolidation); (vi) purchase money and construction Mortgages which
are entered into within specified time limits; and (vii) any extension, renewal,
replacement or refunding of any Mortgage referred to in the foregoing clauses
(i) through (vi), inclusive. "Attributable Debt" is defined in general to mean
the total net amount of rent required to be paid during the remaining term of
any lease, discounted at a rate per annum equal to one-fourth of one percent
over the rate per annum borne by the applicable 1986 Indenture Securities
(except that for 1998 Senior Notes such rate shall be 8 1/4%) compounded
semi-annually.
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LIMITATION UPON SALE AND LEASEBACK TRANSACTIONS
So long as any of the following 1986 Indenture Securities are outstanding,
the Corporation will not itself, and will not permit any Restricted Subsidiary
to, sell or transfer any Principal Operating Property owned as of the following
dates with the intention of taking back a lease thereof (a "sale and leaseback
transaction"):
<TABLE>
<S> <C>
Senior 1995 Notes...................... December 15, 1986
Senior 1996 Notes...................... December 15, 1986
Senior 1997 Notes...................... March 15, 1987
Senior 1998 Notes...................... December 15, 1986
Senior 2017 Debentures................. March 1, 1987
</TABLE>
This restriction does not apply to any sale and leaseback transaction if: (i)
the Corporation or such Restricted Subsidiary could mortgage such Principal
Operating Property under the restrictions set forth under "Limitation Upon
Secured Debt of the Corporation and its Restricted Subsidiaries" above in an
amount equal to the Attributable Debt with respect to such sale and leaseback
transaction without equally and ratably securing the 1986 Indenture Securities;
(ii) within 120 days after the sale or transfer is completed, the Corporation or
a Restricted Subsidiary applies to the retirement of Senior Funded Debt of the
Corporation or Funded Debt of a Restricted Subsidiary an amount equal to the
greater of (A) the net proceeds of the sale of the Principal Operating Property
leased or (B) the fair market value of the Principal Operating Property leased;
(iii) the lease in such sale and leaseback transaction is for a period,
including renewals, of no more than three years; or (iv) such arrangement is
between the Corporation and a Restricted Subsidiary or between Restricted
Subsidiaries.
EVENTS OF DEFAULT
The following will be Events of Default under the 1986 Indenture, as
supplemented by the Bond Board Resolutions: (i) default in the payment of any
principal or premium, if any, on the 1986 Indenture Securities; (ii) default for
30 days in the payment of any interest or Additional Amounts on the 1986
Indenture Securities; (iii) default for 90 days after written notice thereof in
the performance of any other covenant applicable to such Notes; (iv)
acceleration of the maturity of any indebtedness of the Corporation or any
Subsidiary in excess of $50 million principal amount in the aggregate if such
acceleration results from a default under the instruments giving rise to such
indebtedness and is not annulled within 10 days after written notice of such
default; or (v) certain events of bankruptcy, insolvency or reorganization. No
Event of Default with respect to a particular series of securities issued under
the 1986 Indenture, as supplemented by the Bond Board Resolutions, necessarily
constitutes an Event of Default with respect to any other series of securities
issued thereunder. In case an Event of Default (other than an Event of Default
under clause (v)) shall occur and be continuing with respect to any series, the
1986 Indenture Trustee or the holders of not less than 25% in aggregate
principal amount of all series of securities affected thereby then outstanding
under the 1986 Indenture, as supplemented by the Bond Board Resolutions, (voting
as one class) by notice to the Corporation may declare the principal (or, in the
case of discounted securities, the amount specified in the terms thereof) of
such series to be due and payable immediately. In case an Event of Default under
clause (v) shall occur and be continuing, the 1986 Indenture Trustee or the
holders of not less than 25% in aggregate principal amount of all securities
then outstanding under the 1986 Indenture, as supplemented by the Bond Board
Resolutions, (voting as one class) by notice may declare the principal (or, in
the case of discounted securities, the amount specified in the terms thereof) of
all such outstanding securities to be due and payable immediately. Any Event of
Default with respect to a particular series of securities issued under the 1986
Indenture, as supplemented by the Bond Board Resolutions, may be waived, and a
declaration of acceleration rescinded, by the holders of a majority in aggregate
principal amount of the outstanding securities of such series (or if all such
outstanding securities, as the case may be), except in a case of failure to pay
principal or premium, if any, or interest or Additional Amounts in respect of
such security for which payment had not been subsequently made. The 1986
Indenture, as supplemented by the Bond Board
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Resolutions, provides that the 1986 Indenture Trustee may withhold notice to the
securityholders of any default (except in payment of principal, premium, if any,
or interest or Additional Amounts) if it determines in good faith that it is in
the interest of the securityholders to do so.
Subject to the provisions of the 1986 Indenture, as supplemented by the Bond
Board Resolutions, relating to the duties of the 1986 Indenture Trustee in case
an Event of Default occurs and is continuing, the 1986 Indenture Trustee will be
under no obligation to exercise any of its rights or powers under the 1986
Indenture, as supplemented by the Bond Board Resolutions, at the request, order
or direction of any of the securityholders, unless such securityholders have
offered to the 1986 Indenture Trustee reasonable indemnity. Subject to such
provisions for the indemnification of the 1986 Indenture Trustee and to certain
other limitations, the holders of a majority in aggregate principal amount of
the securities of all series affected (voting as one class) at the time
outstanding have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the 1986 Indenture Trustee, or
exercising any trust or power conferred on the 1986 Indenture Trustee.
The Corporation is required to file with the 1986 Indenture Trustee annually
an officers' certificate as to the absence of certain defaults under the terms
of the 1986 Indenture, as supplemented by the Bond Board Resolutions.
DEFEASANCE
The Corporation, at its option, (i) will be discharged from any and all
obligations in respect of any series of the 1986 Indenture Securities (except
for certain obligations to register the transfer or exchange of such 1986
Indenture Securities, replace such stolen, lost, destroyed or mutilated 1986
Indenture Securities, maintain paying agencies and hold moneys for payment in
trust) or (ii) will not be under any obligation to comply with certain covenants
and provisions applicable to such 1986 Indenture Securities, including those
described above under "Limitation Upon Secured Debt of the Corporation and
Restricted Subsidiaries" and "Limitation Upon Sale and Leaseback Transactions,"
if the Corporation (i) irrevocably deposits with the 1986 Indenture Trustee, in
trust for the holders of such 1986 Indenture Securities, (A) money or (B)
noncallable obligations issued or fully guaranteed by the United States of
America which through the payment of interest and income thereon and principal
thereof will provide money, in each case in an amount sufficient to pay all the
principal of (and premium, if any) and interest on such 1986 Indenture
Securities on the dates such payments are due in accordance with the terms of
such 1986 Indenture Securities and (ii) shall have paid or caused to be paid all
other sums payable with respect to such 1986 Indenture Securities. To exercise
either of the options described above, the Corporation is required, among other
things, to deliver to the 1986 Indenture Trustee an opinion of nationally
recognized tax counsel to the effect that holders of such 1986 Indenture
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and discharge and will be subject to
federal income tax in the same amount and in the same manner and at the same
times as would have been the case if such deposit and discharge had not
occurred, and an officer's certificate and opinion of counsel to the effect that
all conditions precedent relating to such deposit and discharge under the 1986
Indenture, as supplemented by the Bond Board Resolutions, have been complied
with, and that such deposit and discharge will not cause any violation of the
Investment Company Act of 1940, as amended, on the part of the Corporation, the
trust, the trust funds representing such deposit or the 1986 Indenture Trustee.
MODIFICATION OF THE INDENTURE
The 1986 Indenture, as supplemented by the Bond Board Resolutions, contains
provisions permitting the Corporation and the 1986 Indenture Trustee to modify
or otherwise amend the 1986 Indenture, as supplemented by the Bond Board
Resolutions, or any supplemental indenture thereto or the rights of the holders
of the securities issued thereunder, with the consent of the holders of not less
than a majority in principal amount of the securities of all series at the time
outstanding under such 1986 Indenture, as supplemented by the Bond Board
Resolutions, which are affected by such modification or amendment (voting as one
class); provided that no such modification or amendment shall (i) change the
fixed maturity of any securities, or reduce the principal amount thereof, or
premium, if any, or reduce the rate
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or extend the time of payment of interest or Additional Amounts thereon, or
reduce the amount due and payable upon the acceleration of the maturity thereof
or the amount provable in bankruptcy, or make the principal of, or interest,
premium or Additional Amounts on, any security payable in any coin or currency
other than that provided in such security; (ii) impair the right to institute
suit for the enforcement of any such payment on or after the stated maturity
thereof; or (iii) reduce the aforesaid percentage in principal amount of
securities, the consent of the holders of which is required for any such
modification or amendment, or the percentage required for the consent of the
holders to waive defaults, without the consent of the holder of each security so
affected.
THE SENIOR 2002 NOTES
The Senior 2002 Notes are issued under two indentures (the "Senior 2002 Note
Indentures") among the Corporation, the Subsidiary Guarantors and State Street
Bank and Trust Company (the "Senior 2002 Note Trustee"), as trustee. The forms
of the Senior 2002 Note Indentures have been filed as exhibits to the
Registration Statement and are available as described under "Available
Information." Whenever particular provisions or defined terms of the Senior 2002
Note Indentures are referred to, such provisions or defined terms are deemed
incorporated herein by reference. Capitalized terms used but not otherwise
defined in this summary have the meanings given to such terms in the Senior 2002
Note Indentures.
GENERAL
The Senior 2002 Notes are limited to $478 million aggregate principal
amount. The Senior 2002 Notes bear interest at a rate of 10 1/4% per annum
(computed on the basis of a 360-day year consisting of twelve 30-day months) and
will mature on December 15, 2002. Interest is payable semiannually on June 15
and December 15, to the persons in whose names the Senior 2002 Notes are
registered at the close of business on the next preceding June 1 or December 1,
as the case may be.
The Senior 2002 Notes rank PARI PASSU with all senior secured indebtedness
of the Corporation.
Principal and interest are payable, and the transfer of Senior 2002 Notes is
registrable, at the office or agency of the Corporation maintained for such
purpose in the City of Chicago, State of Illinois; provided, however, that
payment of interest may be made at the option of the Corporation by check or
draft mailed to the person entitled thereto as it appears in the security
register maintained for such purpose pursuant to the Senior 2002 Note
Indentures.
The Senior 2002 Notes are issued in fully registered form without coupons
and in denominations of $1,000 and integral multiples thereof. No service charge
will be made for any transfer or exchange except the Corporation may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
SECURITY
The Senior 2002 Notes are secured by first priority security interests in
the capital stock of certain Subsidiaries pursuant to the Collateral Trust
Agreement and related pledge and security agreements which provide that the
security interests equally and ratably secure certain other debt of the
Corporation and certain of the Subsidiaries, including the 1986 Indenture
Securities and the Bank Debt Obligations. The Bank Group will primarily control
the operation of the Collateral Trust Agreement. See "Description of Collateral
Trust."
SUBSIDIARY GUARANTEES
Pursuant to contingent payment guarantees (the "Contingent Payment
Guarantees"), holders of the Senior 2002 Notes are entitled to participate on a
PARI PASSU basis in any collections made by the Bank Group from the Subsidiary
Guarantors pursuant to the Subsidiary Guarantees of the Bank Term Loans, the
Extended Revolving Credit Facility, the Capitalized Interest Notes and the
Senior 2002 Notes. The provisions in the Senior 2002 Note Indentures which
provide for the Contingent Payment Guarantees confirm (but do not expand upon or
add to) the obligation of the Subsidiary Guarantors under the Subsidiary
Guarantees and the right of the holders of the Senior 2002 Notes to participate
in any
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payments thereunder. However, the Bank Group has the exclusive right to (i)
determine whether, when and to what extent the Subsidiary Guarantees will be
enforced (provided that each guarantee payment will be applied to the Bank Term
Loans, Extended Revolving Credit Facility, Capitalized Interest Notes and Senior
2002 Notes pro rata based on the respective amounts owed thereon) and (ii) amend
or eliminate the Subsidiary Guarantees; provided that the pro rata sharing
requirement contemplated in (i) above is not waivable (in the absence of a
complete release of the Subsidiary Guarantees) without the approval of the
holders of a majority in principal amount of the Senior 2002 Notes then
outstanding. In addition, each Subsidiary Guarantor's liability under its
guarantee is limited to the greater of (i) 95% of the lowest amount, calculated
as of the date of delivery of the original Subsidiary Guarantee, sufficient to
render the guarantor insolvent, leave the guarantor with unreasonably small
capital or leave the guarantor unable to pay its debts as they become due (each
as defined under applicable law) and (ii) the same amount calculated as of the
date any demand for payment is made, in each case plus collection costs. Holders
of the Senior 2002 Notes are entitled to enforce the pro rata sharing
requirement described above in the event that the Bank Group fails to share
proceeds collected under the Subsidiary Guarantees in accordance with the terms
thereof. The Subsidiary Guarantees will terminate when the Bank Term Loan, the
Extended Revolving Credit Facility and the Capitalized Interest Notes are
retired, regardless of whether any portion of the Senior 2002 Notes then remains
outstanding. See "Description of Credit Agreement -- Guarantees."
REDEMPTION
Subject to certain limitations contained in the Credit Agreement, the
Corporation may, at its option, redeem the Senior 2002 Notes in whole at any
time or in part (in integral multiples of $1,000) from time to time, at the
following redemption prices (expressed as a percentage of principal amount) plus
accrued interest to the redemption date:
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PRICE
- ------------------------------------------------------------------------------------ ---------------------
<S> <C>
At any time through and including May 6, 1994....................................... 103%
At any time between May 6, 1994 and May 6, 1995..................................... 102%
At any time between May 6, 1995 and May 6, 1996..................................... 101%
On the day next following May 6, 1996............................................... 100%
</TABLE>
In addition, the Senior 2002 Notes are subject to mandatory redemption, to
the extent of any and all payments (together with earnings thereon, if any)
received by the Senior 2002 Note Trustee pursuant to the Contingent Payment
Guarantees referred to above or by the Collateral Trustee under the Collateral
Trust Agreement, at a redemption price equal to 100% of the principal amount of
the Senior 2002 Notes redeemed plus accrued interest thereon to the date of
redemption.
CERTAIN COVENANTS OF THE CORPORATION AND ITS RESTRICTED SUBSIDIARIES
Each of the Senior 2002 Note Indentures contains certain covenants binding
upon the Corporation and its Restricted Subsidiaries which include, among
others, the negative covenants described below. These covenants do not apply to
Unrestricted Subsidiaries. See "The 1986 Indenture Securities -- Restricted and
Unrestricted Subsidiaries" above for the definitions of Restricted and
Unrestricted Securities.
Limitation Upon Debt of the Corporation and its Restricted Subsidiaries
So long as any Senior 2002 Notes are outstanding, neither the Corporation
nor any Restricted Subsidiary shall issue, assume, guarantee, incur or otherwise
become liable for (collectively "issue"), directly or indirectly, any Debt,
unless the Interest Coverage Ratio for the four consecutive fiscal quarters
(treated as one accounting period) immediately preceding, and ending at least 30
days prior to, the issuance of such Debt (as shown by a pro forma consolidated
income statement of the Corporation and its Domestic Subsidiaries for such
period after giving effect to (i) the issuance of such Debt and, if applicable,
the application of the net proceeds thereof to refinance other Debt, as if such
Debt was issued and proceeds applied at the beginning of the period; (ii) the
issuance and retirement of any other Debt since the last day of the most recent
fiscal quarter covered by such income statement as if such
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Debt was issued or retired at the beginning of the period; and (iii) within
certain limits, the acquisition of any company or business acquired by the
Corporation since the first day of the period, including any acquisition which
will be consummated contemporaneously with the issuance of such Debt, as if such
acquisition occurred at the beginning of the period and without giving effect to
any adjustments to the historical book value of acquired assets or liabilities
required or permitted by generally accepted accounting principles) exceeds the
following ratios for Debt issued in the respective periods indicated: (a) the
period through December 31, 1996, 1.50; (b) the period from January 1, 1997
through December 31, 1998, 1.75; and (c) from January 1, 1999 and thereafter,
2.00. The preceding restrictions will not prohibit the Corporation or any
Restricted Subsidiary from issuing the following Debt: (i) Debt issued pursuant
to the Credit Agreement; provided that (A) amounts outstanding (including
outstanding Facility Letters of Credit) under the Extended Revolving Credit
Facility shall not exceed $175 million at any time, and (B) the Bank Term Loans,
once repaid or prepaid, in whole or in part, shall not again be incurred under
this restriction, except for extensions, renewals, substitutions, refinancings
and replacements as permitted under clause (xi) below; (ii) Debt outstanding on
the Effective Date; provided that any such Debt, once repaid or prepaid, in
whole or in part, shall not again be incurred under this restriction, except for
extensions, renewals, substitutions, refinancings and replacements as permitted
under clause (xi) below; (iii) Debt under the Senior 2002 Notes; (iv) so long as
any Debt remains outstanding under the Credit Agreement, Debt of the Corporation
to any Restricted Subsidiary; provided that (a) the maker of any loan resulting
in the incurrence of such Debt shall not be insolvent at the time such loan was
made or rendered insolvent as a result of the making of such loan, (b) such loan
was in compliance with applicable law and (c) such loan shall be subordinate in
right of payment to the repayment in full of the Senior 2002 Notes following the
acceleration of the Senior 2002 Notes; (v) Debt of any Restricted Subsidiary to
the Corporation or any other Restricted Subsidiary; (vi) Debt relating to
letters of credit (other than Debt permitted by clauses (i) and (ii) above)
issued for the account of the Corporation or any Restricted Subsidiary in an
aggregate amount not to exceed $2.5 million; (vii) Debt incurred in connection
with deferred compensation arrangements for employees and former employees of
the Corporation and its Subsidiaries entered into in the ordinary course of
business; (viii) Debt of the Corporation or any of its Restricted Subsidiaries
which constitutes Project Financing; (ix) Capital Lease Obligations (other than
Debt permitted by clause (ii) above) having an aggregate amount not exceeding
$70 million; (x) Debt (other than Debt permitted by clauses (i) through (ix)
above) in an aggregate principal amount at any one time outstanding not to
exceed (a) $100 million, during the period when any Debt remains outstanding
under the Credit Agreement or any extension or renewal thereof or any successive
extension or renewal thereof, and (b) $50 million, at any time thereafter; and
(xi) Debt issued in connection with any extension, renewal, substitution,
refinancing or replacement of Debt permitted under clauses (i) through (x)
above, or any successive extension, renewal, substitution, refinancing or
replacement thereof; provided, that (a) the reincurrence of any such Debt after
repayment or prepayment of such Debt shall remain subject to the provisos in
clauses (i) or (ii) above, as applicable, (b) the principal amount of such newly
issued Debt shall not be greater than the aggregate principal amount of the Debt
being extended, renewed, substituted, refinanced or replaced thereby and (c) no
such Debt shall be issued containing any recourse to the Corporation or its
Subsidiaries additional to the recourse of the Debt being extended, renewed,
substituted, refinanced or replaced thereby. For purposes of the foregoing
covenant, the term "Debt" means, as applied to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money, (ii) all indebtedness of
such Person evidenced by notes, debentures, bonds or other similar instruments,
(iii) all reimbursement obligations of such Person with respect to letters of
credit issued for such Person's account (other than obligations with respect to
letters of credit securing obligations entered into in the ordinary course of
business of such Person to the extent not drawn on or, if and to the extent
drawn on, such drawing is reimbursed promptly following receipt by such Person
of a demand for reimbursement following payment on the letter of credit), (iv)
all obligations of such Person to pay the deferred purchase price of property or
services (but excluding trade accounts payable in the ordinary course of
business), (v) all Capital Lease Obligations of such Person, (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
for the payment of which such Person is responsible or liable as obligor,
guarantor or otherwise, and (vii) all obligations of the type referred to in
clauses (i) through (v) of other Persons secured by any Lien on any property or
asset of
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such Person (whether or not such obligation is assumed by such Person); and the
term "Interest Coverage Ratio" means, with respect to any period, the ratio of
(a) the Corporation's Consolidated Domestic EBITDA (which is defined to exclude
the impact of fresh start accounting principles) for such period, minus Domestic
Capital Expenditures during such period, to (b) the Total Domestic Consolidated
Interest Expense during such period.
Limitation on Restricted Payments
So long as any Senior 2002 Notes are outstanding, the Corporation will not
(i) declare or pay any dividend or make any distribution on any capital stock of
the Corporation (other than dividends or distributions payable solely in capital
stock of the Corporation (excluding preferred stock redeemable at the option of
the holder prior to the first anniversary of the stated maturity of the Senior
2002 Notes ("Redeemable Preferred")) or rights to acquire capital stock (other
than Redeemable Preferred) of the Corporation or, as part of a shareholder
rights plan, rights to acquire capital stock (other than Redeemable Preferred)
of another Person) or (ii) purchase, redeem, retire or otherwise acquire, or
permit any Subsidiary to purchase, redeem, retire or otherwise acquire, for
value, any capital stock of the Corporation or any option, warrant or other
right to acquire capital stock of the Corporation (any such dividend,
distribution, purchase, redemption, retirement or other acquisition being
hereinafter referred to as a "Restricted Payment"), if at the time the
Corporation or such Subsidiary makes such Restricted Payment (a) an Event of
Default shall have occurred and be continuing (or would result therefrom); (b)
the Corporation could not or, after giving effect thereto, would not be able to
incur an additional $1.00 of Debt under the restrictions set forth under the
heading "Limitation Upon Debt of the Corporation and its Restricted
Subsidiaries"; or (c) the aggregate amount of such Restricted Payment and all
other Restricted Payments made since the Effective Date, would exceed the sum
of: (1) $10 million; plus (2) 25% of the Corporation's Domestic Consolidated Net
Income (which is defined to exclude the impact of fresh start accounting
adjustments) accrued during the period (treated as one accounting period) from
January 1, 1995 to December 31, 1996 (or, in case such Domestic Consolidated Net
Income shall be a deficit, minus 100% of such deficit); plus (3) 50% of the
Corporation's Domestic Consolidated Net Income accrued during the period
(treated as one accounting period) on or after January 1, 1997 (or, in case such
Domestic Consolidated Net Income shall be a deficit, minus 100% of such
deficit); plus (4) the aggregate net cash proceeds received by the Corporation
from the issuance, sale or other disposition (other than to a Subsidiary)
subsequent to the Effective Date of capital stock (or any option, warrant or
other right to acquire capital stock), including a sale or issuance of capital
stock (or options, warrants or other rights to acquire capital stock) upon the
conversion of Debt (convertible in accordance with its terms) issued or sold for
cash subsequent to the Effective Date (in which case such capital stock shall be
deemed to have been issued for the dollar amount of such Debt so converted). The
restrictions described above do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment complied with the restrictions described above; (ii)
the acquisition of any shares of capital stock of the Corporation in exchange
for, or upon conversion of, or out of the proceeds of the substantially
concurrent sale for cash (other than to a Subsidiary) of, shares of capital
stock (other than Redeemable Preferred) of the Corporation (in which event
neither the receipt nor the application of such proceeds shall be included in
any computation under this paragraph); (iii) the acquisition of capital stock of
the Corporation for the purpose of eliminating fractional shares; (iv) the
distribution of, or redemption by, the Corporation of any rights to purchase
capital stock of the Corporation or any other Person which rights were issued as
part of a shareholder rights plan (in which event such distribution or
redemption shall not be included in any computation under this paragraph); (v)
the issuance, acquisition, reclassification or redemption by the Corporation of
its capital stock pursuant to the 1988 Recapitalization (such issuance,
acquisition, reclassification or redemption shall not be included in any
computation under this paragraph); (vi) the making of any payment to dissenting
stockholders of the Corporation pursuant to any appraisal right arising under
law or court order; (vii) the exercise and payment of stock appreciation rights
pursuant to the Corporation's Management Performance Plan or any successor
equity compensation plan or the repurchase at any time after the Effective Date
of Common Stock from the participants in the Management Performance Plan or any
successor equity compensation plan in order to satisfy withholding tax
obligations (such
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payment or repurchase shall not be included in any computation under this
paragraph); (viii) the cash settlement of certain restricted shares of Common
Stock pursuant to the Management Performance Plan (in addition to the
repurchases permitted under clause (vii) above) in an aggregate amount of
consideration not to exceed $750,000 (such cash settlement shall not be included
in any computation under this paragraph); and (ix) any payments or distributions
made pursuant to and as described in the Prepackaged Plan (such payments or
distributions shall not be included in any computation under this paragraph).
Limitation on Transactions with Affiliates
So long as any Senior 2002 Notes are outstanding, the Corporation shall not,
and shall not permit any Subsidiary to, directly or indirectly, enter into any
transaction or series of related transactions involving the purchase, sale,
lease or exchange of property or the rendering of any service by or to the
Corporation or any Subsidiary having a fair market value in excess of $5 million
(as reasonably determined by the Board) with any Affiliate (including financing,
acquisitions and divestitures), unless the Board by resolution (excluding any
members of the Board having a financial interest in such transaction) concludes,
in its reasonable good faith judgment, that (i) such transaction is upon terms
no less favorable to the Corporation or such Subsidiary than could be obtained
in a comparable arm's-length transaction with a Person not an Affiliate and (ii)
such transaction is reasonably necessary or desirable for the Corporation or
such Subsidiary in the conduct of its business (including financings,
acquisitions and divestitures). Notwithstanding the requirements of the
foregoing sentence, transactions with any Affiliate that constitute transactions
in the ordinary course of business of such Affiliate and the Corporation or such
Subsidiary need not be approved by, or disclosed in advance to, the Board;
provided such transactions are periodically reported to the Board on at least a
quarterly basis and otherwise meet the requirements of subclauses (i) and (ii)
of the preceding sentence. "Affiliate" means any Person other than the
Corporation or any Subsidiary which (i) directly or indirectly through one or
more intermediaries, controls the Corporation; (ii) directly or indirectly
through one or more intermediaries, beneficially owns 5% or more of any class of
voting stock of the Corporation, CGC or any domestic Subsidiary; or (iii) is
controlled by any Person referred to in clauses (i) or (ii) above.
Limitation on Guaranteed Debt
So long as any Senior 2002 Notes are outstanding, and at any time when no
Debt remains outstanding under the Credit Agreement, the Corporation shall not
issue or incur any Debt the repayment of principal or interest or both of which
is guaranteed by any Subsidiary, unless each such Subsidiary which guarantees
such other Debt also guarantees the Senior 2002 Notes on a direct and
unconditional basis.
Restrictions on Merger
So long as any Senior 2002 Notes are outstanding, the Corporation shall not
consolidate with or merge into, or sell or transfer all or substantially all of
its property and assets to, any Person unless (i) the resulting, surviving or
transferee Person (if not the Corporation) shall be organized and existing under
the laws of the United States of America or any State thereof or the District of
Columbia, and such entity shall expressly assume, by a supplemental indenture,
executed and delivered to the Senior 2002 Note Trustee,in form satisfactory to
the Senior 2002 Note Trustee, all the obligations of the Corporation under the
Senior 2002 Notes and each of the Senior 2002 Note Indentures; (ii) immediately
prior to and after giving effect to such transaction, no Event of Default shall
have occurred and be continuing; (iii) immediately after giving effect to such
transaction, the resulting, surviving or transferee Person could issue an
additional $1.00 of Debt pursuant to the restrictions set forth under the
heading "Limitation Upon Debt of the Corporation and its Restricted
Subsidiaries" above; and (iv) immediately after giving effect to such
transaction, the resulting, surviving or transferee Person shall have
Consolidated Net Worth in an amount which is not less than the Consolidated Net
Worth (which may be negative) of the Corporation prior to such transaction.
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Limitation on Sale and Leaseback Transactions
So long as any Senior 2002 Notes are outstanding, except as set forth below,
the Corporation will not itself, and it will not permit any Restricted
Subsidiary to, enter into any transaction with any bank, insurance company or
other lender or investor, or to which any such bank, insurance company, lender
or investor is a party, providing for the leasing by the Corporation or a
Restricted Subsidiary of any Principal Operating Property owned at the Effective
Date which has been or is to be sold or transferred by the Corporation or a
Restricted Subsidiary to such bank, company, lender or investor, or to any
Person to whom funds have been or are to be advanced by such bank, insurance
company, lender or investor on the security of such Principal Operating Property
(a "sale and leaseback transaction"). The restriction described above does not
apply to any sale and leaseback transaction if (i) the Corporation or such
Restricted Subsidiary could create Debt secured by a Mortgage (under the
restrictions set forth under "Limitation of Secured Debt of the Corporation and
its Restricted Subsidiaries" below, without regard to clauses (i) through (viii)
thereof), on the Principal Operating Property to be leased in an amount equal to
the Attributable Debt with respect to such sale and leaseback transaction
without equally and ratably securing the Securities; or (ii) within 120 calendar
days after the sale or transfer has been made by the Corporation or by a
Restricted Subsidiary, the Corporation or a Restricted Subsidiary applies an
amount equal to the greater of (A) the net proceeds from the sale of the
Principal Operating Property leased pursuant to such arrangement or (B) the fair
market value of the Principal Operating Property so leased at the time of
entering into such arrangement (as determined in any manner approved by the
Board) to the retirement of Senior Funded Debt of the Corporation or Funded Debt
of a Restricted Subsidiary; provided, that the amount to be applied to the
retirement of Senior Funded Debt of the Corporation or Funded Debt of a
Restricted Subsidiary will be reduced by (x) the principal amount of any Senior
2002 Notes (or other debentures or notes constituting Senior Funded Debt of the
Corporation or Funded Debt of a Restricted Subsidiary) delivered within 75
calendar days after such sale or transfer to the Senior 2002 Note Trustee or
other applicable trustee for retirement and cancellation and (y) the principal
amount of Senior Funded Debt of the Corporation or Funded Debt of a Restricted
Subsidiary, other than Funded Debt included under clause (x), voluntarily
retired by the Corporation or a Restricted Subsidiary within 75 calendar days
after such sale; provided further that, notwithstanding the foregoing, no
retirement referred to in this clause (ii) may be effected by payment at
maturity or pursuant to any mandatory sinking fund payment or any mandatory
prepayment provision; (iii) the lease in such sale and leaseback transaction is
for a period, including renewals, of no more than three years; or (iv) such
arrangement is between the Corporation and a Restricted Subsidiary or between
Restricted Subsidiaries.
Limitation of Secured Debt of the Corporation and its Restricted
Subsidiaries
So long as any Senior 2002 Notes are outstanding, the Corporation will not
itself, and will not permit any Restricted Subsidiary to, incur, issue, assume,
guarantee or suffer to exist any indebtedness for borrowed money (for purposes
hereof, "Secured Debt") secured by a Mortgage on any Principal Operating
Property of the Corporation or any Restricted Subsidiary, or any shares of stock
of or Debt of any Restricted Subsidiary, without effectively providing that the
Senior 2002 Notes (together with, if the Corporation so determines, any other
Debt of the Corporation or such Restricted Subsidiary then existing or
thereafter created which is not subordinated Debt) will be secured equally and
ratably with (or, at the option of the Corporation, prior to) such Secured Debt
so long as such Secured Debt will be so secured, unless, after giving effect
thereto, the aggregate amount of all such Secured Debt plus all Attributable
Debt of the Corporation and its Restricted Subsidiaries in respect of sale and
leaseback transactions (other than those exempt described under clauses (ii)
through (iv), inclusive, under "Limitation Upon Sale and Leaseback Transactions"
above) would not exceed 5% of Consolidated Net Tangible Assets (as defined under
"the 1986 Indenture Securities -- Limitation Upon Secured Debt of the
Corporation and its Restricted Subsidiaries" above). This restriction will not
apply to, and there will be excluded from Secured Debt in any computation under
such restriction, Debt secured by (i) Mortgages on, and limited to, property of,
or on any shares of stock of or Debt of, any corporation existing at the time
such corporation becomes a Restricted Subsidiary; (ii) Mortgages in favor of the
Corporation or any Restricted Subsidiary; (iii) Mortgages in favor of any
governmental body to secure progress, advance or
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other payments pursuant to any contract or provision of any statute; (iv) (A) if
made and continuing in the ordinary course of business, any Mortgage as security
for the performance of any contract or undertaking not directly or indirectly in
connection with the borrowing of money or the securing of Debt, or (B) any
Mortgage with any governmental agency required or permitted to qualify the
Corporation or any Restricted Subsidiary to conduct business, to maintain
self-insurance or to obtain the benefits of any law pertaining to workmen's
compensation, unemployment insurance, old age pensions, social security or
similar matters; (v) Mortgages for taxes, assessments or governmental charges or
levies if such taxes, assessments, governmental charges or levies will not at
the time be due and payable, or if the same thereafter can be paid without
penalty, or if the same are being contested in good faith by appropriate
proceedings; (vi) Mortgages created by or resulting from any litigation or legal
proceeding which at the time is currently being contested in good faith by
appropriate proceedings; or Mortgages arising out of judgments or awards as to
which the time for prosecuting an appeal or proceeding for review has not
expired; (vii) Mortgages on, and limited to, property (including leasehold
estates), shares of stock or Debt existing at the time of acquisition thereof
(including acquisition through merger or consolidation) or to secure the payment
of all or any part of the purchase price thereof or construction thereon or to
secure any Debt incurred prior to, at the time of, or within 120 calendar days
after the later of the acquisition, the completion of construction or the
commencement of full operation of such property or within 120 calendar days
after the acquisition of such shares or Debt for the purpose of financing all or
any part of the purchase price thereof or construction thereon; or (viii) any
extension, renewal or replacement (or successive extension, renewals or
replacements), as a whole or in part, of any Mortgage referred to in the
foregoing clauses (i) through (vii), inclusive, provided that (A) such
extension, renewal or replacement Mortgage will be limited to all or a part of
the same property, shares of stock or Debt that secured the Mortgage so
extended, renewed or replaced (plus improvements on such property) and (B) the
Debt secured by such Mortgage at such time is not increased. "Attributable Debt"
is defined in general to mean the total net amount of rent required to be paid
during the remaining term of any lease, discounted at a rate equal to 10 1/2%.
EVENTS OF DEFAULT
Each of the Senior 2002 Note Indentures contain certain events of default
("Events of Default"), remedies upon such Events of Default and provisions
regarding notices of default, waivers of default and certificates of compliance
comparable to those contained in the 1986 Indenture, as supplemented by the Bond
Board Resolutions. In addition, an Event of Default shall be deemed to have
occurred if the Corporation or USG Interiors shall fail to repay either the
Extended Revolving Credit Facility or the Bank Term Loans when due upon the
respective final scheduled maturity date thereof and, as a result thereof, the
Bank Group files a Notice of Actionable Default under the Collateral Trust
Agreement or a written demand for payment under any of the Subsidiary
Guarantees. See "The 1986 Indenture Securities -- Events of Default."
DEFEASANCE
The Senior 2002 Note Indentures contain provisions regarding defeasance
comparable to those contained in the 1986 Indenture, as supplemented by the Bond
Board Resolutions. Upon defeasance of the Senior 2002 Notes in accordance with
such provisions, the Corporation will no longer be obligated to comply with any
of the negative covenants described under "Certain Covenants of the Corporation
and its Restricted Subsidiaries" above. See "The 1986 Indenture Securities --
Defeasance."
MODIFICATION
Each of the Senior 2002 Note Indentures contain provisions regarding
modifications and amendments comparable to those contained in the 1986
Indenture, as supplemented by the Bond Board Resolutions. See "The 1986
Indenture Securities -- Modification of the Indenture."
DESCRIPTION OF COLLATERAL TRUST
In connection with the 1988 Recapitalization, the Corporation established a
collateral trust pursuant to the Collateral Trust Agreement, dated as of July
13, 1988 (the "Old Collateral Trust Agreement"),
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among the Corporation and certain of the Subsidiaries (collectively, the
"Grantors") and Wilmington Trust Company and William J. Wade (collectively, the
"Collateral Trustee"). Under the Old Collateral Trust Agreement, the Grantors
granted a first priority security interest in (i) all of the capital stock of
the Corporation's principal domestic Subsidiaries, including U.S. Gypsum, USG
Interiors, L&W Supply and USG Foreign Investments, Ltd.; and (ii) 65% of the
capital stock of CGC and certain other of the Corporation's foreign Subsidiaries
(collectively, the "Collateral"). The Collateral is held in trust for the equal
and ratable benefit of the holders of (i) the Bank Debt Obligations; and (ii)
the senior debt securities, including the 1986 Indenture Securities. In
connection with the Restructuring, the Old Collateral Trust Agreement was
amended to provide that the Senior 1995 Notes, the Senior 1998 Notes and Senior
2002 Notes (together with the Bank Debt Obligations and the previously existing
senior debt securities, the "Senior Secured Obligations") be equally and ratably
secured with the other Senior Secured Obligations (the "Collateral Trust
Agreement"). In connection with the Note Placement, the Collateral Trust
Agreement is being further amended to provide that the Senior 2001 Notes will be
equally and ratably secured with the other Senior Secured Obligations.
Under the Collateral Trust Agreement, an "Actionable Default" occurs upon
the acceleration of any of the Senior Secured Obligations. A "Notice of
Actionable Default" may be given (i) in the case of an acceleration of the Bank
Debt Obligations, by the Administrative Agent under the Credit Agreement or the
holders of a majority of the Bank Debt Obligations (the "Requisite Senior
Lenders"); or (ii) in the case of an acceleration of any series of securities,
by the trustee under the indenture governing such series or, if provided under
the terms of such series, by the requisite holders of such series. A Notice of
Actionable Default may be withdrawn by the party which gave it (i) at any time
when the Collateral Trustee has not exercised any remedies with respect to the
Collateral as a result thereof or (ii) after the Collateral Trustee has
exercised remedies if the Requisite Senior Lenders consent to such withdrawal.
In addition, a Notice of Actionable Default is deemed withdrawn when the party
giving such Notice has acknowledged payment in full of the Senior Secured
Obligations owing to it. Until such time as any Notice of Actionable Default is
given (and after the time when any such Notice has been withdrawn), the pledgor
thereof may vote any securities comprising the Collateral. At any time when a
Notice of Actionable Default has been given and not withdrawn, the Collateral
Trustee may, upon written notice to the Corporation, vote any securities
comprising the Collateral.
All of the Collateral will be released (i) upon the consent and direction of
the Bank Group or (ii) at such time as the Bank Debt Obligations have been
repaid in full. In addition, the Requisite Senior Lenders may instruct the
Collateral Trustee to release specified portions of the Collateral (e.g., in the
case of asset sales approved by the holders of the Bank Debt Obligations under
the Credit Agreement) provided that no Actionable Default has occurred. The
holders of the Corporation's Securities do not have any similar rights to
authorize release of the Collateral. Under the terms of the Collateral Trust
Agreement, the Collateral and proceeds so released revert to the Grantors and
are not required to be distributed into the Collateral Account (defined below).
For a description of the rights of the holders of the Bank Debt Obligations
under the Credit Agreement, see "Description of Credit Agreement."
Following receipt of a Notice of Actionable Default, the Requisite Senior
Lenders have the right to direct the Collateral Trustee to exercise, or refrain
from exercising, any rights or remedies with respect to the Collateral. The
holders of the Securities do not have any similar right to direct the actions of
the Collateral Trustee. See "Risk Factors -- Control of Collateral Trust
Agreement by Bank Group." In the absence of relevant directions, the Collateral
Trustee has the power to act on its own initiative. At any time when a Notice of
Actionable Default has been given and not withdrawn, the Collateral Trustee may,
and at the direction of the Requisite Senior Lenders shall, sell the Collateral
for the benefit of the holders of the Senior Secured Obligations. Funds derived
from any sale of Collateral and (at all times after a Notice of Actionable
Default has been given and not withdrawn) dividends and distributions received
on the Collateral are to be deposited to the collateral account established
under the Collateral Trust Agreement (the "Collateral Account"). The Collateral
Trustee shall distribute all moneys in the Collateral Account as follows: (i)
first, to the Collateral Trustee for unpaid fees; (ii) second, to the holders of
the Senior Secured Obligations ratably (on the basis of unpaid amounts) to (a)
pay the portion of the Senior
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Secured Obligations which is then due and payable and (b) provide cash
collateral (on a dollar-for-dollar basis) for the portion of the Senior Secured
Obligations which is not then due and payable; and (iii) third, to the Grantors.
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
The total number of shares of capital stock that the Corporation has
authority to issue is 236,000,000, consisting of 200,000,000 shares of Common
Stock, par value $0.10 per share, and 36,000,000 shares of Preferred Stock, par
value $1.00 per share. Upon completion of this Offering, 43,158,085 shares of
Common Stock will be issued and outstanding, assuming no exercise of the
Underwriters' over-allotment option, and no shares of Preferred Stock will be
issued or outstanding. The following summary of certain provisions of the
Corporation's capital stock describes all material provisions of, but does not
purport to be complete and is subject to, and qualified in its entirety by, the
Certificate of Incorporation and the By-laws of the Corporation, each of which
is included as an exhibit to the Registration Statement of which this Prospectus
forms a part.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered will be upon payment therefor, validly issued, fully
paid and nonassessable. Subject to the prior rights of the holders of any
Preferred Stock, if any, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board of Directors may from time to time
determine. The Corporation is currently a party to various credit agreements
which prohibit the payment of dividends. See "Risk Factors -- Restrictions on
Common Stock Dividends." Upon liquidation, dissolution or winding up of the
Corporation, the holders of Common Stock are entitled to receive pro rata the
assets of the Corporation which are legally available for distribution, after
payment of all debts and other liabilities and subject to the prior rights of
any holders of Preferred Stock then outstanding, if any. Each outstanding share
of Common Stock is entitled to one vote on all matters submitted to a vote of
stockholders. There is no cumulative voting.
The Common Stock of the Corporation is traded on the New York Stock Exchange
under the symbol "USG." On January 3, 1994, the last reported sales price of the
Common Stock, as reported on the New York Stock Exchange Composite Tape, was
$29.625 per share.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation and By-laws of the Corporation contain
certain provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Board and which may have the effect of
delaying, deferring or preventing a future takeover or change in control of the
Corporation unless such takeover or change in control is approved by the Board.
Such provisions may also render the removal of the current Board and of
management more difficult.
The Corporation's Certificate of Incorporation provides for three classes of
directors, each of which is to be elected on a staggered basis for a term of
three years. At present, the Board is composed of 14 directors (with one
vacancy). Two classes of directors are composed of five members and the third is
composed of four members. In connection with the Prepackaged Plan,
representatives of certain creditors of the Corporation nominated a total of 5
directors. See "Management -- Directors of the Corporation." If the Water Street
Directors are removed from office without the consent of Water Street, certain
restrictions on the Water Street Entities relating to the purchase, voting and
transfer of shares of Common Stock will terminate. See "Certain Relationships
and Related Transactions -- Agreement with Water Street Entities."
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The affirmative vote or consent of at least 80% of the voting power of all
of the stock of the Corporation entitled to vote in the election of directors is
required to approve certain types of transactions with another corporation,
person or entity which, directly or indirectly, owns 5% or more of the
outstanding shares of any class of the Corporation's stock which is entitled to
vote in the election of directors. Such transactions include a merger or
consolidation of the Corporation or any of its Subsidiaries, sale of all or
substantially all of the assets of the Corporation or any of its Subsidiaries or
the sale or lease of any assets (except assets having an aggregate fair market
value of less than $10 million) in exchange for certain types of securities. The
Board may render such super-majority voting requirements inapplicable by (i)
approving a memorandum of understanding with such other corporation, person or
entity with respect to such a transaction prior to the time that such
corporation, person or entity becomes the beneficial owner of 5% or more of any
class of voting stock or (ii) approving such a transaction after the time that
such other corporation, person or entity becomes the beneficial owner of 5% or
more of any class of voting stock if a majority of the members of the Board
approving such transaction were duly elected and acting members of the Board
prior to the time that such other corporation, person or entity became the
beneficial owner of 5% or more of any class of voting stock. This super-majority
voting requirement applies to Water Street.
Any action to be taken at any annual or special meeting of stockholders of
the Corporation may only be taken without a meeting if a consent in writing is
signed by the holders of at least 80% of the voting power of the Corporation
entitled to vote with respect to such subject matter.
The provisions in the Certificate of Incorporation described above may only
be amended by 80% of the voting power of the Corporation entitled to vote in the
election of directors.
PREFERRED STOCK
Upon consummation of the Offering, there will be no shares of Preferred
Stock issued or outstanding. The Corporation has no present intention to issue
any shares of Preferred Stock. However, the Corporation's Board of Directors
may, without further action by the Corporation's stockholders, from time to
time, direct the issuance of shares of Preferred Stock in series and may, at the
time of issuance, determine the rights, preferences and limitations of each
series. Satisfaction of any dividend preferences of outstanding shares of
Preferred Stock would reduce the amount of funds available for the payment of
dividends on shares of Common Stock. Holders of shares of Preferred Stock may be
entitled to receive a preference payment in the event of any liquidation,
dissolution or winding-up of the Corporation before any payment is made to the
holders of shares of Common Stock. Under certain circumstances, the issuance of
shares of Preferred Stock may render more difficult or tend to discourage a
merger, tender offer or proxy contest, the assumption of control by a holder of
a large block of the Corporation's securities or the removal of incumbent
management. The Board of Directors of the Corporation, without stockholder
approval, may issue shares of Preferred Stock with voting and conversion rights
which could adversely affect the holders of shares of Common Stock.
CERTAIN PROVISIONS OF DELAWARE LAW
The Corporation is governed by the provisions of Section 203 of the Delaware
General Corporation Law. In general, the law prohibits a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. "Business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
the stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock.
SHAREHOLDER RIGHTS PLAN
The Corporation's rights agreement (the "Rights Agreement") between the
Corporation and Harris Trust (the "Rights Agent") entitles the registered
stockholder to purchase from the Corporation one-hundredth share of Junior
Series C Preferred Stock at a price of $35 per one-hundredth share (the "Rights
Purchase Price"), subject to adjustment.
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Until the earlier to occur of (i) 10 days following the date of a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person"), other than the Corporation, any employee benefit plan of
the Corporation, any entity holding Common Stock for or pursuant to the terms of
any such plan or, except as described below, Water Street or its affiliated or
associated persons, has beneficial ownership (as defined in the New Rights
Agreement) of 20% or more of the then outstanding Common Stock, (ii) 10 days
following the date of a public announcement that a person or group of affiliated
or associated persons (an "Adverse Person") has beneficial ownership of 10% or
more of the then outstanding Common Stock, the acquisition of which has been
determined by the Board to present an actual threat of an acquisition of the
Corporation that would not be in the best interest of the Corporation's
stockholders or (iii) 10 days following the date of commencement of, or public
announcement of, a tender offer or exchange offer for 30% or more of the Common
Stock (the earliest of such dates being called the "Distribution Date"), the
Rights will be evidenced, with respect to the Common Stock, by the certificates
which will represent such Common Stock. The Rights Agreement provides that,
until the Distribution Date, the Rights will be transferred with and only with
the Common Stock certificates. Until the Distribution Date (or earlier
redemption or expiration of the Rights), Common Stock certificates issued after
May 6, 1993 upon transfer or new issuance of shares of Common Stock (including
any shares of Common Stock issued pursuant to the Restructuring) will contain a
notation incorporating the Rights Agreement by reference.
The Rights Agreement provides that, until December 31, 1997, Water Street's
beneficial ownership of any shares of common Stock (or warrants to purchase
Common Stock or securities exchangeable for or convertible into Common Stock or
warrants to purchase any such exchangeable or convertible securities)
(collectively, "Specified Securities") acquired pursuant to any Permitted
Acquisition (as defined in the Water Street Agreement) will not cause any of the
following to occur: (a) any Water Street Entity to become an Acquiring Person or
an Adverse Person, (b) the Distribution Date, (c) the transfer of Common Stock
of the Corporation (or its successor by operation of law or under the terms of
the Rights Agreement) no longer constituting the transfer of associated Rights
or the distribution of Rights Certificates, (d) the Rights becoming exercisable,
non-redeemable or non-amendable, (e) a condition the result of which Rights may
be exchanged for Common Stock in the manner described in the Rights Agreement,
or (f) the Rights Purchase Price or the amount of securities acquirable upon
payment thereof to be adjusted (collectively, the "Specified Events"). The
Rights Agreement further provides that, until the tenth anniversary of the Water
Street Agreement, (i) from and after any distribution of shares of Common Stock
by Water Street to its partners and until the Water Street Entities beneficially
own a percentage of the outstanding shares of Common Stock which is less than
10% of the outstanding Common Stock (the "Flip-In Threshold"), the beneficial
ownership by the Water Street Entities (other than Water Street) of any
Specified Securities acquired pursuant to any Permitted Acquisition or Permitted
Acquisitions shall not cause any of the Specified Events to occur, so long as
the Water Street Entities shall have voted the shares of Common Stock owned by
them in accordance with the terms of the Water Street Agreement; (ii) until the
Water Street Entities beneficially own a percentage of the outstanding shares of
Common Stock which is less than the Flip-In Threshold, the acquisition (other
than pursuant to any Permitted Acquisition or Permitted Acquisitions) by the
Water Street Entities (which acquisition, in the case of persons other than
natural persons, is made in the ordinary course of business), including but not
limited to acquisitions on behalf of proprietary accounts and accounts with
respect to which any of the Water Street Entities has investment discretion, of
up to an aggregate of 10% of the outstanding shares of Common Stock at the time
of acquisition shall not cause any of the Specified Events to occur; (iii) the
acquisition (other than pursuant to any Permitted Acquisition or Permitted
Acquisitions) by the Water Street Entities (which acquisition, in the case of
persons other than natural persons, is made in the ordinary course of business)
of an aggregate of more than 10% of the outstanding shares of Common Stock at
the time of acquisition shall not cause any of the Specified Events to occur,
provided that, within ten business days after the Corporation notifies Water
Street of such ownership, the Water Street Entities sell or otherwise transfer
or dispose of Common Stock, so that, after giving effect to those transactions,
the number of shares of Common Stock beneficially owned by the Water Street
Entities that were acquired other than pursuant to any Permitted Acquisition or
Permitted Acquisitions is not greater than
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an aggregate of 10% of the then outstanding shares of Common Stock; and (iv) any
percentage increase in any Water Street Entity's beneficial ownership of
outstanding shares of Common Stock that results from the acquisition of shares
of Common Stock by the Corporation or its Subsidiaries shall not cause any
Specified Event to occur.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), the surrender for transfer of any Common Stock certificate also will
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights (the "Rights
Certificates") will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and such separate Rights Certificates
alone will evidence the Rights. The Rights are not exercisable until the
Distribution Date. The Rights will expire on May 6, 2003 (the "Final Expiration
Date"), unless earlier redeemed by the Corporation as described below. Until a
Right is exercised, the holder thereof, as such, will have no rights as a
stockholder of the Corporation, including, without limitation, the right to vote
or to receive dividends.
In the event that, at any time after the first public announcement that an
Acquiring Person or an Adverse Person has become such, the Corporation is
involved in a merger or other business combination where the Corporation is not
the surviving corporation or where Common Stock is changed or exchanged or in a
transaction where 50% or more of its consolidated assets or earning power are
sold, proper provision will be made so that each holder of a Right (other than
such Acquiring Person or Adverse Person) will thereafter have the right to
receive, upon the exercise thereof at the then-current exercise price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction would have a market value of two times the exercise
price of the Right.
In the event that the Corporation is the surviving corporation in a merger
or other business combination involving an Acquiring Person or an Adverse Person
and the Common Stock remains outstanding and unchanged or in the event that an
Acquiring Person or an Adverse Person engages in one of a number of self-dealing
transactions specified in the Rights Agreement, proper provision will be made so
that each holder of a Right, other than Rights that are or were beneficially
owned (as defined in the Rights Agreement) by the Acquiring Person or the
Adverse Person, as the case may be, on the earliest of the Distribution Date,
the date the Acquiring Person acquires 20% or more of the outstanding Common
Stock or the date the Adverse Person becomes such (which will thereafter be
void), will thereafter have the right to receive upon exercise thereof that
number of shares of Common Stock having a market value at the time of such
transaction of two times the exercise price of the Right. In addition, under
certain circumstances the Board has the option of exchanging all or part of the
Rights (excluding void Rights) for Common Stock in the manner described in the
Rights Agreement. The Rights Agreement also contains a so-called "flip-in"
feature which provides that if any person or group of affiliated or associated
persons becomes an Adverse Person, then the provisions of the preceding two
sentences shall apply.
The Rights Agreement also provides that, at any time prior to the public
announcement that an Acquiring Person or an Adverse Person has become such, the
Board may (i) redeem the Rights in whole, but not in part, at a price of $.01
per Right (the "Redemption Price") or (ii) amend the New Rights Agreement in any
respect other than any amendment which would reduce the Redemption Price,
shorten the Final Expiration Date or increase the Rights Purchase Price. At any
time after the public announcement that an Acquiring Person or Adverse Person
has become such, the Corporation may amend the Rights Agreement only in a manner
which would not adversely affect the holders of the Rights. Immediately upon the
action of the Board electing to redeem the Rights, the right to exercise the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
The Purchase Price payable, and the number of shares of Series C Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution as described in the
Rights Agreement. With certain exceptions, no adjustment in the Rights Purchase
Price will be required until cumulative adjustments require an adjustment of at
least 1% in such Rights Purchase Price. No fractional shares will be issued
(other than fractions which are integral
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multiples of one hundredth of a share, which may, at the election of the
Corporation, be evidenced by depositary receipts), and in lieu thereof, an
adjustment in cash will be made based on the market price of the Series C
Preferred Stock on the last trading date prior to the date of exercise.
The Series C Preferred Stock purchasable upon exercise of the Rights will be
nonredeemable and junior to any outstanding shares of preferred stock of the
Corporation. Each share of Series C Preferred Stock will have a minimum
preferential quarterly dividend rate of $25 per share, but will be entitled to
receive, in the aggregate, a dividend of 100 times the dividend declared on the
shares of Common Stock. In the event of liquidation, the holders of the Series C
Preferred Stock will receive a minimum preferential liquidation payment of $100
per share, but will be entitled to receive an aggregate liquidation payment
equal to 100 times the payment made per share of Common Stock. Each share of
Series C Preferred Stock will have 100 votes, voting together with the Common
Stock. In the event of any merger, consolidation, or other transaction in which
shares of Common Stock are exchanged, each share of Series C Preferred Stock
will be entitled to receive 100 times the amount and the same type of
consideration received per share of Common Stock. The rights of the Series C
Preferred Stock as to dividends, liquidation and voting, and in the event of
mergers and consolidations, are protected by customary anti-dilution provisions.
Because of the nature of the Series C Preferred Stock's dividend, liquidation
and voting rights, the value of the interest in a share of Series C Preferred
Stock should approximate the value of one share of Common Stock.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the
Corporation on terms not approved by the Board, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights should
not interfere with any merger or other business combination approved by the
Board since the Rights may be redeemed by the Corporation at $.01 per Right
prior to the public announcement that a person has become an Acquiring Person or
an Adverse Person.
In connection with the settlement of certain litigation at the time of the
1988 Recapitalization, the Corporation agreed, subject to certain conditions, to
submit the question of whether to redeem the Rights to a stockholder vote three
years after consummation of the 1988 Recapitalization. At the stockholder
meeting held on May 8, 1991, the Corporation submitted such question to the
stockholders. There were 4,797,682 votes cast in favor of redemption, 30,443,533
votes cast against redemption and 1,863,275 abstentions. The proposal to redeem
the Rights accordingly was not adopted.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation limits the liability of directors to the
fullest extent permitted by the Delaware General Corporation Law. In addition,
the Certificate of Incorporation provides that the Corporation shall indemnify
directors and officers of the Corporation to the fullest extent permitted by
such law.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Harris Trust and
Savings Bank.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Corporation and the Selling Stockholder have agreed to sell to each of the
entities named below (the "Underwriters"), and each of the Underwriters, for
whom Salomon Brothers Inc, Lazard Freres & Co. and Smith Barney
97
<PAGE>
Shearson Inc. are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Corporation and the Selling Stockholder
the number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------- -------------
<S> <C>
Salomon Brothers Inc...........................................................
Lazard Freres & Co.............................................................
Smith Barney Shearson Inc......................................................
-------------
Total........................................................................
-------------
-------------
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all 8,500,000 shares
of Common Stock offered hereby (other than the shares of Common Stock covered by
the over-allotment options described below) if any such shares are purchased. In
the event of a default by any Underwriter, the Underwriting Agreement provides
that, in certain circumstances, purchase commitments of the nondefaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Corporation has been advised by the Representatives that the several
Underwriters propose initially to offer such shares at the public offering price
set forth on the cover page of this Prospectus, and to certain dealers at such
price, less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to other dealers. After this public offering, the public offering price
and such concessions may be changed.
The Corporation and the Selling Stockholder have granted to the Underwriters
options, exercisable during the 30-day period after the date of this Prospectus,
to purchase up to 637,500 and 637,500 additional shares, respectively, at the
same price per share as the initial 8,500,000 shares of Common Stock to be
purchased by the Underwriters. The Underwriters may exercise such option only to
cover over-allotments in the sale of the shares of Common Stock that the
Underwriters have agreed to purchase. To the extent that the Underwriters
exercise such option, each Underwriter will have a firm commitment, subject to
certain conditions, to purchase the same proportion of the option shares as the
number of shares of Common Stock to be purchased and offered by such Underwriter
in the above table bears to the total number of shares of Common Stock initially
offered by the Underwriters.
The Corporation and [the Selling Stockholder] have agreed not to sell, or
otherwise dispose of, or announce the offering of, any shares of Common Stock,
or any securities convertible into, or exchangeable for, or exercisable into,
shares of Common Stock, except the shares of Common Stock offered in the
Offering, for a period of 180 days from the date hereof without the prior
written consent of the Representatives; provided, however, the Corporation may
issue and sell Common Stock (or options exercisable for Common Stock) pursuant
to any employee or non-employee director stock option plan or stock ownership
plan of the Corporation in effect on the date hereof and the Corporation may
issue Common Stock or any securities convertible into, or exchangeable for, or
exercisable into shares of Common Stock pursuant to the terms of any securities
outstanding on the date hereof or other obligations binding upon the Corporation
and in effect on the date hereof.
The Underwriting Agreement provides that the Corporation and the Selling
Stockholder will indemnify the several Underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriters may be required to make in respect thereof.
From April 1991 to May 1993, Salomon Brothers Inc ("Salomon") and Lazard
Freres & Co.
("Lazard") advised the Corporation in connection with the development and
implementation of the Restructuring for which they received customary fees and
reimbursement of expenses. Salomon has also provided other financial advisory
and investment banking services to the Corporation from time to time including,
during the past two years, with respect to the divestiture of DAP and certain
business
98
<PAGE>
strategy issues for which it received customary fees and reimbursement of
expenses. In addition, Smith Barney Shearson Inc. acted as financial advisor to
certain holders of the Company's subordinated debt in connection with the
Restructuring and received customary fees and reimbursement of expenses.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Corporation by Kirkland & Ellis, Chicago, Illinois. Certain legal
matters will be passed upon for the Underwriters by Wachtell, Lipton, Rosen &
Katz, New York, New York.
EXPERTS
The consolidated balance sheets as of December 31, 1992 and 1991, and the
consolidated statements of earnings, retained earnings, and cash flows for each
of the three years in the period ended December 31, 1992, have been audited by
Arthur Andersen & Co., independent public accountants, as indicated in their
reports with respect thereto (which reports include an explanatory paragraph
which discusses an uncertainty relating to substantial doubt about the
Corporation's ability to continue as a going concern), and are included herein
in reliance upon the authority of said firm as experts in giving said reports.
With respect to the unaudited condensed financial information as of
September 30, 1993, and for the three month period ended September 30, 1993, the
periods of May 7 through September 30, 1993 and January 1 through May 6, 1993,
and for the three month and nine month periods ended September 30, 1992, Arthur
Andersen & Co. has applied limited procedures in accordance with professional
standards for a review of that information. However, their separate reports
thereon state that they did not audit and they do not express an opinion on that
condensed financial information. Accordingly, the degree of reliance on their
reports on that information should be restricted in light of the limited nature
of the review procedures applied. In addition, the accountants are not subject
to the liability provisions of Section 11 of the Securities Act of 1933 for
their report on the unaudited condensed financial information because that
report is not a "report" or a "part" of the Registration Statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act of 1933.
ADDITIONAL INFORMATION
The Corporation has filed with the Securities and Exchange Commission (the
"Commission" or the "SEC") a Registration Statement on Form S-1 (the
"Registration Statement") (which term shall encompass all amendments, exhibits
and schedules thereto) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Common Stock being offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and to which reference is hereby made. Such
additional information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices of
the Commission: 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661; and
Seven World Trade Center, New York, New York 10048. Copies of such material can
be obtained by mail from the public reference section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files periodic reports and other information with the
Commission. Such reports and other information filed with the Commission, as
well as the Registration Statement, can be inspected and copied at the public
reference facilities of the
99
<PAGE>
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and Seven World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
by mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Such reports and other
information with respect to the Corporation are available for inspection at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005 and the Chicago Stock Exchange, Inc., One Financial Place, 440 South
LaSalle Street, Chicago, Illinois 60605.
100
<PAGE>
USG CORPORATION
------------------------
INDEX TO FINANCIAL STATEMENTS
The financial statements indexed below and included on the following pages
have been largely extracted from the Corporation's 1992 Annual Report on Form
10-K dated March 26, 1993 or from the Corporation's Quarterly Report on Form
10-Q dated November 11, 1993. Terms with initial capital letters not defined in
such notes have the meanings ascribed to them in such Form 10-K or Form 10-Q.
On May 6, 1993, the Corporation consummated the Prepackaged Plan, pursuant
to which the Corporation has implemented the Restructuring described elsewhere
in this Prospectus. See "Prospectus Summary" and "The Restructuring." The
Corporation's consolidated financial statements for periods subsequent to the
Restructuring will reflect the financial and accounting adjustments resulting
from the Restructuring. The Corporation's historical consolidated financial
statements for periods before May 7, 1993 included on Pages F-1 through F-62
(including the notes thereto, except as expressly indicated in such notes) do
not reflect the consummation of the Restructuring and should be reviewed in
conjunction with the information included in this Prospectus under
"Capitalization of the Corporation," "Pro Forma Consolidated Financial
Information," and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Statement of Earnings -- years ended December 31, 1992, 1991 and 1990............... F-1
Consolidated Balance Sheet -- as of December 31, 1992 and 1991................................... F-2
Consolidated Statement of Cash Flows -- years ended December 31, 1992, 1991 and 1990............. F-3
Significant Accounting Policies and Practices ("notes").......................................... F-4
Report of Independent Public Accountants......................................................... F-36
Selected Quarterly Financial Data................................................................ F-37
Comparative Five-Year Summary.................................................................... F-38
Schedule V -- Property, Plant and Equipment..................................................... F-39
Schedule VI -- Accumulated Depreciation and Depletion of Property, Plant and Equipment.......... F-40
Schedule VIII -- Valuation and Qualifying Accounts............................................... F-41
Schedule IX -- Short-Term Borrowings............................................................ F-42
Schedule X -- Supplemental Statement of Earnings Information.................................... F-43
Supplemental Note on Financial Information for United States Gypsum Company...................... F-44
Report of Independent Public Accountants with Respect to Supplemental Note and Financial
Statement Schedules............................................................................. F-45
CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Statement of Earnings -- three months ended September 30, 1993, May 7 through June
30, 1993, January 1 through May 6, 1993 and three months and nine months ended September 30,
1992............................................................................................ F-47
Consolidated Balance Sheet -- as of September 30, 1993 and December 31, 1992..................... F-48
Consolidated Statement of Cash Flows -- May 7 through September 30, 1993, January 1 through May
6, 1993 and nine months ended September 30, 1992................................................ F-49
Notes to Consolidated Financial Statements....................................................... F-50
Reports of Independent Public Accountants........................................................ F-64
</TABLE>
All other schedules have been omitted because they are not applicable, are
not required, or the information is included in the financial statements or
notes thereto.
101
<PAGE>
USG CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
Net Sales....................................................................... $ 1,777 $ 1,712 $ 1,915
Cost of products sold........................................................... 1,460 1,385 1,499
--------- --------- ---------
Gross Profit.................................................................... 317 327 416
Selling and administrative expenses............................................. 218 194 203
Restructuring expenses.......................................................... -- -- 18
--------- --------- ---------
Operating Profit................................................................ 99 133 195
Interest expense................................................................ 334 333 292
Interest income................................................................. (12) (11) (8)
Other expense, net.............................................................. 1 5 5
Nonrecurring gain............................................................... -- -- (34)
--------- --------- ---------
Loss from Continuing Operations Before Taxes on Income.......................... (224) (194) (60)
Income tax benefit.............................................................. (33) (53) (6)
--------- --------- ---------
Loss from Continuing Operations................................................. (191) (141) (54)
Discontinued Operations:
Operating earnings, net of taxes.............................................. -- -- 5
Reserve for DAP divestiture, net of taxes..................................... -- (20) (41)
--------- --------- ---------
Net Loss........................................................................ (191) (161) (90)
--------- --------- ---------
--------- --------- ---------
Loss Per Common Share:
Continuing operations......................................................... (3.42) (2.53) (.99)
Discontinued operations....................................................... -- (.38) (.66)
--------- --------- ---------
Net Loss Per Common Share....................................................... (3.42) (2.91) (1.65)
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE ACCOUNTING POLICIES AND PRACTICES ON PAGES F-4 THROUGH F-35 ARE AN INTEGRAL
PART OF THIS STATEMENT.
F-1
<PAGE>
USG CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLAR AMOUNTS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------
1992 1991
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (primarily time deposits)......................................... $ 180 $ 155
Receivables (net of reserves of $11 and $9)................................................. 299 298
Inventories................................................................................. 113 110
Restricted cash............................................................................. 88 84
--------- ---------
Total current assets...................................................................... 680 647
--------- ---------
Property, Plant and Equipment, Net.......................................................... 800 819
Purchased Goodwill, Net..................................................................... 69 73
Other Assets................................................................................ 110 87
--------- ---------
Total assets.............................................................................. 1,659 1,626
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................................................ 91 95
Accrued interest expense.................................................................... 386 178
Other accrued expenses...................................................................... 167 162
Notes payable............................................................................... 2 8
Revolving Credit Facility................................................................... 140 140
Long-term debt maturing within one year..................................................... 576 427
Long-term debt classified as current........................................................ 1,926 2,009
--------- ---------
Total current liabilities................................................................. 3,288 3,019
--------- ---------
Long-Term Debt.............................................................................. 67 76
Deferred Income Taxes....................................................................... 175 200
Minority Interest in CGC.................................................................... 9 11
Stockholders' Equity/(Deficit):
Preferred stock -- $1 par value; authorized 36,000,000 shares; $1.80 convertible preferred
stock (initial series); outstanding -- none................................................ -- --
Common stock -- $0.10 par value; authorized 300,000,000 shares;
outstanding 55,757,394 shares and 55,770,981 shares (after deducting 368,409 and 354,822
shares held in treasury)................................................................... 5 5
Capital received in excess of par value..................................................... 23 24
Deferred currency translation............................................................... (8) --
Reinvested earnings/(deficit)............................................................... (1,900) (1,709)
--------- ---------
Total stockholders' equity/(deficit)...................................................... (1,880) (1,680)
--------- ---------
Total liabilities and stockholders' equity................................................ 1,659 1,626
--------- ---------
--------- ---------
</TABLE>
THE ACCOUNTING POLICIES AND PRACTICES ON PAGES F-4 THROUGH F-35 ARE AN INTEGRAL
PART OF THIS STATEMENT.
F-2
<PAGE>
USG CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Loss from continuing operations........................................................ $ (191) $ (141) $ (54)
Reserve for DAP divestiture, net of taxes.............................................. -- (20) (41)
Adjustments to reconcile loss from continuing operations to net cash:
Depreciation, depletion and amortization............................................. 66 68 76
Interest expense on pay-in-kind debentures........................................... 74 63 54
Deferred income taxes................................................................ (25) (13) 2
Net gain on asset dispositions....................................................... (5) (3) (37)
(Increase)/decrease in working capital:
Receivables.......................................................................... (1) (16) (7)
Inventories.......................................................................... (3) (7) 6
Payables............................................................................. (4) (14) (23)
Accrued expenses..................................................................... 213 132 20
(Increase)/decrease in other assets.................................................... (23) (9) 3
Increase/(decrease) in minority interest............................................... (2) (2) (1)
Other, net............................................................................. (9) (9) --
--------- --------- ---------
Net cash flows (to)/from operating activities 90 29 (2)
--------- --------- ---------
Cash Flows from Investing Activities:
Capital expenditures................................................................... (49) (49) (64)
Net proceeds from asset dispositions................................................... 6 5 65
Net proceeds from divestitures of discontinued operations.............................. -- 80 --
--------- --------- ---------
Net cash flows (to)/from investing activities........................................ (43) 36 1
--------- --------- ---------
Cash Flows from Financing Activities:
Issuance of debt....................................................................... 57 65 60
Repayment of debt...................................................................... (75) (68) (82)
Deposit of restricted cash............................................................. (4) (84) --
Revolving Credit Facility.............................................................. -- -- 140
--------- --------- ---------
Net cash flows (to)/from financing activities........................................ (22) (87) 118
--------- --------- ---------
Net Cash Flows (To)/From Discontinued Operations....................................... -- 2 (9)
--------- --------- ---------
Net Increase/(Decrease) in Cash and Cash Equivalents................................... 25 (20) 108
--------- --------- ---------
Cash and cash equivalents as of January 1.............................................. 155 175 67
--------- --------- ---------
Cash and cash equivalents as of December 31............................................ 180 155 175
--------- --------- ---------
--------- --------- ---------
Supplemental Cash Flow Disclosures:
Interest paid.......................................................................... 52 154 275
Income taxes paid...................................................................... 13 15 27
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE ACCOUNTING POLICIES AND PRACTICES ON PAGES F-4 THROUGH F-35 ARE AN INTEGRAL
PART OF THIS STATEMENT.
F-3
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries after elimination of intercompany accounts and
transactions. Revenue is recognized upon the shipment of products. Net currency
translation gains or losses on foreign subsidiaries, except for those in Mexico,
are included in deferred currency translation, a component of stockholders'
equity. Mexican currency translation losses are charged to earnings. Purchased
goodwill is being amortized over a period of 40 years.
For purposes of the Consolidated Balance Sheet and Statement of Cash Flows,
all highly liquid investments with a maturity of three months or less at the
time of purchase are considered to be cash equivalents.
FINANCIAL RESTRUCTURING
On January 22, 1993, the Corporation announced that it had reached an
agreement in principle with all committees and certain institutions representing
debt subject to the Restructuring on the terms of the Prepackaged Plan. The
Corporation received signed letters from these committees and institutions
indicating that they support or do not object to the terms of the Prepackaged
Plan, and signed Commitment Letters from 100% of its 31 member Bank Group
approving the terms of an Amended Credit Agreement, the major provisions of
which are summarized below. On February 5, 1993, the Corporation's Registration
Statement bearing Registration No. 33-40136, which included the Disclosure
Statement detailing the terms of the Prepackaged Plan, was declared effective by
the SEC. Solicitation of approvals of the Prepackaged Plan was then carried out
and completed on March 15, 1993.
The following summary of the major provisions of the Prepackaged Plan is
qualified in its entirety by reference to the more detailed information
appearing in the Disclosure Statement, including the Plan of Reorganization.
(1) The Prepackaged Plan provides for a one-for-50 reverse stock split (the
"REVERSE STOCK SPLIT") to be effected immediately prior to the distribution of
new common stock (the "NEW COMMON STOCK") pursuant to the Prepackaged Plan. On
the date of consummation of the Prepackaged Plan (the "EFFECTIVE DATE"), after
giving effect to the Reverse Stock Split, the following distributions would be
made to holders of the Old Subordinated Debentures:
- For each $1,000 principal amount of Old Senior Subordinated
Debentures (excluding accrued interest thereon, which will be
cancelled), the holder will receive 50.81 shares of New Common
Stock.
- For each $1,000 principal amount of Old Junior Subordinated
Debentures (excluding accrued interest thereon, which will be
cancelled), the holder will receive 11.61 shares of New Common
Stock and 5.42 warrants (the "NEW WARRANTS"), each to purchase
one share of New Common Stock.
Existing stockholders will retain their shares of common stock, subject to
the Reverse Stock Split and the issuance of New Common Stock to holders of the
Old Subordinated Debentures under the Prepackaged Plan.
Under the Prepackaged Plan, there will be approximately 37.2 million shares
of New Common Stock outstanding on the Effective Date, of which the common stock
held by existing stockholders would represent approximately 3% of the total
number of outstanding shares. If all of the New Warrants were exercised, the
aggregate holdings of Old Senior Subordinated Debenture holders, Old Junior
Subordinated Debenture holders and existing stockholders would represent 76.7%,
20.6% and 2.7%, respectively, of the total number of outstanding shares of New
Common Stock.
F-4
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(2) For each $1,000 principal amount of Old Senior 1991 Notes, the holder
will receive $750 principal amount of 8% senior notes due 1995 (the "NEW SENIOR
1995 NOTES") and $250 principal amount of 9% senior notes due 1998 (the "NEW
SENIOR 1998 NOTES"). In addition, the Corporation will issue $10 million
principal amount of the New Senior 1998 Notes to two institutional holders of
existing 8% senior notes due 1996 (the "OLD SENIOR 1996 NOTES") in exchange for
an equal principal amount thereof. The New Senior 1995 and 1998 Notes will be
secured, with certain other indebtedness of the Corporation and subject to a
collateral trust arrangement controlled primarily by holders of the Banks'
claims, by first priority security interests in the capital stock of certain
subsidiaries of the Corporation.
(3) The Prepackaged Plan provides for the following modifications to the
Current Credit Agreement (the Current Credit Agreement, as modified by the
Prepackaged Plan, is referred to as the "AMENDED CREDIT AGREEMENT"): (i) an
option to exchange on the Effective Date up to $300 million (but not less than
$100 million) of principal on the Bank Term Loan and a pro rata amount (of up to
$24 million) of accrued but unpaid interest on the Bank Term Loan for 10 1/4%
senior notes due 2002 (the "NEW 10 1/4% SENIOR NOTES"); (ii) extending the final
maturity of the remaining principal outstanding on the Bank Term Loan from 1996
to 2000 and deferring all scheduled principal payments until December 1994;
(iii) capitalizing up to $75 million (or $48 million if the election in (i)
above is fully subscribed) in interest originally due on or after December 31,
1991 into notes bearing annual interest at LIBOR plus 2 1/4% (or Citibank's base
rate plus 1 1/4%) and maturing in the years 1998 and 2000; (iv) making available
(at the Corporation's option but subject to certain limitations on the
availability of LIBOR) an annual interest rate applicable to the Bank Term Loan
and an extended revolving credit facility of LIBOR plus 1 7/8% (or Citibank's
base rate plus 7/8%), with the option to capitalize the amount of such interest
in excess of LIBOR plus 1% per annum (such capitalized interest would bear
interest annually at LIBOR plus 2 1/4% (or Citibank's base rate plus 1 1/4%) and
mature in the years 1998 and 2000); (v) providing for an excess cash flow sweep
that will take into account certain liquidity thresholds and that will retire
the Bank Term Loan earlier than 2000 if the Corporation meets or exceeds current
projections; (vi) suspending all financial covenants through January 1, 1995 and
providing for new covenants thereafter; (vii) extending to 1998 the maturity
date of, and establishing a maximum borrowing capacity of $175 million under the
Revolving Credit Facility, including a $110 million letter of credit
subfacility; and (viii) exchanging (at the option of the holders thereof) up to
approximately $16 million owed in connection with certain interest rate swap
contracts for an equal principal amount of New 10 1/4% Senior Notes or Bank Term
Loans (provided that in the event that no New 10 1/4% Senior Notes are issued in
the Restructuring, such $16 million shall be exchanged for Bank Term Loans) and
exchanging approximately $5 million in additional amounts owed in connection
with such interest rate swap contracts for an equal principal amount of
capitalized interest notes. Under the Prepackaged Plan, all existing defaults
and accrued default interest as of the Effective Date under the Current Credit
Agreement will be waived or cancelled.
(4) The Corporation has arranged a receivables financing facility (the
"INTERIM RECEIVABLES FINANCING FACILITY") for use during the Chapter 11 Case
utilizing the proceeds, and interest received thereon, from the sale of DAP,
which the Banks approved in a further amendment to the Current Credit Agreement.
In connection with the Interim Receivables Financing Facility, subject to the
terms and conditions of an order of the Bankruptcy Court, including the
satisfaction of certain financial tests concerning minimum cash balances and
interest coverage ratios, the Corporation will pay current interest on the Bank
Debt (at the same nondefault rate set forth in the Prepackaged Plan) and on the
Old Senior 1991 Notes and its other senior debt securities (at the applicable
nondefault contract rates). If such interest is not so paid during the pendency
of the Chapter 11 Case, because the Corporation is unable to continue the
Interim Receivables Financing Facility for any reason, the Prepackaged Plan
provides for payment of such interest in cash on the effective date at the base
rate option referred to above as applicable to the Bank Term Loan.
F-5
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(5) The Prepackaged Plan also includes or is based in part on provisions
relating to (i) the selection of five new directors to be nominated by
representatives of certain creditors; (ii) the settlement of certain employee
compensation arrangements; and (iii) the release of certain potential claims.
In connection with the pending Restructuring efforts, the Corporation has
deferred certain principal and interest payments in order to maintain adequate
liquidity during the Restructuring process. These payment deferrals constitute
defaults under the applicable loan agreements and indentures, which remain
uncured or unwaived as of the date of this report, but are addressed in the
Prepackaged Plan. See the Indebtedness footnote for additional information
relating to the default condition, including arrearage as of the date of this
report.
RESTRUCTURING EXPENSES
In the fourth quarter of 1990, restructuring expenses amounting to $18
million were recorded, primarily for the implementation of a program that
improved operating efficiencies in each of the Corporation's businesses. This
program contributed to the elimination of over 550 positions in 1990 as certain
corporate and subsidiary staff functions were combined to service the entire
organization. Expenses associated with the elimination of these positions,
combined with expenses for related real estate activities such as the
consolidation of certain locations and termination of several lease agreements,
accounted for approximately 80% of total restructuring expenses.
Costs of $19 million and $14 million incurred in 1992 and 1991,
respectively, related to the Corporation's Prepackaged Plan have been deferred
and are included in other assets in the Consolidated Balance Sheet.
NONRECURRING GAIN
In the first quarter of 1990, a nonrecurring pre-tax gain of $34 million was
recorded on the sale of the Corporation's headquarters building at 101 South
Wacker Drive in Chicago. This gain was calculated after deducting $9 million as
a reserve against which lease payments made by the Corporation while occupying
the 101 South Wacker facility were charged. The Corporation leased office space
in this building until its move to new leased offices in mid-1992. The net cash
proceeds from this transaction were used to repay debt and for other general
corporate purposes.
DISCONTINUED OPERATIONS
Results for DAP are set forth separately as discontinued operations in the
accompanying consolidated financial statements and supplementary data schedules
up to the date of its disposition.
In the fourth quarter of 1990, the Board of Directors of the Corporation
(the "BOARD") authorized the divestiture of DAP. At that time, an after-tax
provision of $41 million for its planned disposition was recorded. This
provision was net of a related income tax benefit of $2 million. In the second
quarter of 1991, the Corporation absorbed an additional after-tax provision of
$20 million, which was net of a related income tax expense of $8 million. The
sale of the business and substantially all of the assets of DAP was completed on
September 20, 1991 with the Corporation receiving gross proceeds of $90 million.
Net proceeds from the transaction amounted to approximately $84 million. In
connection with the execution of the DAP sale agreement, the Banks consented to
the sale as required under the Current Credit Agreement subject to an agreement
by the Corporation and DAP to deposit the proceeds in a bank account to be held
exclusively for use in the Restructuring. As a result, these funds, and interest
earned on these funds, are being maintained on an interim basis in a restricted
bank account pending their use in connection with the Restructuring and have
been classified as restricted cash in the accompanying Consolidated Balance
Sheet. The deposit arrangements generally provide that amounts in the restricted
account shall be invested in high quality, short-term investments. These
arrangements
F-6
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
have been amended by the agreements implementing the Interim Receivables
Financing Facility described in the Financial Restructuring footnote above. The
DAP proceeds will subsequently be used in the implementation of the Prepackaged
Plan, if confirmed and made effective.
Net sales of discontinued operations amounted to $128 million and $179
million in 1991 and 1990, respectively. Taxes on income for the operating
results of discontinued operations amounted to $1 million and $4 million in 1991
and 1990, respectively.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to earnings as incurred
and amounted to $14 million, $12 million and $14 million in 1992, 1991 and 1990,
respectively.
TAXES ON INCOME AND DEFERRED INCOME TAXES
Earnings/(loss) from continuing operations before taxes on income consisted
of the following:
<TABLE>
<CAPTION>
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
(DOLLAR AMOUNTS IN MILLIONS)
U.S................................................................ $ (246) $ (217) $ (100)
Foreign............................................................ 22 23 40
--------- --------- ---------
Total.............................................................. (224) (194) (60)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Taxes on income/(income tax benefit) consisted of the following:
<TABLE>
<CAPTION>
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
(DOLLAR AMOUNTS IN MILLIONS)
Current:
U.S. Federal..................................................... $ (12) $ (53) $ (26)
Foreign.......................................................... 6 12 16
--------- --------- ---------
(6) (41) (10)
--------- --------- ---------
Deferred:
U.S. Federal..................................................... (27) (11) 5
Foreign.......................................................... -- (1) (1)
--------- --------- ---------
(27) (12) 4
--------- --------- ---------
Total.............................................................. (33) (53) (6)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes result from certain items being treated differently
for financial reporting purposes than for income tax purposes. The tax effect of
such differences is summarized as follows:
<TABLE>
<CAPTION>
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
(DOLLAR AMOUNTS IN MILLIONS)
Tax benefit carryforwards.......................................... $ (19) $ (9) $ --
Accelerated tax depreciation....................................... (5) -- 2
Other, net......................................................... (3) (3) 2
--------- --------- ---------
Total deferred provision........................................... (27) (12) 4
Classification adjustment of prior years' deferrals................ 2 (1) (2)
--------- --------- ---------
Increase/(decrease) in deferred taxes.............................. (25) (13) 2
--------- --------- ---------
--------- --------- ---------
</TABLE>
Tax benefit carryforwards in 1992 consisted of $19 million on an NOL
Carryforward of $140 million for U.S. regular tax purposes (which may be used to
offset future taxable income through 2007).
F-7
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Additional tax benefit carryforwards consist of $5 million on a 1991 NOL
Carryforward of $14 million (which may be used to offset future taxable income
through 2006) and a $3 million 1988 minimum tax credit which is available to
offset U.S. regular tax liability in future years.
The Internal Revenue Code will either substantially limit the Corporation's
annual use of, or substantially reduce, its NOL Carryforwards after consummation
of the Prepackaged Plan. If the Corporation is required to reduce all or a
portion of its unused NOL Carryforwards due to the cancellation of indebtedness
from the Prepackaged Plan, annual reductions in U.S. Federal income taxes which
would otherwise result from use of these NOLs after consummation of the
Prepackaged Plan would no longer be available. The Corporation believes that if
its NOLs are not reduced by such cancellation of indebtedness, it will be able
to use approximately $20 million of the NOLs each year to offset federal taxable
income otherwise occurring after consummation of the Prepackaged Plan.
The difference between the statutory U.S. Federal income tax benefit rate
and the Corporation's effective income tax benefit rate is summarized as
follows:
<TABLE>
<CAPTION>
1992 1991 1990
----------- ----------- -----------
<S> <C> <C> <C>
Statutory U.S. Federal income tax benefit rate.......................... (34.0)% (34.0)% (34.0)%
NOL carryback rate differential......................................... (0.9) (1.1) (6.2)
Excess tax depletion.................................................... (0.9) (1.2) (4.6)
Intangible asset amortization........................................... 0.3 0.4 1.5
Foreign tax rate differential........................................... 7.7 8.3 30.4
State and local taxes on income, net.................................... 0.1 0.1 0.2
Unbenefited NOL Carryforward............................................ 12.6 -- --
Other, net.............................................................. 0.1 -- 2.9
----- ----- -----
Effective income tax benefit rate....................................... (15.0 ) (27.5 ) (9.8 )
----- ----- -----
----- ----- -----
</TABLE>
The Corporation does not provide for U.S. Federal income taxes on the
portion of undistributed earnings of foreign subsidiaries which are intended to
be permanently reinvested. The cumulative amount of such undistributed earnings
totaled approximately $53 million as of December 31, 1992. Future repatriation
of undistributed earnings would not, in the opinion of management, result in
significant additional taxes.
In February 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes," requiring the Corporation to change its method of accounting for
income taxes to an asset and liability approach. The Corporation will implement
the new standard in 1993. The estimated impact of adoption will be an increase
to net earnings of approximately $30 million, with a corresponding decrease in
deferred taxes. Adoption of the standard will have no impact on cash flow.
EARNINGS/(LOSS) PER SHARE
Earnings/(loss) per share are computed by dividing earnings/(loss), after
deducting preferred stock cash dividends when applicable, by the average number
of shares of common stock outstanding, including shares issuable upon the
exercise of stock options when applicable.
INVENTORIES
Most of the Corporation's domestic and Mexican inventories are valued under
the last-in, first-out ("LIFO") method. The LIFO values of these inventories
were $72 million and $66 million as of December 31, 1992 and 1991, respectively.
The remaining inventories are stated at a lower of cost or market under the
first-in, first-out ("FIFO") or average production cost methods. Inventories
include material, labor and applicable factory overhead costs.
F-8
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
If all inventories were valued under the FIFO and average production cost
methods, inventories would have been $25 million higher than those reported as
of both December 31, 1992 and 1991. Inventory classifications were as follows:
<TABLE>
<CAPTION>
12/31/92 12/31/91
----------- -----------
<S> <C> <C>
(DOLLAR AMOUNTS IN
MILLIONS)
Finished goods and work-in-process................................................ $ 66 $ 64
Raw materials..................................................................... 40 39
Supplies.......................................................................... 7 7
----- -----
Total............................................................................. 113 110
----- -----
----- -----
</TABLE>
The LIFO value of USG Interiors' inventories acquired under the purchase
method exceeded that computed for U.S. Federal income tax purposes by $6 million
as of both December 31, 1992 and 1991.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including significant renewals and
improvements, are capitalized at cost. Provisions for depreciation are
determined principally on a straight-line basis over the expected average useful
lives of composite asset groups. Depletion is computed on a basis calculated to
spread the cost of gypsum and other applicable resources over the estimated
quantities of material recoverable. Interest during construction is capitalized
on major property additions. Property, plant and equipment classifications were
as follows:
<TABLE>
<CAPTION>
12/31/92 12/31/91
----------- -----------
<S> <C> <C>
(DOLLAR AMOUNTS IN
MILLIONS)
Land and mineral deposits......................................................... $ 41 $ 41
Buildings and realty improvements................................................. 401 402
Machinery and equipment........................................................... 1,012 1,000
----------- -----------
1,454 1,443
Reserves for depreciation and depletion........................................... (654) (624)
----------- -----------
Total............................................................................. 800 819
----------- -----------
----------- -----------
</TABLE>
LEASES
The Corporation leases certain of its offices, buildings, machinery and
equipment, and autos under noncancellable operating leases. These leases have
various terms and renewal options. Lease expense amounted to $31 million, $26
million and $24 million in 1992, 1991 and 1990, respectively.
Future minimum lease payments, by year and in the aggregate, under operating
leases with initial or remaining noncancellable terms in excess of one year as
of December 31, 1992 are as follows:
<TABLE>
<CAPTION>
MINIMUM LEASE
PAYMENTS
-----------------------------
<S> <C>
(DOLLAR AMOUNTS IN MILLIONS)
1993............................................................. $ 23
1994............................................................. 21
1995............................................................. 15
1996............................................................. 11
1997............................................................. 8
Thereafter....................................................... 42
-----
Aggregate minimum payments....................................... 120
-----
-----
</TABLE>
F-9
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
The Corporation also holds certain assets under capital leases. These lease
obligations are not material.
INDEBTEDNESS
Total debt consisted of the following:
<TABLE>
<CAPTION>
12/31/92 12/31/91
---------------------- -----------
CARRYING FAIR CARRYING
AMOUNT VALUE AMOUNT
----------- --------- -----------
<S> <C> <C> <C>
(DOLLAR AMOUNTS IN MILLIONS)
SECURED DEBT:
Bank Debt:
Bank Term Loan, installments due through 1996......................... $ 840 $ N/A $ 840
Revolving Credit Facility............................................. 140 N/A 140
Senior notes:
Old Senior 1991 Notes, 7.375%, due 1991............................... 100 84 100
Old Senior 1996 Notes, 8.0%, due 1996................................. 100 85 100
8.0%, due 1997........................................................ 100 85 100
Senior debentures:
7.875%, due 2004, sinking fund through 2003........................... 41 N/A 45
8.75%, due 2017, sinking fund commencing 1998......................... 200 138 200
Other secured debt, average interest rate 10.9%, varying payments
through 1999........................................................... 37 N/A 55
UNSECURED DEBT:
Industrial revenue bonds, 5.9% -- 10.25%, due through 2014.............. 38 34 38
Old Subordinated Debentures:
Old Senior Subordinated Debentures, 13.25%, due 2000, sinking fund of
$300 million due 1999................................................ 600 204 600
Old Junior Subordinated Debentures, 16.0%, due 2008, sinking fund
commencing 2004...................................................... 515 49 442
----------- -----------
Total................................................................... 2,711 2,660
----------- -----------
----------- -----------
</TABLE>
As of December 31, 1992, the Corporation and its subsidiaries had $2,711
million of total debt (including currently maturing debt, but excluding accrued
interest) on a consolidated basis. Of such total debt, $255 million represented
direct borrowings by the subsidiaries, including $37 million in industrial
revenue bonds, $41 million in 7.875% sinking fund debentures issued by U.S.
Gypsum in 1974 and subsequently assumed by the Corporation on a joint and
several basis in 1985, $33 million in debt (primarily project financing)
incurred by the Corporation's foreign subsidiaries other than CGC, $2 million in
working capital borrowings by CGC, $140 million in borrowings by USG Interiors
under the Revolving Credit Facility and $2 million in other domestic notes
payable.
Subject to SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," the Corporation is required to report the amounts at which its
debt securities could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The fair values shown in
the table above are based on indicative bond prices as of December 31, 1992. It
is not practicable to estimate the fair value of: (i) the bank debt since there
is no active market for such debt due to the Restructuring; (ii) the 7.875%
senior debentures due 2004 since virtually all such debentures are owned by a
single investment group; and (iii) the other secured debt which primarily
represents financing for construction of the Aubange, Belgium plant that is
secured by a direct lien on its assets.
As a result of the Bank Term Loan principal payment default on December 31,
1990, the outstanding balance of the Bank Term Loan was reclassified to current
liabilities as of that date. Most of the
F-10
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Corporation's long-term debt agreements contain cross-acceleration provisions
which accelerate the due dates of substantially all of the Corporation's debt,
generally if there occurs an acceleration of $50 million or more of other debt.
As of the date of this report, there has been no demand for acceleration of
maturity of any of the Corporation's debt issues. However, demand can be made,
subject to any applicable notice periods and cure procedures, if an acceleration
resulting from the defaults described below for either the Bank Debt or the Old
Subordinated Debentures occurs. Accordingly, virtually all long-term debt issues
were reclassified to current liabilities as of December 31, 1990.
Aggregate, presently scheduled maturities of long-term debt, excluding the
amounts classified as current liabilities, are $8 million, $7 million, $9
million and $11 million for the four years 1994 through 1997, respectively.
DEFAULTS UPON SENIOR SECURITIES
The Corporation failed to make Bank Term Loan principal payments of $105
million due on December 31, 1990, $30 million each due on June 30 and September
30, 1991, $55 million due on June 30, 1992 and $100 million due on December 31,
1992. The Corporation has been notified by the administrative agent for the
Banks under the Current Credit Agreement that it is in default by reason of such
failures to pay. This default is continuing as of the date of this report. The
Corporation also deferred its scheduled quarterly Bank Debt Interest of $25
million due by December 31, 1991, $24 million due by March 31, 1992, $25 million
due by June 30, 1992, and $17 million each due by September 30 and December 31,
1992. This default is also continuing as of the date of this report. In
connection with the sale of the business and assets of the Corporation's DAP
subsidiary, the failure to pay to the Banks, as a mandatory principal repayment,
an amount equal to the net proceeds of the DAP sale upon completion of the
transaction constitutes a further payment default under the Current Credit
Agreement which remains uncured or unwaived. Also, a mandatory principal payment
of approximately $8 million representing net proceeds of assets sales was not
paid to the Banks within one day of the July 16, 1991 date of receipt of
proceeds exceeding an aggregate of $5 million. This payment default also remains
uncured or unwaived.
In connection with the notice of the first Bank Term Loan principal payment
default described above, the Corporation was also advised that the interest rate
under the Current Credit Agreement for the Bank Debt would be adjusted to
reflect a default rate, which is the Banks' base rate under the Current Credit
Agreement plus two points, so long as the default is continuing. The average
rate of interest on the Bank Debt, including the cost of interest rate
protection and two points for Default Interest, was 11.3% during 1992. The
Corporation unilaterally determined not to pay Default Interest, but to accrue
Default Interest as a current liability which will be waived as part of the
Restructuring. This default is continuing as of the date of this report.
By reason of the Corporation's failure to make the Bank Term Loan principal
payment on December 31, 1990, the Corporation also is not in compliance with a
covenant under the Current Credit Agreement requiring it to maintain interest
rate contracts at certain levels to hedge against increases in the variable
interest rates under the Current Credit Agreement. This default is continuing as
of the date of this report. In addition, as of December 31, 1990, the
Corporation was not in compliance with financial covenants related to interest
coverage, debt leverage and consolidated net worth (all as defined) under the
Current Credit Agreement which constitute additional defaults thereunder and
such noncompliance continues as of the date of this report.
The Revolving Credit Facility portion of the Current Credit Agreement
contains a requirement that the borrowings under that facility not exceed $75
million for a period of thirty consecutive days during the course of any twelve
month period. As of October 16, 1991, the Corporation was not in compliance with
this requirement. This noncompliance constitutes another default under the
Current Credit Agreement, which remains uncured and unwaived as of the date of
this report.
F-11
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
The total arrearage (principal and interest) to the Banks as of the date of
this report with respect to the foregoing defaults was $531 million, of which
$40 million was accrued default interest which will be waived.
As a consequence of the Bank Term Loan principal payment default on December
31, 1990, the Banks took action as permitted by the terms of the applicable
indenture to block the interest payment (approximately $40 million) due on
January 15, 1991 to holders of the Old Senior Subordinated Debentures. On
February 15, 1991, the failure to make such interest payment became an event of
default under the applicable indenture. Payments of subsequent accrued interest
of approximately the same amount were similarly blocked on July 15, 1991,
January 15 and July 15, 1992 and January 15, 1993. Such defaults continue as of
the date of this report. Under the applicable indenture, interest on unpaid
interest accrues at the rate borne by the debentures to the extent lawful.
Pursuant to the applicable indenture, total arrearage with respect to this
default as of the date of this report was $230 million.
On December 16, 1991, the Corporation failed to make a final maturity
principal payment of $100 million to the holders of Old Senior 1991 Notes. The
failure to make such payment is an event of default under the applicable
indenture which is continuing as of the date of this report. Pursuant to the
applicable indenture, the total arrearage with respect to this default as of the
date of this report was $100 million. The Corporation intends to continue to pay
interest on the Old Senior 1991 Notes during the Restructuring process, subject
to appropriate court orders during the bankruptcy proceeding itself.
On January 15, 1993, the Corporation did not make the in-kind interest
payment due to holders of the Old Junior Subordinated Debentures. The failure to
make such interest payment constituted an event of default under the applicable
indenture upon the expiration of a 30-day grace period on February 14, 1993.
Such default continues as of the date of this report. Pursuant to the applicable
indenture, total arrearage with respect to this default as of the date of this
report was $40 million. The Corporation does not intend to make any subsequent
interest payments thereon.
Under the provisions of the Prepackaged Plan, all existing defaults and, in
the case of the Old Subordinated Debentures accrued interest, and Default
Interest on the Bank Debt will be waived or cancelled.
OTHER INDEBTEDNESS INFORMATION
The Bank Debt and other secured debt are secured by a pledge of all of the
shares of the Corporation's major domestic subsidiaries and 65% of certain of
its foreign subsidiaries including CGC. The rights of the Corporation and its
creditors, including the holders of the Old Senior 1991 Notes and Old
Subordinated Debentures, to realize upon the assets of any subsidiary upon the
latter's liquidation or reorganization will be subject to the prior claims of
such subsidiary's creditors, except to the extent that the Corporation may
itself be a creditor with enforceable claims against such subsidiary.
The 7.875% sinking fund debentures had remaining principal amounts of $41
million and $45 million as of December 31, 1992 and 1991, respectively.
The "Other Secured Debt" category shown in the table above primarily
includes short-term and long-term borrowings from several foreign banks by USG
International used principally to finance construction of the Aubange, Belgium
plant. This debt is secured by a lien on the assets of the Aubange facility and
has restrictive covenants that restrict, among other things, the payment of
dividends. Foreign borrowings made by the Corporation's international operations
are generally allowed, within certain limits, under provisions of the Current
Credit Agreement.
F-12
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
The Old Senior Subordinated Debentures are redeemable in whole or in part at
the Corporation's option at any time on or after July 15, 1993, initially at $5
over the stated face amount and thereafter at declining redemption prices
together with accrued interest.
Under provisions of the Current Credit Agreement, the Corporation must pay
interest semiannually on the Old Junior Subordinated Debentures in additional
Old Junior Subordinated Debentures for the first five years after issuance in
July 1988. Thereafter, interest is payable in cash. However, as noted above the
Corporation did not make the in-kind interest payment on January 15, 1993 and
does not intend to make any subsequent in-kind or cash interest payments
thereon. Commencing July 15, 1990, the Old Junior Subordinated Debentures were
redeemable at the Corporation's option at any time at 100% of stated face amount
plus accrued interest.
The Current Credit Agreement also restricts, and the Amended Credit
Agreement, if made effective, will continue to restrict, among other things, the
incurrence of additional indebtedness, mergers, asset dispositions, investments,
prepayment of other debt, dealings with affiliates, capital expenditures,
payment of dividends and lease commitments.
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
The Corporation and most of its subsidiaries have defined benefit retirement
plans for all eligible employees. Benefits of the plans are generally based on
years of service and employees' compensation during the last years of
employment. The Corporation's contributions are made in accordance with
independent actuarial reports which, for most plans, required minimal funding in
1992, 1991 and 1990. Net pension expense/(benefit) for these years included the
following components:
<TABLE>
<CAPTION>
1992 1991 1990
--------- --------- ---------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Service cost-benefits earned during the year..................... $ 9 $ 5 $ 5
Interest cost on projected benefit obligation.................... 29 29 29
Actual return on plan assets..................................... (14) (79) (4)
Unrecognized prior service cost.................................. 2 2 2
Net amortization/(deferral)...................................... (25) 41 (34)
--- --- ---
Net pension expense/(benefit).................................... 1 (2) (2)
--- --- ---
--- --- ---
</TABLE>
F-13
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
The pension plan assets, which consist primarily of listed common stocks and
debt securities, have an estimated fair value in excess of the projected benefit
obligation as of December 31, 1992. The following table presents a
reconciliation of the total assets of the pension plans to the projected benefit
obligation.
<TABLE>
<CAPTION>
12/31/92 12/31/91
----------- -----------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C>
Amount of assets available for benefits:
Funded assets of the plans at fair value..................... $ 383 $ 404
Accrued pension expense...................................... 15 16
----- -----
Total assets of the plans...................................... 398 420
----- -----
Present value of estimated pension obligation:
Vested benefits.............................................. 252 256
Nonvested benefits........................................... 18 21
----- -----
Accumulated benefit obligation................................. 270 277
Additional benefits based on projected future salary
increases..................................................... 66 63
----- -----
Projected benefit obligation................................... 336 340
----- -----
Assets in excess of projected benefit obligation............... 62 80
----- -----
----- -----
</TABLE>
Assets in excess of projected benefit obligation consisted of:
<TABLE>
<CAPTION>
12/31/92 12/31/91
----------- -----------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C>
Net assets existing at the date of adoption of SFAS No. 87 not
yet recognized................................................ $ 32 $ 37
Unrecognized net gain due to changes in assumptions and
differences between actual and estimated experience........... 43 57
Unrecognized cost of retroactive benefits granted by plan
amendments.................................................... (13) (14)
----- -----
Assets in excess of projected benefit obligation............... 62 80
----- -----
----- -----
</TABLE>
The expected long-term rate of return on plan assets was 9% for both 1992
and 1991. To determine the actuarial present value of the accumulated benefit
obligation as of December 31, 1992 and 1991, a weighted average discount rate of
9% was used for both years and the rate of increases in projected future
compensation levels was 5.5% for both 1992 and 1991. The unrecognized cost of
retroactive benefits granted by plan amendments is being amortized over 13
years.
The Corporation and its subsidiaries also provide certain health care and
life insurance benefits for retired employees. Substantially all employees may
become eligible for these benefits if they reach retirement age while still
working for the Corporation. For some plans, benefits are paid under
administrative service contracts. The cost of health care and life insurance
benefits is recognized as expense when claims are reported. For all health care
and life insurance plans related to retired employees, $8 million was charged to
expense in 1992 and $7 million in each of the years 1990 and 1991.
In December 1990, the FASB issued SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," establishing accounting principles
for retiree health and life insurance plans. The new standard requires companies
to begin accruing in the first quarter of 1993 for future medical benefits of
retirees rather than deducting these costs from reported profits each year when
paid.
F-14
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Under this standard, an employer has the option to recognize the effect of the
standard's initial obligation either immediately with a one-time charge to
earnings or on a delayed basis over a period of years not to exceed 20 years.
The Corporation will implement the new standard in 1993 and based on
preliminary, unaudited studies made by the Corporation on its plans currently in
effect, the estimated impact of this standard would be approximately $180
million, net of taxes, using the one-time charge method. The increase in annual
expense is estimated to be approximately $10 million, net of taxes. Adoption of
the standard will have no impact on cash flow.
1988 MANAGEMENT PERFORMANCE PLAN
Pursuant to the 1988 Recapitalization, the 1988 Management Performance Plan
(the "1988 PLAN") was established. A total of 8,600,000 shares of common stock
was reserved for issuance under the 1988 Plan. The 1988 Plan authorized the
grant of incentive stock options, nonqualified stock options, stock appreciation
rights, restricted stock, deferred stock, performance shares and performance
units.
Under the 1988 Plan, as of December 31, 1992, 3,878,275 nonqualified stock
options have been issued at an option price of $7.525, but none have been
exercised; a total of 2,266,810 shares of restricted stock were still
outstanding; and 108,294 shares of deferred stock had been awarded and remain to
be issued.
Under the Prepackaged Plan, the 1988 Plan will be continued; all outstanding
stock options will be cancelled; 1,074,887 shares of restricted and deferred
stock will be cashed out pursuant to "change in control" provisions contained in
the 1988 Plan; and the balance of 1,278,849 shares of restricted and deferred
stock will remain outstanding subject to the provisions of the 1988 Plan as a
consequence of certain waivers of the change in control event by senior members
of management.
PREFERRED SHARE PURCHASE RIGHTS
On June 6, 1988, the Board adopted a Preferred Share Purchase Rights Plan
(the "RIGHTS PLAN") and pursuant to its provisions declared, subject to the
consummation of the 1988 Recapitalization, a distribution of one right (the
"RIGHTS") upon each new share of common stock issued in the 1988
Recapitalization. The 1988 Recapitalization became effective July 13, 1988 and
the distribution occurred immediately thereafter. The Rights contain provisions
which are intended to protect stockholders in the event of an unsolicited
attempt to acquire the Corporation.
Under the terms of the Rights Plan, the Rights will become exercisable ten
days following a public announcement that a party acquired, or obtained the
right to acquire, beneficial ownership of 20% or more of the Corporation's
outstanding common shares, or ten days following commencement or announcement of
a tender offer or exchange offer for 30% or more of the Corporation's
outstanding common shares. When exercisable, each of the Rights entitles the
registered holder to purchase one-tenth of a share of a junior participating
preferred stock, series C, $1.00 par value per share, at a price of $35.00 per
one-tenth of a preferred share, subject to adjustment. If the Corporation is
involved in a merger or business combination at any time after the Rights become
exercisable, the Rights will entitle the holder to buy a number of shares of
common stock of the acquiring company having a market value at that time of
twice the exercise price of each of the Rights.
Upon implementation of the Prepackaged Plan, the Rights Plan will not be
triggered in conjunction with the change in control, but instead will be
terminated. On the Effective Date, a new rights plan will be adopted with
provisions substantially similar to the Rights Plan except that (i) the purchase
price of the Rights will be reset; (ii) the expiration of the Rights will be
extended; (iii) a so-called "flip-in" feature and exchange feature will be
added; (iv) certain exemptions will be added permitting the acquisition and
continued holding of common shares by Water Street and affiliates in excess of
the otherwise specified thresholds; (v) the redemption price will be reduced;
and (vi) the amendment provision will be liberalized.
F-15
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
STOCKHOLDERS' EQUITY
Changes in stockholders' equity are summarized as follows:
<TABLE>
<CAPTION>
1992 1991 1990
--------- --------- ---------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Common Stock:
Balance as of January 1........................................................... $ 5 $ 5 $ 5
--------- --------- ---------
Balance as of December 31......................................................... 5 5 5
--------- --------- ---------
Capital Received in Excess of Par:
Balance as of January 1........................................................... 24 23 15
Restricted stock issuance/(forfeitures) and amortization (1992 -- (13,587) shares;
1991 -- 673,305 shares; 1990 -- 941,990 shares).................................. -- 1 5
Other, net........................................................................ (1) -- 3
--------- --------- ---------
Balance as of December 31......................................................... 23 24 23
--------- --------- ---------
Deferred Currency Translation:
Balance as of January 1........................................................... -- -- (3)
Currency translation adjustment................................................... (8) -- 3
--------- --------- ---------
Balance as of December 31......................................................... (8) -- --
--------- --------- ---------
Reinvested Earnings/(Deficit):
Balance as of January 1........................................................... (1,709) (1,546) (1,455)
Net loss.......................................................................... (191) (161) (90)
Other, net........................................................................ -- (2) (1)
--------- --------- ---------
Balance as of December 31......................................................... (1,900) (1,709) (1,546)
--------- --------- ---------
Total stockholders' equity/(deficit)............................................ (1,880) (1,680) (1,518)
--------- --------- ---------
--------- --------- ---------
</TABLE>
As of December 31, 1992, the Corporation held 368,409 shares of $0.10 par
value common stock in treasury. These shares were acquired through the
forfeiture of restricted stock.
LITIGATION
One of the Corporation's subsidiaries, U.S. Gypsum, is among numerous
defendants in lawsuits arising out of the manufacture and sale of
asbestos-containing building materials. U.S. Gypsum sold certain
asbestos-containing products beginning in the 1930's; in most cases the products
were discontinued or asbestos was removed from the product formula by 1972, and
no asbestos-containing products were sold after 1977. Some of these lawsuits
seek to recover compensatory and in many cases punitive damages for costs
associated with maintenance or removal and replacement of products containing
asbestos (the "PROPERTY DAMAGE CASES"). Others of these suits (the "PERSONAL
INJURY CASES") seek to recover compensatory and in many cases punitive damages
for personal injury allegedly resulting from exposure to asbestos and
asbestos-containing products. It is anticipated that additional personal injury
and property damage cases containing similar allegations will be filed.
As discussed below, U.S. Gypsum has substantial personal injury and property
damage insurance for the years involved in the asbestos litigation. Prior to
1985, when an asbestos exclusion was added to U.S. Gypsum's policies, U.S.
Gypsum purchased comprehensive general liability insurance policies covering
personal injury and property damage in an aggregate face amount of approximately
$850 million. Insurers that issued approximately $100 million of these policies
are presently insolvent. Because U.S. Gypsum's insurance carriers initially
responded to its claims for defense and indemnification with various theories
denying or limiting coverage and the applicability of their policies, U.S.
Gypsum
F-16
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
filed a declaratory judgment action against them in the Circuit Court of Cook
County, Illinois on December 29, 1983. (U.S. GYPSUM CO. V. ADMIRAL INSURANCE
CO., ET AL.) (the "COVERAGE ACTION"). U.S. Gypsum alleges in the Coverage Action
that the carriers are obligated to provide indemnification for settlements and
judgments and, in some cases, defense costs incurred by U.S. Gypsum in personal
injury and property damage cases in which it is a defendant. The current
defendants are ten insurance carriers that provided comprehensive general
liability insurance coverage to U.S. Gypsum between the 1940's and 1984. As
discussed below, several carriers have settled all or a portion of the claims in
the Coverage Action.
U.S. Gypsum's aggregate expenditures for all asbestos-related matters,
including property damage, personal injury, insurance coverage litigation and
related expenses, exceeded aggregate insurance payments by $15.4 million in
1990, $10.9 million in 1991 and $25.8 million in 1992.
PROPERTY DAMAGE CASES
The Property Damage Cases have been brought against U.S. Gypsum by a variety
of plaintiffs, including school districts, state and local governments, colleges
and universities, hospitals, and private property owners. U.S. Gypsum is one of
many defendants in four cases that have been certified as class actions and
others that request such certification. One class action suit is brought on
behalf of owners and operators of all elementary and secondary schools in the
United States that contain or contained friable asbestos-containing material.
(IN RE ASBESTOS SCHOOL LITIGATION, U.S.D.C., E.D.Pa.) Approximately 1,350 school
districts opted out of the class, some of which have filed or may file separate
lawsuits or are participants in a state court class action involving
approximately 333 school districts in Michigan. (BOARD OF EDUCATION OF THE CITY
OF DETROIT, ET AL. V. THE CELOTEX CORP., ET AL., Cir. Ct. for Wayne County,
Mich.) On April 10, 1992, a state court in Philadelphia certified a class
consisting of all owners of buildings leased to the federal government. (PRINCE
GEORGE CENTER, INC. V. U.S. GYPSUM CO., ET AL., Ct. of Common Pleas,
Philadelphia, Pa.) On September 4, 1992, a Federal district court in South
Carolina conditionally certified a class comprised of all colleges and
universities in the United States, which certification is presently limited to
the resolution of certain allegedly "common" liability issues. (CENTRAL WESLEYAN
COLLEGE, V.W.R. GRACE & CO., ET AL., U.S.D.C., S.C.). On December 23, 1992, a
case was filed in state court in South Carolina purporting to be a "voluntary"
class action on behalf of owners of all buildings containing certain types of
asbestos-containing products manufactured by the nine named defendants,
including U.S. Gypsum, other than buildings owned by the federal or state
governments, single family residences, or buildings at issue in the four above
described class actions (ANDERSON COUNTY HOSPITAL V. W.R. GRACE & CO., ET AL.,
Court of Common Pleas, Hampton Co., S.C. (the "ANDERSON CASE")). On January 14,
1993, the plaintiff filed an amended complaint that added a number of claims and
defendants, including the Corporation. The amended complaint alleges, among
other things, that the guarantees executed by U.S. Gypsum in connection with the
1988 Recapitalization, as well as subsequent distributions of cash from U.S.
Gypsum to the Corporation, rendered U.S. Gypsum insolvent and constitute a
fraudulent conveyance pursuant to Section27-23-10 of the South Carolina Code.
The suit seeks to set aside the guarantees and recover the value of the cash
flow "diverted" from U.S. Gypsum to the Corporation in an amount to be
determined. This case has not been certified as a class action and no other
threshold issues, including whether the South Carolina Courts have personal
jurisdiction over the Corporation, have been decided. The damages claimed
against U.S. Gypsum in the class action cases are unspecified. U.S. Gypsum has
denied the substantive allegations of each of the Property Damage Cases and
intends to defend them vigorously except when advantageous settlements are
possible.
As of December 31, 1992, 97 Property Damage Cases were pending against U.S.
Gypsum; however, the number of buildings involved is greater than the number of
cases because many of these cases, including the class actions referred to
above, involve multiple buildings. Approximately 34 property damage claims have
been threatened against U.S. Gypsum.
F-17
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
In total, U.S. Gypsum has settled property damage claims of approximately
180 plaintiffs involved in approximately 65 cases. All settlements were paid out
of reserves. Twenty-one cases have been tried to verdict, 13 of which were won
by U.S. Gypsum and 8 lost. Appeals are pending in four of these cases. In the
cases lost, compensatory damage awards against U.S. Gypsum have totaled $12.5
million. Punitive damages totaling $5.5 million were entered against U.S. Gypsum
in four trials. Two of the punitive damage awards, totaling $1.45 million, were
paid after appeals were exhausted. The verdict in another case in which punitive
damages of $75,000 were awarded was reversed by the Court of Appeals and
remanded for retrial. The remaining punitive award is on appeal.
In 1990, 24 new Property Damage Cases were filed against U.S. Gypsum, 21
were dismissed before trial, 14 were settled, 4 were closed following trial or
appeal, and 124 were pending at year end; $14.6 million was expended for the
defense and resolution of Property Damage Cases and insurance payments of $4.2
million were received in 1990. During 1991, 14 new Property Damage Cases were
filed against U.S. Gypsum, 7 were dismissed before trial, 8 were settled, 2 were
closed following trial or appeal, and 121 were pending at year end; U.S. Gypsum
expended $22.2 million for the defense and resolution of Property Damage Cases
and received insurance payments of $13.8 million in 1991. In 1992, 7 new
Property Damage Cases were filed against U.S. Gypsum, 9 were dismissed before
trial, 17 were settled, 2 were closed following trial or appeal, and 97 were
pending at year end. U.S. Gypsum expended approximately $35 million for the
defense and resolution of Property Damage Cases and received insurance payments
of $10.2 million in 1992.
In the Property Damage Cases litigated to date, a defendant's liability for
compensatory damages, if any, has been limited to damages associated with the
presence and quantity of asbestos-containing products manufactured by that
defendant which are identified in the buildings at issue, although plaintiffs in
some cases have argued that principles of joint and several liability should
apply. Because of the unique factors inherent in each of the Property Damage
Cases, including the lack of reliable information as to product identification
and the amount of damages claimed against U.S. Gypsum in many cases, including
the class actions described above, management is unable to make a reasonable
estimate of the cost of disposing of pending Property Damage Cases.
PERSONAL INJURY CASES
U.S. Gypsum was among numerous defendants in asbestos personal injury suits
and administrative claims involving 54,188 claimants pending as of December 31,
1992. All asbestos bodily injury claims pending in the federal courts, including
approximately one-third of the Personal Injury Cases pending against U.S.
Gypsum, have been consolidated in the United States District Court for the
Eastern District of Pennsylvania.
U.S. Gypsum is a member, together with 19 other former producers of
asbestos-containing products, of the Center for Claims Resolution (the
"CENTER"). The Center has assumed the handling, including the defense and
settlement, of all Personal Injury Cases pending against U.S. Gypsum and the
other members of the Center. Each member of the Center is assessed a portion of
the liability and defense costs of the Center for the Personal Injury Cases
handled by the Center, according to predetermined allocation formulas. Five of
U.S. Gypsum's insurance carriers that in 1985 signed an Agreement Concerning
Asbestos-Related Claims (the "WELLINGTON AGREEMENT") are supporting insurers
(the "SUPPORTING INSURERS") of the Center. The Supporting Insurers are obligated
to provide coverage for the defense and indemnity costs of the Center's members
pursuant to the coverage provisions in the Wellington Agreement. Claims for
punitive damages are defended but not paid by the Center; if punitive damages
are recovered, insurance coverage may be available under the Wellington
Agreement depending on the terms of particular policies and applicable state
law. Punitive damages have not been awarded against
F-18
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
U.S. Gypsum in any of the Personal Injury Cases. Virtually all of U.S. Gypsum's
personal injury liability and defense costs are paid by those of its insurance
carriers that are Supporting Insurers. The Supporting Insurers provided
approximately $350 million of the total coverage referred to above.
On January 15, 1993, U.S. Gypsum and the other members of the Center were
named as defendants in a class action filed in the U.S. District Court for the
Eastern District Pennsylvania (CARLOUGH ET AL. V. AMCHEM PRODUCTS INC., ET AL.,
Case No. 93-CV-0215). The complaint generally defines the class of plaintiffs as
all persons who have been occupationally exposed to asbestos-containing products
manufactured by the defendants, who had not filed an asbestos personal injury
suit as of the date of the filing of the class action. Simultaneously with the
filing of the class action, the parties filed a settlement agreement in which
the named plaintiffs, proposed class counsel, and the defendants agreed to
settle and compromise the claims of the proposed class. The settlement, if
approved by the court, will implement for all future Personal Injury Cases,
except as noted below, an administrative compensation system to replace judicial
claims against the defendants, and will provide fair and adequate compensation
to future claimants who can demonstrate exposure to asbestos-containing products
manufactured by the defendants and the presence of an asbestos-related disease.
This administrative compensation system is based upon defined medical criteria
for compensation of claimants; predetermined compensation ranges for each
compensable medical condition; annual case flow caps; the elimination of
punitive damage claims; and limitation on attorneys fees payable by claimants
compensated through the program. Class members will be given the opportunity to
"opt out," or elect to be excluded from the settlement, although the defendants
reserve the right to withdraw from the settlement if the number of opt outs is,
in their sole judgment, excessive. In addition, in each year a limited number of
claimants will have certain rights to prosecute their claims for compensatory
(but not punitive) damages in court in the event they reject compensation
offered by the administrative processing of their claim.
The district court assigned to the class action is expected to set dates for
hearings on notice to the class, objections to the settlement, requests to opt
out of the class, and the fairness of the settlement to class members. It is
anticipated that appeals will follow the district court's ruling on the fairness
of the settlement. Also on January 15, 1993, the Center members, including U.S.
Gypsum, instituted proceedings against those of their insurance carriers that
had not consented to support the settlement, seeking a declaratory judgment that
the settlement is reasonable and, therefore, that the carriers are obligated to
fund their portion of it. Consummation of the settlement is contingent upon,
among other things, court approval of the settlement and a favorable ruling in
the declaratory judgment proceedings against the non-consenting insurers.
Each of the defendants has committed to fund a defined portion of the
settlement, up to a stated maximum amount, over the initial ten-year period of
the agreement (which is automatically extended unless terminated by the
defendants). Taking into account the provisions of the settlement agreement
concerning the number of claims that must be processed in each year and the
total amount that must be made available to the claimants, the Center estimates
that U.S. Gypsum will be obligated to fund a maximum of approximately $125
million of the class action settlement, exclusive of expenses, with a maximum
payment of less than $18 million in any single year; of the total amount of U.S.
Gypsum's obligation, all but approximately $13 million or less is expected to be
paid by U.S. Gypsum's insurance carriers.
During 1990, 11,095 new Personal Injury Cases were filed against U.S. Gypsum
and 7,272 were settled or dismissed. U.S. Gypsum incurred expenses of $14.2
million in 1990 with respect to Personal Injury Cases, $13.9 million of which
was paid directly by insurance. During 1991, 13,077 Personal Injury Cases were
filed against U.S. Gypsum and 6,273 were settled or dismissed. U.S. Gypsum
incurred expenses of $15.1 million in 1991 with respect to Personal Injury
Cases, of which $15.0 million was paid by insurance. During 1992, 20,117
Personal Injury Cases were filed against U.S. Gypsum and 10,631 were settled or
dismissed. U.S. Gypsum incurred expenses of $21.6 million in 1992 with respect
to
F-19
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Personal Injury Cases of which $21.5 million was paid by insurance. As of
December 31, 1992, 1991 and 1990, 54,188, 42,652 and 36,967 Personal Injury
Cases were outstanding against U.S. Gypsum, respectively.
U.S. Gypsum's average settlement cost for Personal Injury Cases over the
past three years has been approximately $1,350 per claim, exclusive of defense
costs. Management anticipates that its average settlement cost is likely to
increase due to such factors as the possible insolvency of co-defendants,
although this increase may be offset to some extent by other factors, including
the possibility for block settlements of large numbers of cases and the apparent
increase in the percentage of asbestos personal injury cases that appear to have
been brought by individuals with little or no physical impairment. In
management's opinion, based primarily upon U.S. Gypsum's experience in the
Personal Injury Cases disposed of to date and taking into consideration a number
of uncertainties, it is probable that asbestos-related Personal Injury Cases
pending against U.S. Gypsum as of December 31, 1992, can be disposed of for an
amount estimated to be between $80 million and $100 million, including both
indemnity costs and legal fees and expenses. The increase in the estimated cost
of resolving pending claims is the result of (i) an increase in the number of
pending claims; (ii) the settlements of certain large blocks of claims for
higher per-case averages than have historically been paid; and (iii) a slight
increase in U.S. Gypsum's historical settlement average. No accrual has been
recorded for this amount because, pursuant to the Wellington Agreement, U.S.
Gypsum's signatory insurance carriers are obligated to pay these costs.
Assuming that the class action settlement referred to above is approved
substantially in its current form, management estimates, based on assumptions
supplied by the Center, U.S. Gypsum's maximum total exposure in Personal Injury
Cases during the next ten years (the initial term of the agreement), including
liability for pending claims, claims resolved as part of the class action
settlement, and opt out claims, as well as defense costs and other expenses, at
approximately $271 million, of which at least $254 million is expected to be
paid by insurance.
COVERAGE ACTION
As indicated above, all of U.S. Gypsum's carriers initially denied coverage
for the Property Damage Cases and the Personal Injury Cases, and U.S. Gypsum
initiated the Coverage Action to establish its right to such coverage. U.S.
Gypsum has voluntarily dismissed the Supporting Insurers referred to above from
the personal injury portion of the Coverage Action because they are committed to
providing personal injury coverage in accordance with the Wellington Agreement.
U.S. Gypsum's claims against the remaining carriers for coverage for the
Personal Injury Cases have been stayed since 1984.
On January 7, 1991, the trial court in the Coverage Action ruled on the
applicability of U.S. Gypsum's insurance policies to settlements and one adverse
judgment in eight Property Damage Cases. The court ruled that the eight cases
were generally covered, and imposed coverage obligations on particular policy
years based upon the dates when the presence of asbestos-containing material was
"first discovered" by the plaintiff in each case. The court awarded
reimbursement of approximately $6.2 million spent by U.S. Gypsum to resolve the
eight cases. U.S. Gypsum has appealed the court's ruling with respect to the
policy years available to cover particular claims, and the carriers have
appealed most other aspects of the court's ruling. These appeals are likely to
take a year or more.
U.S. Gypsum's experience in the Property Damage Cases suggests that "first
discovery" dates in the eight cases referred to above (1978 through 1985) are
likely to be typical of most pending cases. U.S. Gypsum's total insurance
coverage for the years 1978 through 1984 totals approximately $350 million
(after subtracting insolvencies and discounts given to settling carriers).
However, some pending cases, as well as some cases filed in the future, may be
found to have first discovery dates later than August 1, 1984, after which U.S.
Gypsum's insurance policies did not provide coverage for asbestos-related
claims. In addition, as described below, the first layer excess carrier for the
years 1980 through 1984 is
F-20
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
insolvent and U.S. Gypsum may be required to pay amounts otherwise covered by
those and other insolvent policies. Accordingly, if the court's ruling is
affirmed, U.S. Gypsum will likely be required to bear a portion of the cost of
the property damage litigation.
Eight carriers, including two of the Supporting Insurers, have settled U.S.
Gypsum's claims for both property damage and personal injury coverage and have
been dismissed from the Coverage Action entirely. Four of these carriers have
agreed to pay all or a substantial portion of their policy limits to U.S. Gypsum
beginning in 1991 and continuing over the next four years. Three other excess
carriers, including the two settling Supporting Insurers, have agreed to provide
coverage for the Property Damage Cases and the Personal Injury Cases subject to
certain limitations and conditions, when and if underlying primary and excess
coverage is exhausted. It cannot presently be determined when such coverage
might be reached. Taking into account the above settlements, including
participation of certain of the settling carriers in the Wellington Agreement,
and consumption through December 31, 1991, carriers providing a total of
approximately $105 million of unexhausted insurance have agreed, subject to the
terms of the various settlement agreements, to cover both Personal Injury Cases
and Property Damage Cases. Carriers providing an additional $309 million of
coverage that was unexhausted as of December 31, 1991 have agreed to cover
Personal Injury Cases under the Wellington Agreement, but continue to contest
coverage for Property Damage Cases and remain defendants in the Coverage Action.
U.S. Gypsum will continue to seek negotiated resolutions with its carriers in
order to minimize the expense and delays of litigation.
Insolvency proceedings have been instituted against four of U.S. Gypsum's
insurance carriers. Midland Insurance Company, declared insolvent in 1986,
provided excess insurance ($4 million excess of $1 million excess of $500,000
primary in each policy year) from February 15, 1975 to February 15, 1978;
Transit Casualty Company, declared insolvent in 1985, provided excess insurance
($15 million excess of $1 million primary in each policy year) from August 1,
1980 to December 31, 1985; Integrity Insurance Company, declared insolvent in
1986, provided excess insurance ($10 million quota share of $25 million excess
of $90 million) from August 1, 1983 to July 31, 1984; and American Mutual
Insurance Company, declared insolvent in 1989, provided the primary layer of
insurance ($500,000 per year) from February 1, 1963 to April 15, 1971. It is
possible that U.S. Gypsum will be required to pay a presently indeterminable
portion of the costs that would otherwise have been covered by these policies.
It is not possible to predict the number of additional lawsuits alleging
asbestos-related claims that may be filed against U.S. Gypsum. The number of
Personal Injury Claims pending against U.S. Gypsum has increased in each of the
last several years. In addition, many Property Damage Cases are still at an
early stage and the potential liability therefrom is consequently uncertain. In
view of the current financial circumstances of the Corporation, and the limited
insurance funding currently available for the Property Damage Cases resulting
from the continued resistance by a number of U.S. Gypsum's insurers to providing
coverage, the effect of the asbestos litigation on the Corporation will depend
upon a variety of factors, including the damages sought in the Property Damage
Cases that reach trial prior to the completion of the Coverage Action, U.S.
Gypsum's ability to successfully defend or settle such cases, and the resolution
of the Coverage Action. As a result, management is unable to determine whether
an adverse outcome in the asbestos litigation will have a material adverse
effect on the results of operations or the consolidated financial position of
the Corporation.
ENVIRONMENTAL LITIGATION
The Corporation and certain of its subsidiaries have been notified by state
and federal environmental protection agencies of possible involvement as one of
numerous "potentially responsible parties" in a number of so-called "Superfund"
sites in the United States. In substantially all of these sites, the involvement
of the Corporation or its subsidiaries is expected to be minimal. The
Corporation believes that appropriate reserves have been established for its
potential liability in connection with all Superfund
F-21
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
sites but is continuing to review its accruals as additional information becomes
available. The Corporation does not presently anticipate any material adverse
effect upon its earnings or consolidated financial position arising out of the
resolution of these matters or any other known governmental proceeding regarding
environmental matters.
SUBSEQUENT EVENT
On March 17, 1993, the Corporation filed a Plan of Reorganization and a
petition for relief under Chapter 11 of the United States Bankruptcy Code in the
Bankruptcy Court. On that date, the Corporation also obtained orders from the
Bankruptcy Court authorizing, among other things: (i) payment of pre-petition
liabilities to trade creditors and employees; (ii) continuation of existing
employee compensation, benefits and insurance programs; (iii) continuation of
the consolidated cash management system and corporate liability insurance
programs; and (iv) payment of current interest due to the Banks and holders of
senior debt securities. A hearing on confirmation of the Plan of Reorganization
has been set for April 23, 1993. None of the subsidiaries of the Corporation are
part of this proceeding and there will be no impact on the trade creditors of
the Corporation's subsidiaries.
The following unaudited pro forma consolidated balance sheet and
accompanying notes as of December 31, 1992 were prepared as if the consummation
of the Prepackaged Plan had occurred on that date including the adoption of
"Fresh Start Reporting" as required by AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
("SOP 90-7"). This pro forma statement is qualified in its entirety by reference
to the more detailed pro forma financial information appearing in the Disclosure
Statement, including the Plan of Reorganization substantially as filed with the
Bankruptcy Court and to the latest Pro Forma Financial Information included
elsewhere in this Registration Statement.
F-22
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1992
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
RESTRUCTURING FRESH START
HISTORICAL ADJUSTMENT ADJUSTMENTS PRO FORMA
----------- -------------- -------------- -----------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents..................................... $ 180 $ (48)(a) $ -- $ 132
Receivables (net of reserves of $11).......................... 299 (64)(b) -- 235
Inventories................................................... 113 -- 25(i) 138
Restricted cash............................................... 88 (88)(a) -- --
----------- ------- ------- -----------
Total current assets........................................ 680 (200) 25 505
----------- ------- ------- -----------
Property, Plant and Equipment, Net............................ 800 -- -- 800
Purchased Goodwill, Net....................................... 69 -- (69)(i) --
Other Assets.................................................. 110 (58)(c) -- 52
Reorganization Value in Excess of Identifiable Assets......... -- -- 679(i) 679
----------- ------- ------- -----------
Total assets.............................................. 1,659 (258) 635 2,036
----------- ------- ------- -----------
----------- ------- ------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................. 91 -- -- 91
Accrued expenses.............................................. 553 (380)(d) -- 173
Notes payable................................................. 2 -- -- 2
Revolving Credit Facility..................................... 140 (140)(e) -- --
Long-term debt maturing within one year....................... 576 (570)(e) -- 6
Long-term debt classified as current.......................... 1,926 (1,926)(e) -- --
Taxes on income............................................... -- 20(f) 16(j) 36
----------- ------- ------- -----------
Total current liabilities................................. 3,288 (2,996) 16 308
----------- ------- ------- -----------
Long-Term Debt.................................................. 67 1,469(e) (265)(k) 1,271
Deferred Income Taxes........................................... 175 14(f) 53(j) 242
Minority Interest in CGC........................................ 9 -- -- 9
Other Long-Term Obligations..................................... -- -- 182(l) 182
Stockholders' Equity/(Deficit):
Preferred stock -- $1 par value; authorized 36,000,000 shares;
$1.80 convertible preferred stock (initial series);
outstanding -- none.......................................... -- -- -- --
Common Stock -- $0.10 par; authorized 300,000,000 shares;
outstanding -- 55,757,394 (after deducting 368,409 shares
held in treasury), pro forma outstanding -- 37,171,600
shares....................................................... 5 (2)(g) -- 3
Capital received in excess of par value....................... 23 431(g) (433)(m) 21
Deferred currency translation................................. (8) -- 8(n) --
Reinvested earnings/(deficit)................................. (1,900) 826(h) 1,074(o) --
----------- ------- ------- -----------
Total stockholders' equity/(deficit)...................... (1,880) 1,255 649 24
----------- ------- ------- -----------
Total liabilities and stockholders' equity................ 1,659 (258) 635 2,036
----------- ------- ------- -----------
----------- ------- ------- -----------
</TABLE>
See accompanying Notes to the Pro Forma Consolidated Balance Sheet.
F-23
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
NOTES TO THE PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
The following notes set forth the explanations and assumptions used in
preparing the unaudited Pro Forma Consolidated Balance Sheet. The pro forma
adjustments are based on estimates by the Corporation's management using
information currently available.
(a) Reflects the following (in millions of dollars):
<TABLE>
<S> <C>
Repayment of Revolving Credit Facility...................................... $ (140)
Payment of nonrecurring fees and expenses incurred in connection with the
Restructuring.............................................................. (22)
Payments under Management Incentive Compensation Plan....................... (16)*
Payment of excess Bank Debt accrued interest................................ (15)
Collection of letters of credit classified as accounts receivable........... 42
Reclassification of proceeds received from the sale of DAP which have been
restricted for use in the Restructuring.................................... 88
Collection of appeal bonds classified as accounts receivable................ 15
---------
(48)
---------
---------
</TABLE>
* Payments under Management Incentive Compensation Plan represent the cash
payment of a management bonus which is contingent and payable upon
successful implementation of the Restructuring.
(b) Reflects the following (in millions of dollars):
<TABLE>
<S> <C>
Collection of letters of credit classified as accounts receivable $ (42)
Industrial revenue bonds previously put back to the Corporation that will not
be remarketed results in reductions in accounts receivable and debt......... (7)
Collection of appeal bonds classified as accounts receivable................. (15)
---
(64)
---
---
</TABLE>
(c) For financial reporting purposes, old capitalized financing costs totaling
($25) million applicable to the Bank Debt and the Old Subordinated
Debentures and deferred reorganization expenses totaling ($33) million are
being written off to the extraordinary gain and reorganization items,
respectively.
(d) Reflects the following (in millions of dollars):
<TABLE>
<S> <C>
Write-off of accrued interest that will not be paid to holders of the Old
Senior Subordinated Debentures............................................. $ (221)
Reclassification of Bank Debt accrued interest to debt...................... (75)
Write-off of Default Interest on the Bank Debt.............................. (44)
Reclassification of accrued interest on swaps to debt....................... (22)
Reversal of accrued management incentive compensation....................... (3)
Payment of excess Bank Debt accrued interest................................ (15)
---------
(380)
---------
---------
</TABLE>
F-24
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(e) Represents changes in short-term and long-term debt (including
reclassification of the remaining balance of debt classified as current to
long-term debt) as a result of the Prepackaged Plan. The change in debt
consists of the following:
<TABLE>
<CAPTION>
REVOLVING LTD LTD
CREDIT MATURING IN CLASSIFIED LONG-TERM
NOTES PAYABLE FACILITY ONE YEAR AS CURRENT DEBT TOTAL
------------- ------------- ------------- ----------- ----------- ---------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Historical carrying amounts................. $ 2 $ 140 $ 576 $ 1,926 $ 67 $ 2,711
--- ------ ------ ----------- ----------- ---------
Old Senior 1991 Notes....................... (100) (100)
Old Senior 1996 Notes....................... (10) (10)
Old Senior Subordinated Debentures.......... (600) (600)
Old Junior Subordinated Debentures.......... (515) (515)
Bank Debt................................... (140) (470) (370) (980)
Industrial revenue bonds.................... (7) (7)
New Senior 1995 Notes....................... 75 75
New Senior 1998 Notes....................... 35 35
New Bank Debt............................... 540 540
New 10 1/4% Senior Notes.................... 340 340
Capitalized interest notes.................. 55 55
Reclassification............................ (1,926) 1,926 --
--- ------ ------ ----------- ----------- ---------
Pro forma adjustment........................ -- (140) (570) (1,926) 1,469 (1,167)
--- ------ ------ ----------- ----------- ---------
Pro forma carrying amounts before fresh
start adjustments.......................... 2 -- 6 -- 1,536 1,544
--- ------ ------ ----------- ----------- ---------
--- ------ ------ ----------- ----------- ---------
</TABLE>
(f) As a result of the Restructuring, the domestic operating loss and related
income tax benefit would be reduced.
(g) Reflects the following:
<TABLE>
<CAPTION>
CAPITAL RECEIVED
IN EXCESS OF
PAR VALUE COMMON STOCK
------------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C>
Issuance of 36,056,452 shares of New Common Stock at an estimated market
price of $11.67 (reflecting the impact of the Reverse Stock Split) under
the terms of the Prepackaged Plan to holders of the Old Subordinated
Debentures............................................................... $ 418 $ 3
Record estimated market value of New Warrants issued to holders of Old
Junior Subordinated Debentures........................................... 10 --
Impact of the Reverse Stock Split......................................... 5 (5)
Tax impact on cancelled restricted stock.................................. (2) --
----- ---
431 (2)
----- ---
----- ---
</TABLE>
F-25
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(h) Reflects the write-off of $55 million for nonrecurring fees and expenses
incurred in connection with the Restructuring and the extraordinary gain,
net of taxes, resulting from the Restructuring which has been estimated as
follows (in millions of dollars):
<TABLE>
<S> <C> <C> <C>
Old Senior Subordinated Debentures:
Historical carrying amount................................. $ 600
Estimated market value of $11.67 per share times 30,480,712
shares of New Common Stock issued in the Restructuring
(after the Reverse Stock Split)........................... (356)
---------
Retirement of Old Senior Subordinated Debentures......... $ 244
Write-off of old capitalized financing costs............. (15)
Write-off of old accrued interest........................ 221
---------
Subtotal............................................... $ 450
Old Junior Subordinated Debentures:
Historical carrying amount................................. 480
Estimated market value of $11.67 per share times 5,575,740
shares of New Common Stock issued in the Restructuring
(after the Reverse Stock Split)........................... (65)
---------
Retirement of Old Junior Subordinated Debentures......... 415
Write-off of old capitalized financing costs............. (1)
Estimated market value of New Warrants issued in the
Restructuring........................................... (10)
Write-off of old accrued interest........................ 35
---------
Subtotal............................................... 439
Bank Debt:
Write-off of old capitalized financing costs............... (7)
Write-off of accrued Default Interest...................... 44
---------
Subtotal............................................... 37
Record Management Incentive Compensation Plan.......... (13)*
Tax provision.......................................... (32)
-----
Total.................................................. 881
-----
-----
</TABLE>
* The Management Incentive Compensation Plan adjustment represents a
provision for a management bonus which is contingent upon successful
implementation of the Restructuring.
(i) An estimated reorganization value of $2,036 million (the "REORGANIZATION
VALUE") is being used to implement fresh start reporting along with
adjustments of $25 million to inventory and ($69) million to purchased
goodwill, of which the Reorganization Value in excess of identifiable assets
is estimated to be approximately $679 million. The net of these adjustments
is reflected as a decrease against reinvested earnings/(deficit). The
Corporation plans to review its property, plant and equipment and obtain
appraisals of assets in order to determine what revisions, if any, should be
made to individual accounts. The final allocation of Reorganization Value to
the Corporation's assets will take place once the review and appraisal
process is completed. The Corporation does not expect any potential
adjustment to have a material adverse impact to the financial statements.
Any allocation would have no effect on cash flow or EBITDA and would result
in a timing difference of reported earnings in the future. If a portion of
the $679 million is ultimately allocated to property, plant and equipment,
net income would increase between 1993 and 1997 and would be reduced beyond
1997, since Reorganization Value in excess of identifiable assets would be
fully amortized over five years, while depreciation would continue over the
estimated useful life of the Corporation's assets.
F-26
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(j) Reflects the tax adjustment associated with the adoption of SOP 90-7.
(k) In accordance with SOP 90-7, the Corporation's liabilities will be recorded
at their estimated present values as of the Effective Date. For purposes of
the unaudited Pro Forma Consolidated Balance Sheet, the present value of the
Corporation's liabilities, other than long-term debt, is assumed to be equal
to the historical book value of such liabilities. The adjustment to reduce
total pro forma debt (after the adjustment in note (e)) to an estimated
present value using discount rates ranging from 9% to 14% is $265 million.
(l) Reflects the adoption of SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions using the one-time charge
method.
(m) In accordance with SOP 90-7, this adjustment reflects the elimination of
reinvested earnings/(deficit) of ($425) million and the elimination of
deferred currency of ($8) million against capital received in excess of par
value.
(n) In accordance with SOP 90-7, this adjustment reflects the elimination of
deferred currency translation against capital received in excess of par
value.
(o) Reflects the offset to all of the fresh start adjustments except for
deferred currency which is offset in capital received in excess of par
value.
HISTORICAL CONSOLIDATING FINANCIAL STATEMENTS
In February 1993, the Corporation filed a registration statement with
respect to $340 million aggregate principal amount of New 10 1/4% Senior Notes.
Each of United States Gypsum Company, USG Industries, Inc., USG Interiors, Inc.,
USG Foreign Investments, Ltd., L&W Supply Corporation, Westbank Planting
Company, USG Interiors International, Inc., American Metals Corporation and La
Mirada Products Co., Inc. (together, the "COMBINED GUARANTORS") will guarantee,
in the manner described below, both the obligations of the Corporation under the
amended Credit Agreement and the New 10 1/4% Senior Notes. These Subsidiary
Guarantees are full and unconditional guarantees of prompt payment and
performance, when due. The Combined Guarantors will be jointly and severally
liable under the Subsidiary Guarantees. Holders of the Bank Debt will have the
right to (i) determine whether, when and to what extent the guarantees will be
enforced (provided that each guarantee payment will be applied to the Bank Term
Loan, Extended Revolving Credit Facility, Capitalized Interest Notes and New
10 1/4% Senior Notes pro rata based on the respective amounts owed thereon) and
(ii) amend or eliminate the guarantees. The guarantees will terminate when the
Bank Term Loan, the Extended Revolving Credit Facility and the Capitalized
Interest Notes are retired regardless of whether the New 10 1/4% Senior Notes
remain unpaid. The liability of each of the Combined Guarantors on its guarantee
is limited to the greater of (i) 95% of the lowest amount, calculated as of July
13, 1988, sufficient to render the guarantor insolvent, leave the guarantor with
unreasonably small capital or leave the guarantor unable to pay its debts as
they become due (each as defined under applicable law) and (ii) the same amount,
calculated as of the date any demand for payment under such guarantee is made,
in each case plus collection costs. The guarantees will be senior obligations of
the applicable guarantor and will rank PARI PASSU with all unsubordinated
obligations of the guarantor.
There are 43 Non-Guarantors (the "COMBINED NON-GUARANTORS"), substantially
all of which are subsidiaries of Guarantors. The Combined Non-Guarantors
primarily include CGC Inc., Gypsum Transportation Limited, and the European and
Pacific subsidiaries of USG Interiors, Inc. The long-term debt of the Combined
Non-Guarantors of $28 million at December 31, 1992 has restrictive covenants
that restrict, among other things, the payment of dividends.
F-27
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
The following condensed consolidating information presents:
(1) Condensed financial statements as of December 31, 1992 and 1991 and for
the years ended December 31, 1992, 1991 and 1990 of (a) the Corporation
on a parent company only basis (Parent Company), (b) the Combined
Guarantors, (c) the Combined Non-Guarantors and (d) the Corporation on a
consolidated basis.
(2) The Parent Company and Combined Guarantors are shown with their
investments in their subsidiaries accounted for on the equity method.
(3) Elimination entries necessary to consolidate the Parent Company and its
subsidiaries.
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales.................................... $ -- $ 1,503 $ 359 $ (85) $ 1,777
Gross Profit................................. (2) 251 68 -- 317
Operating Profit............................. (30) 105 24 -- 99
Equity in net (earnings)/loss of the
Subsidiaries................................ 230 (17) -- (213) --
Interest expense, net........................ 310 10 2 -- 322
Corporate service charge..................... (340) 340 -- -- --
Other (income)/expense, net.................. (73) 75 (1) -- 1
----------- ----------- ----- ------ -------------
Earnings/(Loss) Before Taxes on Income....... (157) (303) 23 213 (224)
Taxes on income/(income tax benefit)......... 34 (73) 6 -- (33)
----------- ----------- ----- ------ -------------
Net Earnings/(Loss).......................... (191) (230) 17 213 (191)
----------- ----------- ----- ------ -------------
----------- ----------- ----- ------ -------------
</TABLE>
F-28
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales.................................... $ -- $ 1,452 $ 366 $ (106) $ 1,712
Gross Profit................................. 1 241 85 -- 327
Operating Profit............................. (22) 110 45 -- 133
Equity in net (earnings)/loss of the
Subsidiaries................................ 185 (30) -- (155) --
Interest expense, net........................ 305 15 2 -- 322
Corporate service charge..................... (331) 331 -- -- --
Other (income)/expense, net.................. 7 (3) 1 -- 5
----------- ----------- ----- ------ -------------
Earnings/(Loss) Before Taxes on Income....... (188) (203) 42 155 (194)
Taxes on income/(income tax benefit)......... 15 (80) 12 -- (53)
----------- ----------- ----- ------ -------------
Earnings/(Loss) from Continuing Operations... (203) (123) 30 155 (141)
Discontinued operations...................... 41 (61) -- -- (20)
----------- ----------- ----- ------ -------------
Net Earnings/(Loss).......................... (162) (184) 30 155 (161)
----------- ----------- ----- ------ -------------
----------- ----------- ----- ------ -------------
</TABLE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1990
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales.................................... $ -- $ 1,631 $ 386 $ (102) $ 1,915
Gross Profit................................. 2 320 94 -- 416
Operating Profit............................. (33) 174 54 -- 195
Equity in net (earnings)/loss of the
Subsidiaries................................ 49 (37) -- (12) --
Interest expense, net........................ 275 10 (1) -- 284
Corporate service charge..................... (319) 319 -- -- --
Other (income)/expense, net.................. 7 (3) 1 -- 5
Nonrecurring gain............................ (34) -- -- -- (34)
----------- ----------- ----- ------ -------------
Earnings/(Loss) Before Taxes on Income....... (11) (115) 54 12 (60)
Taxes on income/(income tax benefit)......... 38 (61) 17 -- (6)
----------- ----------- ----- ------ -------------
Earnings/(Loss) from Continuing Operations... (49) (54) 37 12 (54)
Discontinued operations...................... (41) 5 -- -- (36)
----------- ----------- ----- ------ -------------
Net Earnings/(Loss).......................... (90) (49) 37 12 (90)
----------- ----------- ----- ------ -------------
----------- ----------- ----- ------ -------------
</TABLE>
F-29
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1992
(DOLLAR AMOUNTS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.................. $ 59 $ 87 $ 34 $ -- $ 180
Receivables (net of reserves).............. 65 219 40 (25) 299
Inventories................................ -- 82 34 (3) 113
Restricted cash............................. -- 88 -- -- 88
----------- ----------- ----- ------------ -------------
Total current assets..................... 124 476 108 (28) 680
Property, Plant and Equipment, Net........... 19 664 117 -- 800
Investment in Subsidiaries................... 1,073 133 -- (1,206) --
Purchased Goodwill, Net...................... -- 61 8 -- 69
Other Assets................................. (89) 214 (11) (4) 110
----------- ----------- ----- ------------ -------------
Total assets............................. 1,127 1,548 222 (1,238) 1,659
----------- ----------- ----- ------------ -------------
----------- ----------- ----- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses...... 538 91 39 (24) 644
Notes payable and LTD maturing within one
year...................................... 570 141 7 -- 718
Long-term debt classified as current....... 1,926 -- -- -- 1,926
----------- ----------- ----- ------------ -------------
Total current liabilities................ 3,034 232 46 (24) 3,288
Long-Term Debt............................... 1 38 28 -- 67
Deferred Income Taxes........................ (36) 196 15 -- 175
Other Long-Term Obligations.................. -- 9 -- -- 9
Stockholders' Equity/(Deficit):
Common Stock............................... 5 2 5 (7) 5
Capital received in excess of par value.... 23 1,002 34 (1,036) 23
Deferred currency translation.............. -- (2) (6) -- (8)
Reinvested earnings/(deficit).............. (1,900) 71 100 (171) (1,900)
----------- ----------- ----- ------------ -------------
Total stockholders' equity/(deficit)..... (1,872) 1,073 133 (1,214) (1,880)
----------- ----------- ----- ------------ -------------
Total liabilities and stockholders'
equity.................................. 1,127 1,548 222 (1,238) 1,659
----------- ----------- ----- ------------ -------------
----------- ----------- ----- ------------ -------------
</TABLE>
F-30
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1991
(DOLLAR AMOUNTS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.................. $ 36 $ 78 $ 41 $ -- $ 155
Receivables (net of reserves).............. 74 170 54 -- 298
Inventories................................ -- 74 39 (3) 110
Restricted cash............................ -- 84 -- -- 84
----------- ----------- ----- ------------ -------------
Total current assets..................... 110 406 134 (3) 647
Property, Plant and Equipment, Net........... 20 671 128 -- 819
Investment in Subsidiaries................... 1,067 180 -- (1,247) --
Purchased Goodwill, Net...................... -- 64 9 -- 73
Other Assets................................. (124) 196 12 3 87
----------- ----------- ----- ------------ -------------
Total assets............................. 1,073 1,517 283 (1,247) 1,626
----------- ----------- ----- ------------ -------------
----------- ----------- ----- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses...... 328 65 42 -- 435
Notes payable and LTD maturing within one
year...................................... 420 141 14 -- 575
Long-term debt classified as current....... 2,009 -- -- -- 2,009
----------- ----------- ----- ------------ -------------
Total current liabilities................ 2,757 206 56 -- 3,019
Long-Term Debt............................... (1) 41 36 -- 76
Deferred Income Taxes........................ (3) 193 10 -- 200
Other Long-Term Obligations.................. -- 11 -- -- 11
Stockholders' Equity/(Deficit):..............
Common Stock............................... 5 3 5 (8) 5
Capital received in excess of par value.... 24 767 34 (801) 24
Deferred currency translation.............. -- (3) 3 -- --
Reinvested earnings/(deficit).............. (1,709) 299 139 (438) (1,709)
----------- ----------- ----- ------------ -------------
Total stockholders' equity/(deficit)..... (1,680) 1,066 181 (1,247) (1,680)
----------- ----------- ----- ------------ -------------
Total liabilities and stockholders'
equity.................................. 1,073 1,517 283 (1,247) 1,626
----------- ----------- ----- ------------ -------------
----------- ----------- ----- ------------ -------------
</TABLE>
F-31
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1992
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (TO)/FROM OPERATING
ACTIVITIES.................................. $ (93) $ 117 $ 66 $ -- $ 90
Capital expenditures....................... (1) (39) (9) -- (49)
Net proceeds from asset dispositions....... -- 2 4 -- 6
------ ------ --- ------------- -----
NET CASH FLOWS (TO)/FROM INVESTING
ACTIVITIES.................................. (1) (37) (5) -- (43)
Issuance of debt........................... -- -- 57 -- 57
Repayment of debt.......................... (4) (2) (69) -- (75)
Revolving Credit Facility.................. -- -- -- -- --
Cash dividends (paid)/received............. -- 56 (56) -- --
Deposit of restricted cash................. -- (4) -- -- (4)
Net cash transfers (to)/from Corporate..... 121 (121) -- -- --
------ ------ --- ------------- -----
NET CASH FLOWS (TO)/FROM FINANCING
ACTIVITIES.................................. 117 (71) (68) -- (22)
Net Increase/(Decrease) in Cash & Cash
Equivalents................................. 23 9 (7) -- 25
------ ------ --- ------------- -----
Cash & cash equivalents at beginning of
period...................................... 36 78 41 -- 155
------ ------ --- ------------- -----
Cash & cash equivalents at end of period..... 59 87 34 -- 180
------ ------ --- ------------- -----
------ ------ --- ------------- -----
</TABLE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1991
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (TO)/FROM OPERATING
ACTIVITIES.................................. $ (216) $ 211 $ 34 $ -- $ 29
Capital expenditures....................... (1) (33) (15) -- (49)
Net proceeds from asset dispositions....... -- 4 1 -- 5
Net proceeds from divestiture of D.O....... 80 -- -- -- 80
------ ------ --- ------------- -----
NET CASH FLOWS (TO)/FROM INVESTING
ACTIVITIES.................................. 79 (29) (14) -- 36
Issuance of debt........................... -- -- 65 -- 65
Repayment of debt.......................... (4) (1) (63) -- (68)
Revolving Credit Facility.................. -- -- -- -- --
Cash dividends (paid)/received............. 10 9 (19) -- --
Deposit of restricted cash................. -- (84) -- -- (84)
Net cash transfers (to)/from Corporate..... 34 (34) -- -- --
------ ------ --- ------------- -----
NET CASH FLOWS (TO)/FROM FINANCING
ACTIVITIES.................................. 40 (110) (17) -- (87)
Net Cash Flows To Discontinued Operations.... -- 2 -- -- 2
Net Increase/(Decrease) in Cash & Cash Equiv-
alents...................................... (97) 74 3 -- (20)
------ ------ --- ------------- -----
Cash & cash equivalents at beginning of
period...................................... 133 4 38 -- 175
------ ------ --- ------------- -----
Cash & cash equivalents at end of period..... 36 78 41 -- 155
------ ------ --- ------------- -----
------ ------ --- ------------- -----
</TABLE>
F-32
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1990
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (TO)/FROM OPERATING
ACTIVITIES.................................. $ (232) $ 248 $ (18) $ -- $ (2)
Capital expenditures....................... -- (26) (38) -- (64)
Net proceeds from asset dispositions....... 55 10 -- -- 65
------ ------ --- ------------- -----
NET CASH FLOWS (TO)/FROM INVESTING
ACTIVITIES.................................. 55 (16) (38) -- 1
Issuance of debt........................... -- -- 60 -- 60
Repayment of debt.......................... (65) (3) (14) -- (82)
Revolving Credit Facility.................. -- 140 -- -- 140
Cash dividends (paid)/received............. 68 (54) (14) -- --
Deposit of restricted cash................. -- -- -- -- --
Net cash transfers (to)/from Corporate..... 304 (304) -- -- --
------ ------ --- ------------- -----
NET CASH FLOWS (TO)/FROM FINANCING
ACTIVITIES.................................. 307 (221) 32 -- 118
Net Cash Flows To Discontinued Operations.... -- (9) -- -- (9)
Net Increase/(Decrease) in Cash & Cash Equiv-
alents...................................... 130 2 (24) -- 108
------ ------ --- ------------- -----
Cash & cash equivalents at beginning of
period...................................... 3 2 62 -- 67
------ ------ --- ------------- -----
Cash & cash equivalents at end of period..... 133 4 38 -- 175
------ ------ --- ------------- -----
------ ------ --- ------------- -----
</TABLE>
GEOGRAPHIC AND INDUSTRY SEGMENTS
See "Business -- Properties of the Corporation" for information relating to
the operations of each industry segment.
Transactions between geographic areas are accounted for on an "arm's-length"
basis. Export sales to foreign unaffiliated customers represent less than 10% of
consolidated net sales.
Intrasegment and intersegment eliminations largely reflect intercompany
sales from U.S. Gypsum to L&W Supply.
No single customer accounted for 4% or more of consolidated net sales.
Segment operating profit includes all costs and expenses directly related to
the segment involved and an allocation of expenses which benefit more than one
segment.
To assist the reader in evaluating the profitability of each geographic and
industry segment, EBITDA is shown separately in the following tables.
Variations in the levels of corporate identifiable assets primarily reflect
fluctuations in the levels of cash and cash equivalents. Restricted cash of $88
million and $84 million which represents the proceeds from the sale of DAP are
included in corporate identifiable assets for 1992 and 1991, respectively.
Geographic and industry segment data for 1991 and 1990 exclude discontinued
operations.
In 1990, restructuring expenses totaling $18 million pre-tax were recorded
by the Corporation. These expenses were allocated as follows: U.S. Gypsum, $7
million; USG Interiors, $4 million; L&W Supply, $2 million; and Corporate, $5
million.
F-33
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
<TABLE>
<CAPTION>
DEPRECIATION
OPERATING DEPLETION AND CAPITAL IDENTIFIABLE
1992 GEORGRAPHIC SEGMENTS NET SALES PROFIT AMORTIZATION EBITDA EXPENDITURES ASSETS
- ------------------------------------- --------- ------------- ------------------- ----------- ----------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States:
Gypsum Products.................... $ 889 $ 69 $ 30 $ 99 $ 25 $ 645
Interior Systems................... 368 34 13 47 11 260
Building Products Distribution..... 464 3 2 5 3 95
Intrasegment eliminations.......... (216) -- -- -- -- --
Corporate.......................... -- (30) 8 (28) 1 423
--------- ----- --- ----- --- -------------
Total.............................. 1,505 76 53 123 40 1,423
Canada............................... 149 7 7 14 6 96
Other Foreign........................ 208 16 6 22 3 140
Transfers between geographic areas... (85) -- -- -- -- --
--------- ----- --- ----- --- -------------
Total.............................. 1,777 99 66 159 49 1,659
--------- ----- --- ----- --- -------------
--------- ----- --- ----- --- -------------
INDUSTRY SEGMENTS
Gypsum Products...................... 1,068 85 38 123 31 764
Interior Systems..................... 548 41 18 59 14 377
Building Products Distribution....... 464 3 2 5 3 95
Intersegment eliminations............ (303) -- -- -- -- --
Corporate............................ -- (30) 8 (28) 1 423
--------- ----- --- ----- --- -------------
Total.............................. 1,777 99 66 159 49 1,659
--------- ----- --- ----- --- -------------
--------- ----- --- ----- --- -------------
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION
OPERATING DEPLETION AND CAPITAL IDENTIFIABLE
1991 GEOGRAPHIC SEGMENTS NET SALES PROFIT AMORTIZATION EBITDA EXPENDITURES ASSETS
- ------------------------------------- --------- ------------- ------------------- ----------- ----------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States:
Gypsum Products.................... $ 835 $ 64 $ 29 $ 93 $ 23 $ 627
Interior Systems................... 386 47 12 59 9 263
Building Products Distribution..... 424 -- 4 4 1 85
Intrasegment eliminations.......... (212) -- -- -- -- --
Corporate.......................... -- (22) 10 (19) 1 383
--------- ----- --- ----- --- -------------
Total.............................. 1,433 89 55 137 34 1,358
Canada............................... 169 22 7 29 3 111
Other Foreign........................ 193 22 6 28 12 157
Transfers between geographic areas... (83) -- -- -- -- --
--------- ----- --- ----- --- -------------
Total.............................. 1,712 133 68 194 49 1,626
--------- ----- --- ----- --- -------------
--------- ----- --- ----- --- -------------
INDUSTRY SEGMENTS
Gypsum Products...................... 1,011 93 37 131 25 754
Interior Systems..................... 576 62 17 78 22 404
Building Products Distribution....... 424 -- 4 4 1 85
Intersegment eliminations............ (299) -- -- -- -- --
Corporate............................ -- (22) 10 (19) 1 383
--------- ----- --- ----- --- -------------
Total.............................. 1,712 133 68 194 49 1,626
--------- ----- --- ----- --- -------------
--------- ----- --- ----- --- -------------
</TABLE>
F-34
<PAGE>
USG CORPORATION
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
<TABLE>
<CAPTION>
DEPRECIATION
OPERATING DEPLETION AND CAPITAL IDENTIFIABLE
1990 GEORGRAPHIC SEGMENTS NET SALES PROFIT AMORTIZATION EBITDA EXPENDITURES ASSETS
- ------------------------------------- --------- ------------- ------------------- ----------- ----------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States:
Gypsum Products.................... $ 936 $ 116 $ 29 $ 152 $ 16 $ 635
Interior Systems................... 423 54 13 71 9 271
Building Products Distribution..... 478 4 6 12 1 89
Intrasegment eliminations.......... (234) -- -- -- -- --
Corporate.......................... -- (35) 15 (24) 1 275
--------- ----- --- ----- --- -------------
Total.............................. 1,603 139 63 211 27 1,270
Canada............................... 195 31 8 39 10 112
Other Foreign........................ 200 25 5 30 27 156
Transfers between geographic areas... (83) -- -- -- -- --
Discontinued operations.............. -- -- -- -- -- 137
--------- ----- --- ----- --- -------------
Total.............................. 1,915 195 76 280 64 1,675
--------- ----- --- ----- --- -------------
--------- ----- --- ----- --- -------------
INDUSTRY SEGMENTS
Gypsum Products...................... 1,134 148 39 194 25 765
Interior Systems..................... 624 78 16 98 37 409
Building Products Distribution....... 478 4 6 12 1 89
Intersegment eliminations............ (321) -- -- -- -- --
Corporate............................ -- (35) 15 (24) 1 275
Discontinued operations.............. -- -- -- -- -- 137
--------- ----- --- ----- --- -------------
Total.............................. 1,915 195 76 280 64 1,675
--------- ----- --- ----- --- -------------
--------- ----- --- ----- --- -------------
</TABLE>
<TABLE>
<CAPTION>
TRANSFERS BETWEEN GEOGRAPHIC AREAS 1992 1991 1990
- --------------------------------------------------------------------------- ----------- ----------------- -----------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
United States.............................................................. $ 35 $ 34 $ 34
Canada..................................................................... 23 22 22
Other Foreign.............................................................. 27 27 27
----------- ----- -----------
Total.................................................................... 85 83 83
----------- ----- -----------
----------- ----- -----------
</TABLE>
USG CORPORATION
MANAGEMENT REPORT
Management is responsible for the preparation and integrity of the financial
statements and related notes included herein. These statements have been
prepared in accordance with generally accepted accounting principles and, of
necessity, include some amounts that are based on management's best estimates
and judgments.
The Corporation's accounting systems include internal controls designed to
provide reasonable assurance of the reliability of its financial records and the
proper safeguarding and use of its assets. Such controls are based on
established policies and procedures, are implemented by trained personnel, and
are monitored through an internal audit program. The Corporation's policies and
procedures prescribe that the Corporation and its subsidiaries are to maintain
ethical standards and that its business practices are to be consistent with
those standards.
The Audit Committee of the Board, consisting solely of outside Directors of
the Corporation, maintains an ongoing appraisal, on behalf of the stockholders,
of the effectiveness of the independent auditors and management with respect to
the preparation of financial statements, the adequacy of internal controls and
the Corporation's accounting policies.
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board
of Directors of USG Corporation:
We have audited the accompanying consolidated balance sheet of USG Corporation
(a Delaware corporation) and subsidiaries as of December 31, 1992 and 1991 and
the related consolidated statements of earnings and cash flows for each of the
three years in the period ended December 31, 1992. These financial statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USG Corporation and
subsidiaries as of December 31, 1992 and 1991, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1992, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Corporation will continue as a going concern. The Corporation is in
default of various of its loan agreements and does not expect to fund its debt
service requirements in 1993 without restructuring its debt. Management's plan
to restructure its debt is discussed in the financial restructuring footnote to
the consolidated financial statements. As discussed in the litigation footnote,
in view of the current financial circumstances of the Corporation, and the
limited insurance funding currently available for property damage cases
resulting from the continued resistance by a number of U.S. Gypsum's insurers to
provide coverage, the effect of the asbestos litigation on the Corporation will
depend upon a variety of factors, including the damages sought in property
damage cases that reach trial prior to the completion of the coverage action,
U.S. Gypsum's ability to successfully defend or settle such cases, and the
resolution of the coverage action. As a result, management is unable to
determine whether an adverse outcome in the asbestos litigation will have a
material adverse effect on the results of operations or the consolidated
financial position of the Corporation. These conditions raise substantial doubt
about the Corporation's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments relating to
this uncertainty.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
February 9, 1993, except as
to the Subsequent Event note,
which is as of March 17, 1993.
F-36
<PAGE>
USG CORPORATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- --------- -------- -------- ---------
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C>
1992
Net sales............................... $ 426 $ 441 $ 474 $ 436 $ 1,777
Gross profit............................ 71 81 94 71 317
Operating profit........................ 20 28 39 12 99
Net loss................................ (50) (48) (33) (60) (191)
Per common share:
Net loss.............................. (.89) (.87) (.59) (1.07) (3.42)
Price range* -- high.................. 2 1 1/2 1 3/8 7/8 2
low..................... 1 7/8 11/16 1/2 1/2
1991
Net sales............................... $ 416 $ 434 $ 445 $ 417 $ 1,712
Gross profit............................ 80 85 86 76 327
Operating profit........................ 32 37 38 26 133
Loss from continuing operations......... (35) (31) (32) (43) (141)
Net loss................................ (36) (49)** (33) (43) (161)**
Per common share:
Loss from continuing operations....... (.63) (.56) (.56) (.78) (2.53)
Net loss.............................. (.66) (.88) (.59) (.78) (2.91)
Price range* -- high.................. 3 2 1/2 1 7/8 1 3/4 3
low..................... 13/16 1 3/8 1 5/8 1 1/8 3/16
<FN>
- ------------------------
* Stock price ranges are for transactions on the New York Stock Exchange
(trading symbol USG), which is the principal market for these securities.
Stockholders of record as of February 26, 1993: Common -- 14,618; Preferred
-- none.
** Second quarter and total year 1991 net loss figures include an after-tax
provision of $20 million related to the divestiture of DAP.
</TABLE>
F-37
<PAGE>
USG CORPORATION
COMPARATIVE FIVE-YEAR SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
--------- --------- --------- --------- ---------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE
FIGURES)
<S> <C> <C> <C> <C> <C>
OPERATING ITEMS *
FOR YEARS ENDED DECEMBER 31:
Net sales............................................ $ 1,777 $ 1,712 $ 1,915 $ 2,007 $ 2,070
Cost of products sold................................ 1,460 1,385 1,499 1,506 1,536
Gross profit......................................... 317 327 416 501 534
Selling and administrative expenses.................. 218 194 203 209 223
Recapitalization and restructuring expenses.......... -- -- 18 -- 20
Operating profit..................................... 99 133 195 292 291
Interest expense..................................... 334 333 292 297 178
Interest income...................................... (12) (11) (8) (10) (13)
Other expense, net................................... 1 5 5 15 16
Nonrecurring gains................................... -- -- (34) (33) --
Taxes on income/(income tax benefit)................. (33) (53) (6) 3 43
% actual income tax/(benefit) rate................. (15.0) (27.5) (9.8) 14.3 39.4
Earnings/(loss) from continuing operations........... (191) (141) (54) 20 67
Net earnings/(loss).................................. (191) (161) (90) 28 125
% to average total capital employed................ 9.5 5.3 6.5 18.2 15.7
Per common share:
Earnings/(loss) from continuing operations......... (3.42) (2.53) (.99) .37 1.26
Net earnings/(loss)................................ (3.42) (2.91) (1.65) .51 2.38
Cash dividends..................................... -- -- -- -- .56
Capital expenditures................................. 49 49 64 76 81
FINANCIAL ITEMS *
AS OF DECEMBER 31:
Working capital/(deficit)............................ (2,608) (2,372) (2,198) 51 102
Current ratio........................................ .21 .21 .24 1.09 1.15
Property, plant and equipment, net................... 800 819 825 837 859
Total assets......................................... 1,659 1,626 1,675 1,585 1,806
Total debt........................................... 2,711 2,660 2,600 2,428 2,643
Total stockholders' equity/(deficit)................. (1,880) (1,680) (1,518) (1,438) (1,471)
Market value per common share........................ .56 1.63 .81 4.50 5.63
Average number of employees............................ 11,850 11,800 12,700 13,400 14,400
<FN>
- ------------------------
* Results reflect DAP (sold in 1991), the Marlite Division of USG Interiors
(sold in 1989), Wiss, Janney, Elstner Associates, Inc. (sold in 1989),
Masonite Corporation (sold in 1988) and the Kinkead Division (sold in 1988)
as discontinued operations.
</TABLE>
F-38
<PAGE>
SCHEDULE V
USG CORPORATION
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING BALANCE AT
CLASSIFICATION OF YEAR END OF YEAR
- ---------------------------------------------------------------------------------------- ----------- -----------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1990
- ----------------------------------------------------------------------------------------
Land and mineral deposits............................................................... $ 39 $ 43
Buildings and realty improvements....................................................... 386 385
Machinery and equipment................................................................. 955 972
----------- -----------
Total................................................................................. 1,380 1,400
----------- -----------
----------- -----------
YEAR ENDED DECEMBER 31, 1991
- ----------------------------------------------------------------------------------------
Land and mineral deposits............................................................... 43 41
Buildings and realty improvements....................................................... 385 402
Machinery and equipment................................................................. 972 1,000
----------- -----------
Total................................................................................. 1,400 1,443
----------- -----------
----------- -----------
YEAR ENDED DECEMBER 31, 1992
- ----------------------------------------------------------------------------------------
Land and mineral deposits............................................................... 41 41
Buildings and realty improvements....................................................... 402 401
Machinery and equipment................................................................. 1,000 1,012
----------- -----------
Total................................................................................. 1,443 1,454
----------- -----------
----------- -----------
</TABLE>
Detailed information regarding additions and deductions is omitted as
neither total additions nor total deductions during each of the periods shown
above exceeded 10% of the balance at the end of the related period. Total
additions were $49 million, $49 million and $64 million in 1992, 1991 and 1990,
respectively. Total deductions were $38 million, $6 million and $44 million in
1992, 1991 and 1990, respectively.
Total deductions include foreign currency translation adjustments which
increased total deductions by $18 million in 1992 and decreased total deductions
by $1 million and $3 million in 1991 and 1990, respectively.
Upon retirement or other disposition of property, the applicable cost and
accumulated depreciation and depletion are removed from the accounts. Any gains
and losses are included in earnings.
F-39
<PAGE>
SCHEDULE VI
USG CORPORATION
ACCUMULATED DEPRECIATION AND DEPLETION OF
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF BALANCE AT
CLASSIFICATION YEAR END OF YEAR
- ---------------------------------------------------------------------------------------- ------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1990
- ----------------------------------------------------------------------------------------
Land and mineral deposits............................................................... $ 6 $ 7
Buildings and realty improvements....................................................... 139 141
Machinery and equipment................................................................. 398 427
----- -----
Total................................................................................. $ 543 $ 575
----- -----
----- -----
YEAR ENDED DECEMBER 31, 1991
- ----------------------------------------------------------------------------------------
Land and mineral deposits............................................................... 7 7
Buildings and realty improvements....................................................... 141 147
Machinery and equipment................................................................. 427 470
----- -----
Total................................................................................. $ 575 $ 624
----- -----
----- -----
YEAR ENDED DECEMBER 31, 1992
- ----------------------------------------------------------------------------------------
Land and mineral deposits............................................................... 7 7
Buildings and realty improvements....................................................... 147 155
Machinery and equipment................................................................. 470 492
----- -----
Total................................................................................. $ 624 $ 654
----- -----
----- -----
</TABLE>
Detailed information regarding additions and deductions is omitted as
neither total additions nor total deductions of property, plant and equipment
(see Schedule V) during each of the periods shown above exceeded 10% of the
balance of property, plant and equipment at the end of the related period. Total
provisions for depreciation and depletion were $58 million, $57 million and $60
million in 1992, 1991 and 1990, respectively. Total deductions were $28 million,
$8 million and $28 million in 1992, 1991 and 1990, respectively.
Total deductions include foreign currency translation adjustments which
increased total deductions by $10 million in 1992 and decreased total deductions
by $1 million in each of the years 1991 and 1990.
Upon retirement or other disposition of property, the applicable cost and
accumulated depreciation and depletion are removed from the accounts. Any gains
and losses are included in earnings.
F-40
<PAGE>
SCHEDULE VIII
USG CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
PROVISION RECEIVABLES
BALANCE AT CHARGED TO WRITTEN OFF BALANCE AT
BEGINNING COSTS AND AND DISCOUNTS END OF
ACCOUNT OF YEAR EXPENSES ALLOWED YEAR
- ---------------------------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1990
- ----------------------------------------------------------
Doubtful accounts......................................... $ 8 $ 8 $ (10) $ 6
Cash discounts............................................ 3 34 (35) 2
YEAR ENDED DECEMBER 31, 1991
- ----------------------------------------------------------
Doubtful accounts......................................... 6 7 (6) 7
Cash discounts............................................ 2 23 (23) 2
YEAR ENDED DECEMBER 31, 1992
- ----------------------------------------------------------
Doubtful accounts......................................... 7 7 (5) 9
Cash discounts............................................ 2 24 (24) 2
</TABLE>
F-41
<PAGE>
SCHEDULE IX
USG CORPORATION
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
MAXIMUM AVERAGE WEIGHTED
AMOUNT AMOUNT AVERAGE
BALANCE WEIGHTED OUTSTANDING OUTSTANDING INTEREST
CATEGORY OF AGGREGATE AT END OF AVERAGE DURING THE DURING THE RATE DURING
SHORT-TERM BORROWINGS THE YEAR INTEREST RATE YEAR YEAR(A) THE YEAR(B)
- -------------------------------------------- ----------- --------------- --------------- --------------- ---------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1990
- --------------------------------------------
Notes payable (c)........................... $ 16 11.4% $ 16 $ 5 11.9%
Revolving Credit Facility (d)............... 140 11.0 140 61 11.0
YEAR ENDED DECEMBER 31, 1991
- --------------------------------------------
Notes payable (c)........................... 8 8.5 19 15 10.5
Revolving Credit Facility (d)............... 140 12.8 140 140 13.3
YEAR ENDED DECEMBER 31, 1992
- --------------------------------------------
Notes payable (c)........................... 2 10.6 12 7 8.0
Revolving Credit Facility (d)............... 140 10.0 140 140 11.2
<FN>
- ------------------------
(a) Computed by dividing the total of month-end principal balances by 12.
(b) Computed by dividing annual interest expense by the average amount of
short-term borrowings outstanding.
(c) Represents borrowings from several foreign banks by USG International which
is generally not subject to the provisions of the Current Credit Agreement.
(d) The Current Credit Agreement includes a $200 million Revolving Credit
Facility, of which $70 million is established as a letter of credit
subfacility. Under the Amended Credit Agreement, the Revolving Credit
Facility will be reduced to $175 million.
</TABLE>
F-42
<PAGE>
SCHEDULE X
USG CORPORATION
SUPPLEMENTAL STATEMENT OF EARNINGS INFORMATION
The following amounts were charged to costs and expenses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1992 1991 1990
--------- ----- ---------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Maintenance and repairs.......................................................... $ 105 $ 99 $ 105
Depreciation, depletion and amortization......................................... 66 68 76
</TABLE>
Maintenance and repairs are treated as costs or expenses when incurred.
Taxes (excluding payroll and income taxes), rents, royalties and advertising
costs are not shown above as individually they do not exceed one percent of net
sales in any of the three years.
F-43
<PAGE>
SUPPLEMENTAL NOTE ON FINANCIAL INFORMATION FOR
UNITED STATES GYPSUM COMPANY
(A SUBSIDIARY OF USG CORPORATION)
USG Corporation, a holding company, owns several operating subsidiaries,
including U.S. Gypsum. On January 1, 1985, all of the issued and outstanding
shares of stock of U.S. Gypsum were converted into shares of the Corporation and
the Corporation became a joint and several obligor for certain debentures
originally issued by U.S. Gypsum. As of December 31, 1992, debentures totaling
$41 million were recorded on the holding company's books of account compared
with $45 million as of December 31, 1991. Financial results for U.S. Gypsum are
presented below in accordance with disclosure requirements of the SEC.
SUMMARY STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1992 1991 1990
--------- --------- ---------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Net sales............................................................................. $ 871 $ 822 $ 928
Cost and expenses..................................................................... 801 759 813
--------- --------- ---------
Operating profit...................................................................... 70 63 115
Other income, net..................................................................... (2) (1) (3)
Interest expense, net................................................................. 2 4 --
Corporate charges..................................................................... 188 173 160
--------- --------- ---------
Loss before taxes on income........................................................... (118) (113) (42)
Income tax benefit.................................................................... (44) (43) (20)
--------- --------- ---------
Net loss.............................................................................. $ (74) $ (70) $ (22)
--------- --------- ---------
--------- --------- ---------
</TABLE>
SUMMARY BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------
1992 1991
--------- ---------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C>
Current assets........................................................................ $ 192 $ 168
Property, plant and equipment, net.................................................... 511 517
Other assets.......................................................................... 7 7
--------- ---------
Total assets...................................................................... $ 710 $ 692
--------- ---------
--------- ---------
Current liabilities................................................................... 32 44
Other liabilities and obligations..................................................... 193 220
Stockholder's equity.................................................................. 485 428
--------- ---------
Total liabilities and stockholder's equity........................................ $ 710 $ 692
--------- ---------
--------- ---------
</TABLE>
F-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO SUPPLEMENTAL NOTE AND FINANCIAL STATEMENT SCHEDULES
We have audited in accordance with generally accepted auditing standards,
the financial statements of USG Corporation included in the Form 10-K, and have
issued our report thereon dated February 9, 1993. Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The supplemental note and financial statement schedules on pages F-39
through F-44 are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
The supplemental note and financial statement schedules have been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
February 9, 1993
F-45
<PAGE>
USG CORPORATION
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1993,
MAY 7 THROUGH JUNE 30, 1993 AND
JANUARY 1 THROUGH MAY 6, 1993
(UNAUDITED)
F-46
<PAGE>
USG CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER-SHARE FIGURES)
(UNAUDITED)
<TABLE>
<CAPTION>
1993 (A) 1993 1992
----------------------------- ----------- -------------------------------
THREE MONTHS MAY 7 JANUARY 1 THREE MONTHS NINE MONTHS
ENDED THROUGH THROUGH ENDED ENDED
SEPTEMBER 30 JUNE 30 MAY 6 SEPTEMBER 30 SEPTEMBER 30
------------- ------------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net Sales.................................... $ 514 $ 315 $ 591 $ 474 $ 1,341
Cost of products sold........................ 409 252 482 380 1,095
------------- ------------- ----- ----- -------
Gross Profit................................. 105 63 109 94 246
Selling and administrative expenses.......... 56 36 71 55 159
Amortization of excess reorganization
value....................................... 43 28 -- -- --
------------- ------------- ----- ----- -------
Operating Profit/(Loss)...................... 6 (1) 38 39 87
Interest expense............................. 34 22 86 81 253
Interest income.............................. (2) (1) (2) (3) (8)
Other (income)/expense, net.................. (4) (2) 6 1 --
Reorganization items......................... -- -- (709) -- --
------------- ------------- ----- ----- -------
Earnings/(Loss) Before Taxes on Income,
Extraordinary Gain and Changes in Accounting
Principles.................................. (22) (20) 657 (40) (158)
Taxes on income/(income tax benefit)......... 3 1 17 (7) (27)
------------- ------------- ----- ----- -------
Earnings/(Loss) Before Extraordinary Gain and
Changes in Accounting Principles............ (25) (21) 640 (33) (131)
Extraordinary gain, net of taxes............. -- -- 944 -- --
Cumulative effect of changes in accounting
principles, net............................. -- -- (150) -- --
------------- ------------- ----- ----- -------
Net Earnings/(Loss).......................... (25) (21) 1,434 (33) (131)
------------- ------------- ----- ----- -------
------------- ------------- ----- ----- -------
Average number of common shares (b).......... 37,157,482 37,157,458
------------- -------------
------------- -------------
Net Loss Per Common Share (b)................ $(0.66) $(0.57)
Dividends paid per common share.............. -- --
------------- -------------
------------- -------------
Other Information:
Operating profit/(loss).................... $ 6 $ (1) $ 38 $ 39 $ 87
Amortization of excess reorganization
value..................................... 43 28 -- -- --
Depreciation and depletion................. 14 8 20 14 42
Other...................................... 2 2 5 1 3
------------- ------------- ----- ----- -------
EBITDA................................... $ 65 $ 37 $ 63 $ 54 $ 132
------------- ------------- ----- ----- -------
------------- ------------- ----- ----- -------
<FN>
- ------------------------
(a) Due to the Restructuring and implementation of fresh start reporting,
financial statements effective May 7, 1993 for the newly-restructured
company are not comparable to financial statements prior to that date for
the predecessor company. See "Notes to Consolidated Financial Statements
-- Note (3)" for more information on the Restructuring and implementation
of fresh start reporting.
(b) Common shares and per share data for periods prior to May 7, 1993 are
omitted because, due to the Restructuring and implementation of fresh
start reporting, they are not meaningful.
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-47
<PAGE>
USG CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1993 (A) 1992
--------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................... $ 157 $ 180
Receivables (net of reserves -- 1993 $13; 1992 $11)......... 292 299
Inventories................................................. 147 113
Restricted cash............................................. -- 88
------- -------
Total current assets.................................... 596 680
Property, Plant and Equipment (net of reserves for
depreciation and depletion -- 1993 $22; 1992 $654)......... 754 800
Excess Reorganization Value, Net............................ 776 --
Purchased Goodwill, Net..................................... -- 69
Other Assets................................................ 60 110
------- -------
Total assets............................................ $ 2,186 $ 1,659
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................ $ 101 $ 91
Accrued expenses............................................ 211 553
Notes payable............................................... 8 2
Revolving credit facility................................... -- 140
Long-term debt maturing within one year..................... 6 576
Long-term debt classified as current........................ -- 1,926
Taxes on income............................................. 14 --
------- -------
Total current liabilities............................... 340 3,288
Long-Term Debt.............................................. 1,439 67
Deferred Income Taxes....................................... 173 175
Other Liabilities........................................... 286 9
Stockholders' Equity/(Deficit):
Preferred stock............................................. -- --
Common stock................................................ 4 5
Capital received in excess of par value..................... -- 23
Deferred currency translation............................... (10) (8)
Reinvested earnings/(deficit)............................... (46) (1,900)
------- -------
Total stockholders' equity/(deficit).................... (52) (1,880)
------- -------
Total liabilities and stockholders' equity.............. $ 2,186 $ 1,659
------- -------
------- -------
<FN>
- ------------------------
(a) Due to the Restructuring and implementation of fresh start reporting,
financial statements effective May 7, 1993 for the newly-restructured
company are not comparable to financial statements prior to that date for
the predecessor company. See "Notes to Consolidated Financial Statements
-- Note (3)" for more information on the Restructuring and implementation
of fresh start reporting.
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-48
<PAGE>
USG CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 7 JANUARY 1 NINE MONTHS
THROUGH THROUGH ENDED
SEPTEMBER 30, MAY 6, SEPTEMBER 30,
1993 (A) 1993 1992
--------------- ----------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings/(loss).................................... $ (46) $ 1,434 $ (131)
Adjustments to reconcile net earnings/(loss) to net
cash:
Amortization of excess reorganization value.......... 71 -- --
Cumulative effect of accounting changes.............. -- 150 --
Depreciation, depletion and other amortization....... 29 22 50
Postretirement expense, net.......................... 4 4 --
Interest expense on pay-in-kind debentures........... -- 17 54
Deferred income taxes................................ 3 (13) (35)
Net (gain)/loss on asset dispositions................ (7) 4 (5)
(Increase)/decrease in working capital:
Receivables.......................................... 23 18 (32)
Inventories.......................................... 1 (8) (12)
Payables............................................. 5 3 10
Accrued expenses..................................... 40 15 164
(Increase)/decrease in other assets.................... 4 (12) (19)
Increase/(decrease) in other liabilities............... 2 -- (2)
Changes due to reorganization items:
Increase in reorganization items..................... -- 65 --
Net adjustments to fair market value................. -- (759) --
Gain on discharge of prepetition liabilities......... -- (944) --
Payment of liabilities net of collection of letters
of credit........................................... -- (7) --
Other, net............................................. (3) (3) 1
----- ----------- ------
Net cash flows (to)/from operating activities........ 126 (14) 43
----- ----------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................... (16) (12) (27)
Net proceeds from asset dispositions................... 9 -- 6
----- ----------- ------
Net cash flows to investing activities............... (7) (12) (21)
----- ----------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt....................................... 26 5 57
Repayment of debt...................................... (37) (142) (68)
(Increase)/decrease in restricted assets............... -- 32 (3)
----- ----------- ------
Net cash flows to financing activities............... (11) (105) (14)
----- ----------- ------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS... 108 (131) 8
----- ----------- ------
Cash and cash equivalents as of beginning of period.... 49 180 155
----- ----------- ------
Cash and cash equivalents as of end of period.......... $ 157 $ 49 $ 163
----- ----------- ------
----- ----------- ------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid.......................................... 34 58 42
Income taxes paid...................................... $ 3 $ 3 $ 8
----- ----------- ------
----- ----------- ------
<FN>
- ------------------------
(a) Due to the Restructuring and implementation of fresh start reporting,
financial statements effective May 7, 1993 for the newly-restructured
company are not comparable to financial statements prior to that date for
the predecessor company. See "Notes to Consolidated Financial Statements
-- Note (3)" for more information on the Restructuring and implementation
of fresh start reporting.
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-49
<PAGE>
USG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) USG Corporation and its subsidiaries' ("THE CORPORATION") consolidated
financial statements included herein have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, the statements reflect all adjustments, which are of a normal
recurring nature, necessary to present fairly the Corporation's financial
position as of September 30, 1993 and December 31, 1992; results of operations
for the three months ended September 30, 1993, the periods of May 7 through June
30, 1993 and January 1 through May 6, 1993, and for the three months and nine
months ended September 30, 1992; and cash flows for the periods of May 7 through
September 30, 1993, and January 1 through May 6, 1993, and for the nine months
ended September 30, 1992. While these interim financial statements and
accompanying notes are unaudited, they have been reviewed by Arthur Andersen &
Co., the Corporation's independent public accountants. These financial
statements are to be read in conjunction with the financial statements and notes
included in the Corporation's 1992 Annual Report on Form 10-K dated March 26,
1993.
(2) EBITDA is traditionally defined as earnings before interest, taxes,
depreciation, depletion and amortization. For 1993, the Corporation also adds
back non-cash postretirement charges, reorganization items, an extraordinary
gain and the cumulative impact of changes in accounting principles. The
Corporation believes that EBITDA is a useful supplement to net income and other
consolidated statement of earnings data as an indicator of the Corporation's
operating performance and is helpful in understanding cash flow generated from
operations that is available for taxes, debt service and capital expenditures.
In addition, EBITDA for the Corporation's domestic operations (disclosed in Part
I, Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations by Segment") facilitates the
monitoring of covenants related to certain long-term debt and other agreements
entered into in conjunction with the Restructuring.
(3) On May 6, 1993, the Corporation completed a comprehensive restructuring
of its debt (the "RESTRUCTURING") through the implementation of a "prepackaged"
plan of reorganization (the "PLAN OF REORGANIZATION") which was confirmed on
April 23, 1993 by the United States Bankruptcy Court for the District of
Delaware (the "BANKRUPTCY COURT"). Under the Plan of Reorganization all
previously existing defaults upon senior securities were waived or cured. None
of the subsidiaries of the Corporation were part of the bankruptcy proceeding
and there was no impact on trade creditors of the Corporation's subsidiaries.
The Corporation accounted for the Restructuring using the principles of fresh
start reporting as required by AICPA Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7").
Pursuant to such principles, individual assets and liabilities were adjusted to
fair market value as of May 6, 1993. The portion of the reorganization value not
attributable to specific assets ("EXCESS REORGANIZATION VALUE") is being
amortized over a five year period, effective May 7, 1993. See the Corporation's
Second Quarter, 1993 Report on Form 10-Q dated August 12, 1993 for more
information on the terms and implementation of the Plan of Reorganization and
fresh start reporting.
(4) The following unaudited Pro Forma Consolidated Statement of Earnings for
the nine months ended September 30, 1993 has been prepared giving effect to the
consummation of the Plan of Reorganization, including the costs related thereto,
in accordance with SOP 90-7, as if the consummation had occurred on January 1,
1993. Due to the Restructuring and implementation of fresh start reporting,
financial statements effective May 7, 1993 for the newly-restructured company
are not comparable to financial statements prior to that date for the
predecessor company. However, for presentation of this statement, results for
the first nine months of 1993 are shown under the caption "Total Before
Adjustments." The adjustments set forth under the caption "Pro Forma
Adjustments" reflect the assumed effects of the Restructuring and the adoption
of fresh start reporting prescribed by SOP 90-7.
F-50
<PAGE>
USG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1993
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
BEFORE
ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------- -------------- -----------
<S> <C> <C> <C>
Net sales................................................... $ 1,420 -- $ 1,420
Cost of products sold....................................... 1,143 -- 1,143
------------- ------- -----------
Gross profit................................................ 277 -- 277
Selling and administrative expense.......................... 163 -- 163
Amortization of excess reorganization value................. 71 57(a) 128
------------- ------- -----------
Operating profit/(loss)..................................... 43 (57) (14)
Interest expense............................................ 142 (42)(b) 100
Interest income............................................. (5) -- (5)
Other (income)/expense, net................................. -- (1)(c) (1)
Reorganization items........................................ (709) 709(d) --
------------- ------- -----------
Earnings/(loss) before taxes on income, (723)
extraordinary gain and changes in
accounting principles...................................... 615 (108)
Taxes on income............................................. 21 (16) 5
------------- ------- -----------
Earnings/(loss) before extraordinary gain and changes in (707)
accounting principles...................................... 594 (113)
------------- ------- -----------
------------- ------- -----------
<FN>
- ------------------------
(a) Reflects amortization of Excess Reorganization Value which would have been
recorded during the period of January 1 through May 6, 1993.
(b) Reflects the adjustment to restate interest expense for the period of
January 1 through May 6, 1993 to the amount that would have been recorded.
(c) Represents the reversal of first quarter 1993 amortization of historical
capitalized financing costs which were written off in connection with the
Restructuring.
(d) Represents the reversal of actual reorganization items incurred in
connection with the Restructuring and implementation of fresh start
reporting. This gain would have been recorded in 1992 had the Restructuring
occurred on January 1, 1993.
</TABLE>
(5) In connection with the Restructuring, the Corporation recorded in the
period of January 1 through May 6, 1993 a one-time reorganization items gain of
$709 million, which primarily consisted of an $851 million gain from recording
the Excess Reorganization Value pursuant to SOP 90-7.
(6) Also in connection with the Restructuring, the Corporation recorded in
the period of January 1 through May 6, 1993 a one-time after-tax extraordinary
gain of $944 million resulting primarily from the exchange of subordinated debt
for stock and warrants.
(7) Effective January 1, 1993, the Corporation adopted Statement of
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," for its U.S. retiree benefit plans. Under this
standard, the Corporation is required to accrue the estimated cost of
F-51
<PAGE>
USG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
retiree benefit payments, other than pensions, during employees' active service
period. The Corporation previously expensed the cost of these benefits, which
are principally health care, as claims were incurred. The Corporation elected to
recognize this change in accounting principles on the immediate recognition
basis. The cumulative effect as of January 1, 1993 of adopting SFAS No. 106 was
a one-time charge to first quarter 1993 net earnings of $180 million.
(8) Effective January 1, 1993, the Corporation adopted SFAS No. 109,
"Accounting for Income Taxes." The cumulative effect as of January 1, 1993 of
adopting SFAS No. 109 was a one-time benefit to first quarter 1993 net earnings
of $30 million primarily due to adjusting deferred taxes from historical to
current tax rates. Financial statements for periods prior to January 1, 1993
have not been restated to reflect the adoption of this standard.
The effective income tax rate was 9.5% for the period of May 7 through
September 30, 1993 due to tax expense on foreign subsidiary earnings, no benefit
for the amortization of excess reorganization value, the inability to benefit
the domestic net operating loss and a one-time charge in the third quarter of $3
million to adjust deferred taxes for the increase in the statutory tax rate from
34% to 35%. The effective income tax rate was 2.6% for the period of January 1
through May 6, 1993 due to tax expense on foreign subsidiary earnings,
adjustment for the nontaxable effects of adopting fresh start accounting and the
inability to benefit the domestic net operating loss. For the three months and
nine months ended September 30, 1992, the effective income tax benefit rates
were 17.5% and 17.1%, respectively.
The Corporation has net operating loss carryforwards ("NOL CARRYFORWARDS")
of $14 million and $150 million for 1991 and 1992, respectively. The Internal
Revenue Code (the "CODE") will limit the Corporation's annual use of its NOL
Carryforwards as a result of consummation of the Plan of Reorganization.
Furthermore, due to the uncertainty regarding the application of the Code to the
exchange of stock for debt, the Corporation could be required to reduce its NOL
Carryforwards by the amount of the cancellation of indebtedness from the Plan of
Reorganization. If the Corporation is required to reduce all or a portion of its
NOL Carryforwards, annual reductions in U.S. federal income taxes which would
otherwise result from use of these NOL Carryforwards would be smaller or
eliminated altogether. The Corporation believes that to the extent it is not
required to reduce its NOL Carryforwards, it will be able to use approximately
$30 million of the NOL Carryforwards each year to offset federal taxable income
otherwise generated after consummation of the Plan of Reorganization.
(9) Inventories totaled $147 million and $113 million as of September 30,
1993 and December 31, 1992, respectively. In accordance with implementation of
fresh start reporting, the historical balances of inventories were adjusted to
fair market value as of May 6, 1993. Inventories are valued predominantly under
the last-in, first-out ("LIFO") method of accounting. Inventory classifications
were as follows (in million of dollars):
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1993 1992
--------------- ---------------
<S> <C> <C>
Finished goods and work-in-process....................... $ 87 $ 66
Raw materials............................................ 53 40
Supplies................................................. 7 7
----- -----
Total inventories........................................ $ 147 $ 113
----- -----
----- -----
</TABLE>
If all inventories were valued under the first-in, first-out ("FIFO") and
average production cost methods, inventories would have been $1 million and $25
million higher than those reported as of September 30, 1993 and December 31,
1992, respectively.
F-52
<PAGE>
USG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(10) On August 10, 1993, the Corporation issued $138 million of 10 1/4%
Senior Notes due 2002, Series B (the "NEW 10 1/4% SENIOR NOTES") in exchange for
$92 million of bank term loans originally due 1994 through 1996 and $46 million
of capitalized interest notes originally due 2000. The exchange was made
pursuant to the Corporation's Registration Statement on Form S-1 bearing
Registration No. 33-65804 with the Securities and Exchange Commission which
included a prospectus related to the offering. This registration statement was
declared effective on July 29, 1993. The Corporation did not receive any cash
proceeds from the issuance of these securities.
In connection with the issuance of the New 10 1/4 Senior Notes, the
Corporation's bank term loan credit agreement (the "CREDIT AGREEMENT") was
modified, providing for the following changes: (i) scheduled bank term loan
amortization payments of $95 million due in 1994, 1995 and 1996 were eliminated
($3 million was added to the final maturity bank term loan due in 2000); (ii)
USG Interiors paid $9 million of capitalized interest notes originally due in
1998; and (iii) the cash sweep mechanism was modified to apply up to $165
million of cash otherwise subject to the cash sweep mechanism in 1994, 1995 and
1996 to repayment or purchase of senior debt due prior to January 1, 1999 or
bank term loans, at the discretion of the Corporation.
(11) Pursuant to the Plan of Reorganization, all stock options existing as
of May 6, 1993 were cancelled without consideration. As permitted by the Plan of
Reorganization, 2,788,350 common shares were reserved for future issuance in
conjunction with stock options, all of which remained in reserve as of September
30, 1993. Options for 1,673,000 common shares were granted on June 1, 1993,
leaving an additional 1,115,350 common shares available for future grants.
(12) One of the Corporation's operating subsidiaries, United States Gypsum
Company ("U.S. GYPSUM"), is a defendant in asbestos lawsuits alleging both
property damage and personal injury. This litigation has not had a material
effect on the Corporation's liquidity or earnings. Virtually all costs of the
Personal Injury Cases are being paid by insurance. However, many of U.S.
Gypsum's insurance carriers are denying coverage for the Property Damage Cases,
although U.S. Gypsum believes that substantial coverage exists and the trial
court in U.S. Gypsum's Coverage Action has so ruled (such ruling has been
appealed). In view of the limited insurance funding currently available to U.S.
Gypsum for Property Damage Cases resulting from continued resistance by a number
of U.S. Gypsum's insurers to providing coverage, the effect of the asbestos
litigation on the Corporation will depend upon a variety of factors, including
the damages sought in Property Damage Cases that reach trial prior to the
completion of the Coverage Action, U.S. Gypsum's ability to successfully defend
or settle such cases, and the resolution of the Coverage Action. As a result,
management is unable to determine whether an adverse outcome in the asbestos
litigation will have a material adverse effect on the results of operations or
the consolidated financial position of the Corporation.
The Corporation and certain of its subsidiaries have been notified by state
and federal environmental protection agencies of possible involvement as one of
numerous "potentially responsible parties" in a number of so-called "Superfund"
sites in the United States. The Corporation does not presently anticipate any
material adverse effect upon its earnings or consolidated financial position
arising out of the resolution of these matters or any other pending governmental
proceeding regarding environmental matters.
(13) USG Corporation, a holding company, owns several operating
subsidiaries, including U.S. Gypsum. On January 1, 1985, all of the issued and
outstanding shares of stock of U.S. Gypsum were converted into shares of USG
Corporation and the holding company became a joint and several obligor
F-53
<PAGE>
USG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
for certain debentures originally issued by U.S. Gypsum. Debentures totaling $38
million and $41 million were on the holding company's books of account as of
September 30, 1993 and December 31, 1992, respectively. Summary financial
results for U.S. Gypsum are presented below (in millions of dollars):
<TABLE>
<CAPTION>
1993 (A) 1993 1992
-------------------------- ----------- -------------------------------
THREE MONTHS MAY 7 JANUARY 1 THREE MONTHS NINE MONTHS
ENDED THROUGH THROUGH ENDED ENDED
SUMMARY STATEMENT OF EARNINGS SEPTEMBER 30 JUNE 30 MAY 6 SEPTEMBER 30 SEPTEMBER 30
- --------------------------------------------- -------------- --------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ 260 $ 160 $ 297 $ 231 $ 657
Cost and expenses............................ 223 141 268 205 599
Amortization of excess reorganization 15 10 -- -- --
value.......................................
----- --------- ----- ----- -----
Operating profit............................. 22 9 29 26 58
Interest expense, net........................ -- -- -- -- 1
Other income, net............................ (1) -- -- (2) (2)
Corporate charges............................ 24 13 52 51 150
Reorganization items......................... -- -- (295) -- --
----- --------- ----- ----- -----
Earnings/(loss) before taxes on income and (1) (4) 272 (23) (91)
change in accounting principle..............
Income tax/(tax benefit)..................... 2 3 (7) (8) (32)
----- --------- ----- ----- -----
Earnings/(loss) before change in accounting $ (3) $ (7) $ 279 $ (15) $ (59)
principle...................................
Cumulative effect of change in accounting -- -- 28 -- --
principle...................................
----- --------- ----- ----- -----
Net earnings/(loss).......................... (3) (7) 307 (15) (59)
----- --------- ----- ----- -----
----- --------- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
SUMMARY BALANCE SHEET 1993 (A) 1992
- --------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Current assets........................................... $ 275 $ 192
Property, plant and equipment, net....................... 484 511
Excess reorganization value, net......................... 281 --
Other assets............................................. 5 7
------------- -----
Total assets........................................... 1,045 710
------------- -----
------------- -----
Current liabilities...................................... 112 32
Other liabilities and obligations........................ 151 193
Stockholder's equity..................................... 782 485
------------- -----
Total liabilities and stockholder's equity............. $ 1,045 $ 710
------------- -----
------------- -----
</TABLE>
(a) Due to the Restructuring and implementation of fresh start
reporting, financial statements effective May 7, 1993 for the
newly-restructured company are not comparable to financial statements
prior to that date for the predecessor company. See "Notes to
Consolidated Financial Statements -- Note (3)" for more information on
the Restructuring and implementation of fresh start reporting.
F-54
<PAGE>
USG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(14) The Corporation issued $340 million aggregate principal amount of
10 1/4% Senior Notes in May 1993 and an additional $138 million aggregate
principal amount of such notes in August 1993. Each of U.S. Gypsum, USG
Industries, Inc., USG Interiors, Inc. ("USG INTERIORS"), USG Foreign
Investments, Ltd., L&W Supply Corporation ("L&W SUPPLY"), Westbank Planting
Company, USG Interiors International, Inc., American Metals Corporation and La
Mirada Products Co., Inc. (together, the "COMBINED GUARANTORS") guaranteed, in
the manner described below, the obligations of the Corporation under the Credit
Agreement and the 10 1/4 Senior Notes. The Combined Guarantors are jointly and
severally liable under the guarantees. Holders of the debt issued in connection
with the Credit Agreement (the "BANK DEBT") have the right to (i) determine
whether, when and to what extent the guarantees will be enforced (provided that
each guarantee payment will be applied to the Bank Debt and 10 1/4% Senior Notes
pro rata based on the respective amounts owed thereon) and (ii) amend or
eliminate the guarantees. The guarantees will terminate when the Bank Debt is
retired regardless of whether the 10 1/4% Senior Notes remain unpaid. The
liability of each of the Combined Guarantors on its guarantee is limited to the
greater of (i) 95% of the lowest amount, calculated as of July 13, 1988,
sufficient to render the guarantor insolvent, leave the guarantor with
unreasonably small capital or leave the guarantor unable to pay its debts as
they become due (each as defined under applicable law) and (ii) the same amount,
calculated as of the date any demand for payment under such guarantee is made,
in each case plus collection costs. The guarantees are senior obligations of the
applicable guarantor and rank pari passu with all unsubordinated obligations of
the guarantor.
There are 43 Non-Guarantors (the "COMBINED NON-GUARANTORS"), substantially
all of which are subsidiaries of Guarantors. The Combined Non-Guarantors
primarily include CGC Inc. ("CGC"), the Corporation's 76%-owned Canadian
subsidiary, Gypsum Transportation Limited, USG Canadian Mining Ltd., the Mexican
subsidiaries and the European and Pacific subsidiaries of USG Interiors. The
long-term debt of the Combined Non-Guarantors of $25 million as of September 30,
1993 has restrictive covenants that restrict, among other things, the payment of
dividends.
The following condensed consolidating information presents:
(i) Condensed financial statements as of September 30, 1993 and
December 31, 1992 and for the three months ended September 30, 1993, the
periods of May 7 through June 30, 1993 and January 1 through May 6, 1993
and the three months and nine months ended September 30, 1992 of (a) the
Corporation on a parent company only basis (the "PARENT COMPANY," which
was the only entity of the Corporation included in the bankruptcy
proceeding), (b) the Combined Guarantors, (c) the Combined Non-Guarantors
and (d) the Corporation on a consolidated basis. Due to the Restructuring
and implementation of fresh start reporting, the financial statements
effective May 7, 1993 for the newly-restructured company are not
comparable to financial statements prior to that date for the predecessor
company. Except for the following condensed financial statements,
separate financial information with respect to the Combined Guarantors is
not deemed material to investors and is omitted.
(ii) The Parent Company and Combined Guarantors shown with their
investments in their subsidiaries accounted for on the equity method.
(iii) Elimination entries necessary to consolidate the Parent Company
and its subsidiaries.
F-55
<PAGE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
THREE MONTHS ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- --------------- --------------- ---------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales.................................... $ -- $ 445 $ 90 $ (21) $ 514
Gross Profit................................. -- 87 18 -- 105
Operating Profit/(Loss)...................... (11) 17 -- -- 6
Equity in net loss of the Subsidiaries....... 29 4 -- (33) --
Interest expense, net........................ 31 1 -- -- 32
Corporate service charge..................... (41) 41 -- -- --
Other (income)/expense, net.................. -- (6) 1 1 (4)
--- ----- --- --- -----
Loss Before Taxes on Income.................. (30) (23) (1) 32 (22)
Taxes on income/(income tax benefit)......... (6) 6 3 -- 3
--- ----- --- --- -----
Net Loss..................................... $ (24) $ (29) $ (4) $ 32 $ (25)
--- ----- --- --- -----
--- ----- --- --- -----
</TABLE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
MAY 7 THROUGH JUNE 30, 1993
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- --------------- --------------- ---------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales.................................... $ -- $ 279 $ 57 $ (21) $ 315
Gross Profit................................. -- 51 12 -- 63
Operating Profit/(Loss)...................... (6) 6 (1) -- (1)
Equity in net loss of the Subsidiaries....... 23 3 -- (26) --
Interest expense, net........................ 20 1 -- -- 21
Corporate service charge..................... (27) 27 -- -- --
Other (income)/expense, net.................. (1) (4) 1 2 (2)
--- ----- --- --- -----
Loss Before Taxes on Income.................. (21) (21) (2) 24 (20)
Taxes on income/(income tax benefit)......... (2) 2 1 -- 1
--- ----- --- --- -----
Net Loss..................................... $ (19) $ (23) $ (3) $ 24 $ (21)
--- ----- --- --- -----
--- ----- --- --- -----
</TABLE>
F-56
<PAGE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
JANUARY 1 THROUGH MAY 6, 1993
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------- ------------- ------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales.................................... $ -- $ 501 $ 113 $ (23) $ 591
Gross Profit................................. 1 84 24 -- 109
Operating Profit/(Loss)...................... (11) 39 10 -- 38
Equity in net earnings of the Subsidiaries... (751) (169) -- 920 --
Interest expense, net........................ 80 3 1 -- 84
Corporate service charge..................... (92) 92 -- -- --
Other expense, net........................... 1 5 -- -- 6
Reorganization items......................... 53 (597) (165) -- (709)
----------- ------ ------ ------ -------------
Earnings Before Taxes on Income and
Extraordinary Items......................... 698 705 174 (920) 657
Taxes on income/(income tax benefit)......... 37 (24) 4 -- 17
----------- ------ ------ ------ -------------
Earnings Before Extraordinary Items.......... 661 729 170 (920) 640
Extraordinary gain, net of taxes............. 944 -- -- -- 944
Cumulative effect of changes in accounting
principles.................................. (171) 22 (1) -- (150)
----------- ------ ------ ------ -------------
Net Earnings................................. $ 1,434 $ 751 $ 169 $ (920) $ 1,434
----------- ------ ------ ------ -------------
----------- ------ ------ ------ -------------
</TABLE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
THREE MONTHS ENDED SEPTEMBER 30, 1992
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- --------------- --------------- ---------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales.................................... $ -- $ 415 $ 97 $ (38) $ 474
Gross Profit................................. -- 75 19 -- 94
Operating Profit/(Loss)...................... (7) 39 7 -- 39
Equity in net (earnings)/loss of the
Subsidiaries................................ 33 (4) -- (29) --
Interest expense, net........................ 75 3 -- -- 78
Corporate service charge..................... (90) 90 -- -- --
Other (income)/expense, net.................. 2 (2) 1 -- 1
--- ----- --- --- -----
Earnings/(Loss) Before Taxes on Income....... (27) (48) 6 29 (40)
Taxes on income/(income tax benefit)......... 6 (15) 2 -- (7)
--- ----- --- --- -----
Net Earnings/(Loss).......................... $ (33) $ (33) $ 4 $ 29 $ (33)
--- ----- --- --- -----
--- ----- --- --- -----
</TABLE>
F-57
<PAGE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1992
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales.................................... $ -- $ 1,146 $ 275 $ (80) $ 1,341
Gross Profit................................. -- 193 53 -- 246
Operating Profit/(Loss)...................... (21) 88 20 -- 87
Equity in net (earnings)/loss of the
Subsidiaries................................ 118 (13) -- (105) --
Interest expense, net........................ 235 8 2 -- 245
Corporate service charge..................... (270) 270 -- -- --
Other (income)/expense, net.................. 5 (4) (1) -- --
----------- ----------- ----- ------ -------------
Earnings/(Loss) Before Taxes on Income....... (109) (173) 19 105 (158)
Taxes on income/(income tax benefit)......... 22 (55) 6 -- (27)
----------- ----------- ----- ------ -------------
Net Earnings/(Loss).......................... $ (131) $ (118) $ 13 $ 105 $ (131)
----------- ----------- ----- ------ -------------
----------- ----------- ----- ------ -------------
</TABLE>
F-58
<PAGE>
USG CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1993
(DOLLAR AMOUNTS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.................. $ 129 $ (7) $ 35 $ -- $ 157
Receivables, net........................... 10 261 51 (30) 292
Inventories................................ -- 112 37 (2) 147
----------- ----------- ----- ------------ -------------
Total current assets................... 139 366 123 (32) 596
Property, Plant and Equipment, Net........... 21 623 110 -- 754
Investment in Subsidiaries................... 1,762 293 -- (2,055) --
Excess Reorganization Value, Net............. -- 615 161 -- 776
Other Assets................................. (199) 260 5 (6) 60
----------- ----------- ----- ------------ -------------
Total assets........................... $ 1,723 $ 2,157 $ 399 $ (2,093) $ 2,186
----------- ----------- ----- ------------ -------------
----------- ----------- ----- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses...... 110 195 49 (28) 326
Notes payable and LTD maturing within one
year...................................... -- 1 13 -- 14
----------- ----------- ----- ------------ -------------
Total current liabilities.............. 110 196 62 (28) 340
Long-Term Debt............................... 1,376 38 25 -- 1,439
Deferred Income Taxes........................ 5 153 15 -- 173
Other Liabilities............................ 274 8 4 -- 286
Stockholders' Equity/(Deficit):
Common stock............................... 4 1 6 (7) 4
Capital received in excess of par value.... -- 1,678 306 (1,984) --
Deferred currency translation.............. -- (1) (9) -- (10)
Reinvested earnings/(deficit).............. (46) 84 (10) (74) (46)
----------- ----------- ----- ------------ -------------
Total stockholders' equity/
(deficit)............................. (42) 1,762 293 (2,065) (52)
----------- ----------- ----- ------------ -------------
Total liabilities and stockholders' equity... $ 1,723 $ 2,157 $ 399 $ (2,093) $ 2,186
----------- ----------- ----- ------------ -------------
----------- ----------- ----- ------------ -------------
</TABLE>
F-59
<PAGE>
USG CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1992
(DOLLAR AMOUNTS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.................. $ 59 $ 87 $ 34 $ -- $ 180
Receivables (net of reserves).............. 65 219 40 (25) 299
Inventories................................ -- 82 34 (3) 113
Restricted cash............................ -- 88 -- -- 88
----------- ----------- ----- ------------ -------------
Total current assets................... 124 476 108 (28) 680
Property, Plant and Equipment, Net........... 19 664 117 -- 800
Investment in Subsidiaries................... 1,073 133 -- (1,206) --
Purchased Goodwill, Net...................... -- 61 8 -- 69
Other Assets................................. (89) 214 (11) (4) 110
----------- ----------- ----- ------------ -------------
Total assets........................... $ 1,127 $ 1,548 $ 222 $ (1,238) $ 1,659
----------- ----------- ----- ------------ -------------
----------- ----------- ----- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses...... 538 91 39 (24) 644
Notes payable and LTD maturing within one
year...................................... 570 141 7 -- 718
Long-term debt classified as current....... 1,926 -- -- -- 1,926
----------- ----------- ----- ------------ -------------
Total current liabilities.............. 3,034 232 46 (24) 3,288
Long-Term Debt............................... 1 38 28 -- 67
Deferred Income Taxes........................ (36) 196 15 -- 175
Other Liabilities............................ -- 9 -- -- 9
Stockholders' Equity/(Deficit):
Common stock............................... 5 2 5 (7) 5
Capital received in excess of par value.... 23 1,002 34 (1,036) 23
Deferred currency translation.............. -- (2) (6) -- (8)
Reinvested earnings/(deficit).............. (1,900) 71 100 (171) (1,900)
----------- ----------- ----- ------------ -------------
Total stockholders' equity/
(deficit)............................. (1,872) 1,073 133 (1,214) (1,880)
----------- ----------- ----- ------------ -------------
Total liabilities and stockholders' equity... $ 1,127 $ 1,548 $ 222 $ (1,238) $ 1,659
----------- ----------- ----- ------------ -------------
----------- ----------- ----- ------------ -------------
</TABLE>
F-60
<PAGE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
MAY 7 THROUGH SEPTEMBER 30, 1993
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES..... $ 9 $ 109 $ 8 $ -- $ 126
Capital expenditures....................... -- (12) (4) -- (16)
Net proceeds from asset dispositions....... -- 9 -- -- 9
----- ------ --- ----- -----
NET CASH FLOWS TO INVESTING ACTIVITIES....... -- (3) (4) -- (7)
Issuance of debt........................... -- -- 26 -- 26
Repayment of debt.......................... (4) (9) (24) -- (37)
Cash dividends (paid)/ received............ -- 3 (3) -- --
Net cash transfers (to)/from Corporate..... 100 (100) -- -- --
----- ------ --- ----- -----
NET CASH FLOWS (TO)/FROM FINANCING
ACTIVITIES.................................. 96 (106) (1) -- (11)
NET INCREASE IN CASH AND CASH EQUIVALENTS.... 105 -- 3 -- 108
----- ------ --- ----- -----
Cash and cash equivalents at beginning of
period...................................... 24 (7) 32 -- 49
----- ------ --- ----- -----
Cash and cash equivalents at end of period... $ 129 $ (7) $ 35 $ -- $ 157
----- ------ --- ----- -----
----- ------ --- ----- -----
</TABLE>
F-61
<PAGE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
JANUARY 1 THROUGH MAY 6, 1993
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (TO)/FROM OPERATING
ACTIVITIES.................................. $ (90) $ 76 $ -- $ -- $ (14)
Capital expenditures....................... -- (9) (3) -- (12)
Net proceeds from asset dispositions....... -- -- -- -- --
--- ------ --- ----- ------
NET CASH FLOWS TO INVESTING ACTIVITIES....... -- (9) (3) -- (12)
Issuance of debt........................... -- -- 5 -- 5
Repayment of debt.......................... -- (140) (2) -- (142)
Cash dividends (paid)/received............. 2 -- (2) -- --
(Increase)/decrease in restricted assets... 44 (12) -- -- 32
Net cash transfers (to)/from Corporate..... 9 (9) -- -- --
--- ------ --- ----- ------
NET CASH FLOWS (TO)/FROM FINANCING
ACTIVITIES.................................. 55 (161) 1 -- (105)
NET DECREASE IN CASH AND CASH EQUIVALENTS.... (35) (94) (2) -- (131)
--- ------ --- ----- ------
Cash and cash equivalents at beginning of
period...................................... 59 87 34 -- 180
--- ------ --- ----- ------
Cash and cash equivalents at end of period $ 24 $ (7) $ 32 $ -- $ 49
--- ------ --- ----- ------
--- ------ --- ----- ------
</TABLE>
F-62
<PAGE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1992
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (TO)/FROM OPERATING
ACTIVITIES.................................. $ (133) $ 138 $ 38 $ -- $ 43
Capital expenditures....................... (1) (21) (5) -- (27)
Net proceeds from asset dispositions....... -- 2 4 -- 6
----------- ------ --- ----- -----
NET CASH FLOWS TO INVESTING ACTIVITIES....... (1) (19) (1) -- (21)
Issuance of debt........................... -- -- 57 -- 57
Repayment of debt.......................... -- (3) (65) -- (68)
Cash dividends (paid)/received............. -- 27 (27) -- --
Increase in restricted assets.............. -- (3) -- -- (3)
Net cash transfers (to)/from Corporate..... 147 (147) -- -- --
----------- ------ --- ----- -----
NET CASH FLOWS (TO)/FROM FINANCING
ACTIVITIES.................................. 147 (126) (35) -- (14)
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 13 (7) 2 -- 8
----------- ------ --- ----- -----
Cash and cash equivalents at beginning of
period...................................... 36 78 41 -- 155
----------- ------ --- ----- -----
Cash and cash equivalents at end of period... $ 49 $ 71 $ 43 $ -- $ 163
----------- ------ --- ----- -----
----------- ------ --- ----- -----
</TABLE>
F-63
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
USG Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of USG
CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of September 30, 1993,
the related condensed consolidated statements of earnings for the period of May
7 through June 30, 1993 and the three months ended September 30, 1993 and the
condensed consolidated statement of cash flows for the period of May 7 through
September 30, 1993. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
As discussed in Note 3, on May 6, 1993, the Corporation completed a
comprehensive financial restructuring through the implementation of a
prepackaged plan of reorganization under Chapter 11 of Title 11 of the United
States Bankruptcy Code and applied fresh start reporting. As such, results of
operations through May 6, 1993 (predecessor company) are not comparable with
results of operations subsequent to that date.
As discussed in Note 12, in view of the limited insurance funding currently
available for property damage cases resulting from the continued resistance by a
number of U.S. Gypsum's insurers to providing coverage, the effect of the
asbestos litigation on the Corporation will depend upon a variety of factors,
including the damages sought in property damage cases that reach trial prior to
the completion of the coverage action, U.S. Gypsum's ability to successfully
defend or settle such cases, and the resolution of the coverage action. As a
result, management is unable to determine whether an adverse outcome in the
asbestos litigation will have a material adverse effect on the consolidated
results of operations or the consolidated financial position of the Corporation.
Based on our reviews, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
October 22, 1993
F-64
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
USG Corporation:
We have reviewed the accompanying condensed consolidated statements of earnings
of USG CORPORATION (a Delaware corporation) AND SUBSIDIARIES for the period of
January 1 through May 6, 1993 and for the three month and nine month periods
ended September 30, 1992 and the condensed consolidated statements of cash flows
for the period of January 1 through May 6, 1993 and for the nine month period
ended September 30, 1992.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
As discussed in Note 3, on May 6, 1993, the Corporation completed a
comprehensive financial restructuring through the implementation of a
prepackaged plan of reorganization under Chapter 11 of Title 11 of the United
States Bankruptcy Code and applied fresh start reporting. As such, results of
operations through May 6, 1993 (predecessor company) are not comparable with
results of operations subsequent to that date.
As discussed in Note 12, in view of the limited insurance funding currently
available for property damage cases resulting from the continued resistance by a
number of U.S. Gypsum's insurers to providing coverage, the effect of the
asbestos litigation on the Corporation will depend upon a variety of factors,
including the damages sought in property damage cases that reach trial prior to
the completion of the coverage action, U.S. Gypsum's ability to successfully
defend or settle such cases, and the resolution of the coverage action. As a
result, management is unable to determine whether an adverse outcome in the
asbestos litigation will have a material adverse effect on the consolidated
results of operations or the consolidated financial position of the Corporation.
Based on our reviews, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
October 22, 1993
F-65
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION OR BY ANY
OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE CORPORATION SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Summary Financial Information.................. 7
Risk Factors................................... 9
The Restructuring.............................. 12
Purpose of the Offering and Use of Proceeds.... 13
Capitalization................................. 14
Price Range of Common Stock.................... 15
Dividend Policy................................ 15
Dilution....................................... 16
Pro Forma Condensed Consolidated Financial
Statements.................................... 16
Selected Consolidated Financial Data........... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 28
Business....................................... 38
Management..................................... 52
Ownership of Common Stock...................... 64
Certain Relationships and Related
Transactions.................................. 65
Description of Credit Agreement................ 68
Description of Other Debt Obligations.......... 79
Description of Collateral Trust................ 91
Description of Capital Stock................... 93
Underwriting................................... 97
Legal Matters.................................. 99
Experts........................................ 99
Additional Information......................... 99
Index to Financial Statements.................. 101
</TABLE>
8,500,000 SHARES
USG CORPORATION
COMMON STOCK
($.10 PAR VALUE)
[LOGO]
SALOMON BROTHERS INC
LAZARD FRERES & CO.
SMITH BARNEY SHEARSON INC.
PROSPECTUS
DATED , 1994
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses of the issuance and distribution of
the Common Stock being registered, including fees and expenses previously
incurred by the Corporation, other than any underwriting compensation.
<TABLE>
<CAPTION>
AMOUNT
ITEM (DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------- -----------------------
<S> <C>
Securities and Exchange Commission Registration Fees.................. $ 100
Stock Exchange Filing Fees............................................ 30
NASD Filing Fee....................................................... 30
Blue Sky Fees and Expenses (including attorneys' fees and expenses)... 30
Printing and Engraving Expenses....................................... 100
Transfer Agent's Fees and Expenses.................................... 10
Accounting Fees and Expenses.......................................... 60
Legal Fees and Expenses............................................... 300
Miscellaneous Expenses................................................ 150
-----
Total............................................................. $ 810
-----
-----
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("SECTION 145") (a)
gives Delaware corporations broad powers to indemnify their present and former
directors and officers and those of affiliated corporations against expenses
incurred in the defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers, subject to specified
conditions and exclusions, (b) gives a director or officer who successfully
defends an action the right to be so indemnified and (c) authorizes the
corporation to buy directors' and officers' liability insurance. Such
indemnification is not exclusive of any other right to which those indemnified
may be entitled under any bylaw, agreement, vote of stockholders or otherwise.
A bylaw provides that the Corporation (a) shall indemnify every person who
is or was a director or officer of the Corporation or is or was serving at the
Corporation's request as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise and (b) shall, if the
board of directors so directs, indemnify any person who is or was an employee or
agent of the Corporation or is or was serving at the Corporation's request as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, to the extent, in the manner, and subject to compliance with
the applicable standards of conduct, provided by Section 145 as the same (or any
substitute provision therefor) may be in effect from time to time.
Any such indemnification shall continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Corporation has procured insurance for the purpose of substantially
covering its future potential liability for indemnification under Section 145 as
discussed above and certain future potential liability of individual officers or
directors incurred in their capacity as such which is not subject to
indemnification.
The Corporation has entered into Indemnification Agreements with each of its
officers and directors. The Indemnification Agreements provide that the
Corporation shall indemnify and keep indemnified the indemnitee to the fullest
extent authorized by Section 145 as it may be in effect from time to time from
and against any expenses (including expenses of investigation and preparation
and reasonable fees and disbursements of legal counsel, accountants and other
experts), judgments, fines and amounts paid in settlement by the indemnitee in
connection with any threatened, pending or completed action,
II-1
<PAGE>
suit or proceeding, whether civil, criminal, administrative or investigative,
and whether or not the cause of action, suit or proceeding incurred before or
after the date of the Indemnification Agreement. The Indemnification Agreements
further provide for advancement of amounts to cover expenses incurred by the
indemnitee in defending any such action, suit or proceeding subject to an
undertaking by the indemnitee to repay any expenses advanced which it is later
determined he or she was not entitled to receive.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Corporation has not sold any unregistered
securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a complete list of Exhibits filed as a part of this
Registration Statement:
See Exhibit Index
(b) The following is a complete list of financial statement Schedules filed
as a part of this Registration Statement and included with the financial
statements filed as a part of this Registration Statement:
<TABLE>
<S> <C> <C> <C>
1. Schedule V -- Property, Plant and Equipment
2. Schedule VI -- Accumulation Depreciation and Depletion of Property, Plant and
Equipment
3. Schedule -- Valuation and Qualifying Accounts
VIII
4. Schedule IX -- Short-Term Borrowings
5. Schedule X -- Supplemental Statement of Earnings Information
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time it was declared
effective.
(3) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement, relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(4) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to provisions described in this Registration Statement or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrants of expenses incurred or paid by a director, officer or
controlling person of the Registrants in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrants will, unless
in the opinion of their respective counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois on January 1994.
USG CORPORATION
By: /s/ John E. Malone
--------------------------------------
John E. Malone
VICE PRESIDENT AND TREASURER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed on January 1994,
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------ ---------------------------------------------------------
<C> <S>
*
-------------------------------------- Chairman of the Board, Chief Executive Officer, and
Eugene B. Connolly Director (Principal Executive Officer)
*
-------------------------------------- Vice Chairman and Director
Anthony J. Falvo, Jr.
/s/ Richard H. Fleming
-------------------------------------- Vice President and Chief Financial Officer (Principal
Richard H. Fleming Financial Officer)
/s/ Raymond T. Belz
-------------------------------------- Vice President and Controller
Raymond T. Belz (Principal Accounting Officer)
*
-------------------------------------- Director
Robert L. Barnett
*
-------------------------------------- Director
Keith A. Brown
*
-------------------------------------- Director
W.H. Clark
*
-------------------------------------- Director
James C. Cotting
*
-------------------------------------- Director
Lawrence M. Crutcher
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------ ---------------------------------------------------------
<C> <S>
*
-------------------------------------- Director
Wade Fetzer III
*
-------------------------------------- Director
David W. Fox
-------------------------------------- Director
Philip C. Jackson, Jr.
*
-------------------------------------- Director
Marvin E. Lesser
*
-------------------------------------- Director
John B. Schwemm
*
-------------------------------------- Director
Alan G. Turner
*
-------------------------------------- Director
Barry L. Zubrow
</TABLE>
*By: /s/ John E. Malone
---------------------------------
John E. Malone
Attorney-in-fact
II-4
<PAGE>
EXHIBIT INDEX
The following documents are the exhibits to this Registration Statement on
Form S-1. For convenient reference, each exhibit is listed according to the
Exhibit Table of Regulation S-K. The page number, if any, listed opposite an
exhibit indicates the page number in the sequential numbering system in the
manually signed original of this Registration Statement on Form S-1 where such
exhibit can be found. Exhibits followed by an (*) constitute management
contracts or compensatory plans or arrangements. Exhibits followed by an (**)
will be filed by amendment.
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
- --------- ---------
<C> <S> <C> <C>
1. Form of Underwriting Agreement **
3. Articles of incorporation and by-laws:
(a) Restated Certificate of Incorporation of USG Corporation (incorporated by reference to
Exhibit 3.1 of USG Corporation's Form 8-K, dated May 7, 1993.)
(b) Amended and Restated By-Laws of USG Corporation, dated as of May 12, 1993 (incorporated
by reference to Exhibit 3(b) of Amendment No. 1 to USG Corporation's Registration
Statement No. 33-61162 on Form S-1, dated June 16, 1993).
4. Instruments defining the rights of security holders, including indentures:
(a) Indenture dated as of October 1, 1986 between USG Corporation and Harris Trust and
Savings Bank, Trustee (incorporated by reference to Exhibit 4(a) of USG Corporation's
Registration Statement No. 33-9294 on Form S-3, dated October 7, 1986).
(b) Resolutions dated December 16, 1986 of a Special Committee created by the Board of
Directors of USG Corporation (incorporated by reference to Exhibit 1 of USG
Corporation's Current Report on Form 8-K, dated December 16, 1986).
(c) Resolutions dated March 5, 1987 of a Special Committee created by the Board of Directors
of USG Corporation (incorporated by reference to Exhibit 1 of USG Corporation's Current
Report on Form 8-K, dated March 9, 1987).
(d) Resolutions dated March 6, 1987 of a Special Committee created by the Board of Directors
of USG Corporation (incorporated by reference to Exhibit 3 of USG Corporation's Current
Report on Form 8-K, dated March 9, 1987).
(e) Resolutions dated April 26, 1993 of a Special Committee created by the Board of
Directors of USG Corporation relating to USG Corporation's 8% Senior Notes due 1995 and
9% Senior Notes due 1998 (incorporated by reference to Exhibit 4.1 of USG Corporation's
Form 8-K, dated May 7, 1993).
(f) Form of Resolutions to be adopted by a Special Committee created by the Board of
Directors of USG Corporation relating to USG Corporation's 9 1/4% Senior Notes due 2001. **
(g) Form of note purchase agreement to be entered into between USG Corporation and certain
institutional investors relating to USG Corporation's 9 1/4% Senior Notes due 2001. **
(h) Indenture dated as of April 26, 1993 among USG Corporation, certain guarantors and State
Street Bank and Trust Company, as Trustees, relating to USG Corporation's 10 1/4% Senior
Notes due 2002 (incorporated by reference to Exhibit 4.2 of USG Corporation's Form 8-K,
dated May 7, 1993).
(i) Indenture dated as of August 10, 1993 among USG Corporation, certain guarantors and
State Street Bank and Trust Company, as Trustee, relating to USG Corporation's 10 1/4%
Senior Notes due 2002, Series B (incorporated by reference to Exhibit 4(f) of USG
Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 dated
August 12, 1993.
(j) Warrant Agreement dated May 6, 1993 between USG Corporation and Harris Trust and Savings
Bank, as Warrant Agent, relating to USG Corporation's Warrants (incorporated by
reference to Exhibit 4.3 of USG Corporation's Form 8-K, dated May 7, 1993).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
- --------- ---------
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(k) Form of Warrant Certificate (incorporated by reference to Exhibit 4(g) of Amendment No.
4 to USG Corporation's Registration Statement No. 33-40136 on Form S-4, dated November
12, 1992).
(l) Rights Agreement dated May 6, 1993 between USG Corporation and Harris Trust and Savings
Bank, as Rights Agent (incorporated by reference to Exhibit 10.1 of USG Corporation's
Form 8-K, dated May 7, 1993).
(m) Form of Common Stock certificate (incorporated by reference to Exhibit 4.4 to USG
Corporation's Form 8-K, dated May 7, 1993).
The Corporation and certain of its consolidated subsidiaries are parties to long-term
debt instruments under which the total amount of securities authorized does not exceed
10% of the total assets of the Corporation and its subsidiaries on a consolidated basis.
Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, the Corporation
agrees to furnish a copy of such instruments to the Securities and Exchange Commission
upon request.
5. Opinions of counsel as to the legality of the securities being registered. **
10. Material contracts:
(a) Management Performance Plan of USG Corporation (incorporated by reference to Annex C of
Amendment No. 8 to USG Corporation's Registration Statement No. 33-40136 on Form S-4,
dated February 3, 1993).*
(b) 1991-1993 Management Incentive Compensation Program -- USG Corporation, as amended
(incorporated by reference to Exhibit 10(b) of USG Corporation's 1991 Annual Report on
Form 10-K, dated March 5, 1992).*
(c) Amendment and Restatement of USG Corporation Supplemental Retirement Plan (incorporated
by reference to Exhibit 10(e) of USG Corporation's 1988 Annual Report on Form 10-K,
dated March 29, 1989).*
(d) Amendment and Restatement of USG Corporation Supplemental Retirement Plan, effective as
of July 1, 1993 and dated November 30, 1993.*
(e) First Amendment of USG Corporation Supplemental Retirement Plan, effective as of
November 15, 1993 and dated December 2, 1993.*
(f) Employment Agreements (incorporated by reference to Exhibit 10(g) of USG Corporation's
1991 Annual Report on Form 10-K, dated March 5, 1992).*
(g) Termination Compensation Agreements (incorporated by reference to Exhibit 10(h) of USG
Corporation's 1991 Annual Report on Form 10-K, dated March 5, 1992).*
(h) USG Corporation Severance Plan for Key Managers, dated May 15, 1991 (incorporated by
reference to Exhibit 10(i) of USG Corporation's 1991 Annual Report on Form 10-K, dated
March 5, 1992).*
(i) Restricted Stock Award Agreements (incorporated by reference to Exhibit 10(j) of USG
Corporation's 1988 Annual Report on Form 10-K, dated March 29, 1989).*
(j) Restricted Stock Award Agreements, 1991 (incorporated by reference to Exhibit 10(m) of
USG Corporation's 1990 Annual Report on Form 10-K, dated March 18, 1991).*
(k) Agreements to Take Deferred Stock and Matching Restricted Stock (incorporated by
reference to Exhibit 10(k) of USG Corporation's 1989 Annual Report on Form 10-K, dated
March 28, 1990).*
(l) Indemnification Agreements (incorporated by reference to Exhibit 10(l) of USG
Corporation's 1987 Annual Report on Form 10-K, dated March 30, 1988).*
(m) Form of Change of Control Waiver (incorporated by reference to Exhibit 10(t) of USG
Corporation's 1992 Annual Report on Form 10-K dated March 26, 1993).*
(n) Incentive Recovery Program -- Waiver of Full Payment (incorporated by reference to
Exhibit 10(u) of USG Corporation's 1992 Annual Report on Form 10-K, dated March 26,
1993).*
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(o) Rights Agreement dated May 6, 1993 between USG Corporation and Harris Trust and Savings
Bank, as Rights Agent (incorporated by reference to Exhibit 10.1 of Form 8-K filed by
USG Corporation on May 7, 1993).
(p) Warrant Agreement dated May 6, 1993 between USG Corporation and Harris Trust and Savings
Bank, as Warrant Agent, relating to USG Corporation's Warrants (incorporated by
reference to Exhibit 4.3 of Form 8-K filed by USG Corporation on May 7, 1993).
(q) Amended and Restated Credit Agreement dated as of May 6, 1993 among USG Corporation and
USG Interiors, Inc., as borrowers; the Financial Institutions listed on the signature
pages thereof, as Senior Lenders; Bankers Trust Company, Chemical Bank and Citibank,
N.A., as Agents; and Citibank, N.A., as Administrative Agent (incorporated by reference
to Exhibit 10.2 of Form 8-K filed by USG Corporation on May 7, 1993).
(r) First Amendment to Amended and Restated Credit Agreement between USG Corporation and USG
Interiors, Inc. as borrowers; the Financial Institutions listed on the signature pages
thereof, as Senior Lenders; Bankers Trust Company, Chemical Bank and Citibank, N.A., as
Agents; and Citibank, N.A., as Administrative Agent (incorporated by reference to
Exhibit 4M of USG Corporation's Registration Statement No. 35-65804 on Form S-1, dated
July 9, 1993).
(s) Form of Second Amendment to Amended and Restated Credit Agreement between USG
Corporation and USG Interiors, Inc. as borrowers; the Financial Institutions listed on
the signature pages thereof, as Senior Lenders; Bankers Trust Company, Chemical Bank and
Citibank, N.A., as Agents; and Citibank, N.A., as Administrative Agent. **
(t) Letter of Credit Issuance and Reimbursement Agreement dated as of May 6, 1993 between
USG Interiors, Inc. and Chemical Bank (incorporated by reference to Exhibit 10.12 of
Form 8-K filed by USG Corporation on May 7, 1993).
(u) Amended and Restated Collateral Trust Agreement dated as of May 6, 1993 among USG
Corporation, USG Interiors, Inc. and USG Foreign Investments, Ltd., as grantors, and
Wilmington Trust Company and William J. Wade, as Trustees (incorporated by reference to
Exhibit 10.6 of Form 8-K filed by USG Corporation on May 7, 1993).
(v) Amended and Restated Company Pledge Agreement dated as of May 6, 1993 among USG
Corporation, Wilmington Trust Company and William J. Wade (incorporated by reference to
Exhibit 10.7 of Form 8-K filed by USG Corporation on May 7, 1993).
(w) Amended and Restated Subsidiary Pledge Agreement dated as of May 6, 1993 among USG
Interiors, Inc., Wilmington Trust Company and William J. Wade (incorporated by reference
to Exhibit 10.8 of Form 8-K filed by USG Corporation on May 7, 1993).
(x) Amended and Restated Subsidiary Pledge Agreement dated as of May 6, 1993 among USG
Foreign Investments, Ltd., Wilmington Trust Company and William J. Wade (incorporated by
reference to Exhibit 10.9 of Form 8-K filed by USG Corporation on May 7, 1993).
(y) Amended and Restated Share Pledge Agreement dated as of May 6, 1993 among USG Foreign
Investments, Ltd., Wilmington Trust Company and William J. Wade (incorporated by
reference to Exhibit 10.10 of Form 8-K filed by USG Corporation on May 7, 1993).
(z) Amended and Restated Deed of Charge dated as of May 6, 1993 among USG Foreign
Investments, Ltd., Wilmington Trust Company and William J. Wade (incorporated by
reference to Exhibit 10.11 of Form 8-K filed by USG Corporation on May 7, 1993).
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(aa) Amended and Restated Company Guaranty dated as of May 6, 1993 made by USG Corporation
(incorporated by reference to Exhibit 10.3 of Form 8-K filed by USG Corporation on May
7, 1993).
(ab) Amended and Restated Subsidiary Guaranty dated as of May 6, 1993 made by USG Interiors,
Inc. (incorporated by reference to Exhibit 10.1 of Form 8-K filed by USG Corporation on
May 7, 1993).
(ac) Form of Amended and Restated Subsidiary Guaranty dated as of May 6, 1993 made by each of
United States Gypsum Company, USG Foreign Investments, Ltd., L&W Supply Corporation, USG
Interiors International, Inc., La Mirada Products Co., Inc., Westbank Planting Company,
American Metals Corporation and USG Industries, Inc. (incorporated by reference to
Exhibit 10.5 of Form 8-K filed by USG Corporation on May 7, 1993).
(ad) Amendment and Restatement of USG Corporation Investment Plan for Salaried Employees,
effective January 1, 1989 (incorporated by reference to Exhibit 4.18 of Post-Effective
Amendment No. 1, dated November 9, 1988, to USG Corporation's Registration Statement No.
33-22581 on Form S-8).*
(ae) First Amendment of USG Corporation Investment Plan, effective January 1, 1989
(incorporated by reference to Exhibit 4.29 of Post-Effective Amendment No. 2, dated July
5, 1989, to USG Corporation's Registration Statement No. 33-22581 on Form S-8).*
(af) Second Amendment of USG Corporation Investment Plan, effective January 1, 1989, and
dated December 29, 1989 (incorporated by reference to Exhibit 10(bb) of USG
Corporation's 1990 Annual Report on Form 10-K, dated March 18, 1991).*
(ag) Third Amendment of USG Corporation Investment Plan, effective January 1, 1989, and dated
November 21, 1990 (incorporated by reference to Exhibit 10(cc) of USG Corporation's 1990
Annual Report on Form 10-K, dated March 18, 1991).*
(ah) Fourth Amendment of USG Corporation Investment Plan, Third Amendment of USG Corporation
Investment Trust, and Spinoff of Portion of Plan that Applies to Certain Former DAP Inc.
Employees, effective August 31, 1991, and dated September 20, 1991 (incorporated by
reference to Exhibit 10(ff) of USG Corporation's 1991 Annual Report on Form 10-K, dated
March 5, 1992).*
(ai) Fourth Amendment of USG Corporation Investment Trust, effective December 15, 1991, and
dated December 18, 1991 (incorporated by reference to Exhibit 10(gg) of USG
Corporation's 1991 Annual Report on Form 10-K, dated March 5, 1992).*
(aj) Fifth Amendment of USG Corporation Investment Plan, effective January 1, 1991, and dated
December 18, 1991 (incorporated by reference to Exhibit 10(hh) of USG Corporation's 1991
Annual Report on Form 10-K, dated March 5, 1992).*
(ak) Fifth Amendment of USG Corporation Investment Trust, effective July 1, 1993 and dated
July 30, 1993.*
(al) Sixth Amendment of USG Corporation Investment Plan, dated July 30, 1993.*
(am) Asset Purchase Agreement among USG Corporation, DAP Inc., BHI International Inc., DAP
Canada Inc., Wassall PLC and Wassall USA Acquisition Inc., dated August 23, 1991
(incorporated by reference to Exhibit 10(ah) of USG Corporation's Form 8-K, dated August
23, 1991).
(an) Consent and Agreement dated as of August 22, 1991 with respect to the Old Credit
Agreement dated as of July 1, 1988 (incorporated by reference to Exhibit 10(ai) of USG
Corporation's Form 8-K, dated August 23, 1991).
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(ao) First Amendment dated as of March 12, 1993 with respect to the Consent and Agreement
dated as of August 22, 1991 (incorporated by reference to Exhibit 10(ap) of USG
Corporation's 1992 Annual Report on Form 10-K, dated March 26, 1993).
(ap) Deposit Agreement dated as of September 19, 1991 (incorporated by reference to Exhibit
10(aq) of USG Corporation's 1992 Annual Report on Form 10-K, dated March 26, 1993).
(aq) First Amendment dated as of March 12, 1993 to the Deposit Agreement (incorporated by
reference to Exhibit 10(ar) of USG Corporation's 1992 Annual Report on Form 10-K, dated
March 26, 1993).
(ar) Agreement among USG Corporation and the Ad Hoc Committee of Holders of 13 1/4% Senior
Subordinated Debentures of USG Corporation due 2000 (incorporated by reference to
Exhibit 10(aq) of Amendment No. 4 to USG Corporation's Registration Statement No.
33-40136 on Form S-4).
(as) Letter Agreement dated February 25, 1993 among USG Corporation, Water Street Corporate
Recovery Fund, L.P., the Goldman Sachs Group, L.P. and Goldman, Sachs & Co.
(incorporated by reference to Exhibit 10(au) of USG Corporation's 1992 Annual Report on
Form 10-K, dated March 26, 1993).
(at) Bankruptcy Court Order issued April 23, 1993 confirming USG Corporation's Prepackaged
Plan of Reorganization (incorporated by reference to Exhibit 28.1 of Form 8-K filed by
USG Corporation on May 7, 1993).
(au) Consulting Agreement dated July 1, 1990, as amended March 23, 1992, between USG
Corporation and William L. Weiss (incorporated by reference to Exhibit 10(au) of
Amendment No. 4 to USG Corporation's Registration Statement No. 33-40136 on Form S-4,
dated November 12, 1992).
(av) Consulting Agreement dated May 6, 1993 between USG Corporation and Jack D. Sparks.
(aw) Consulting Agreement dated August 11, 1993 between USG Corporation and James W. Cozad.
(ax) 1993 Annual Management Incentive Program -- USG Corporation (incorporated by reference
to Exhibit 10(b) of Amendment No. 1 to Form S-1 filed by USG Corporation on June 16,
1993).*
(ay) Form of Employment Agreement dated May 12, 1993 (incorporated by reference to Exhibit
10(h) of Amendment No. 1 to Form S-1 filed by USG Corporation on June 16, 1993).*
(az) Amendment of Termination Compensation Agreements (incorporated by reference to Exhibit
10(j) of Amendment No. 1 to Form S-1 filed by USG Corporation on June 16, 1993).*
(ba) Form of Nonqualified Stock Option Agreement effective June 1, 1993 (incorporated by
reference to Exhibit 10(l) of Amendment No. 1 on Form S-1 filed by USG Corporation on
June 16, 1993).*
(bb) Form of Nonqualified Stock Option Agreement with Anthony J. Falvo, Jr. effective June 1,
1993 (incorporated by reference to Exhibit 10(m) of Amendment No. 1 to Form S-1 filed by
USG Corporation on June 16, 1993).*
(bc) Form of First Amendment to Amended and Restated Collateral Trust Agreement (incorporated
by reference to Exhibit 10(w) of Amendment No. 1 to Form S-1 filed by USG Corporation on
July 13, 1993).
(bd) Form of First Amendment to Amended and Restated Subsidiary Guaranty (incorporated by
reference to Exhibit 10(ae) of Amendment No. 2 to Form S-1 filed by USG Corporation on
July 16, 1993).
24. Consents of Experts and Counsel
(a) Consent of Arthur Andersen & Co.
(b) Consents of counsel (included in Exhibit 5).
25. Power of Attorney
</TABLE>
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APPENDIX
Narrative description of graphic:
A graphic depiction of the table on page 39.
<PAGE>
EXHIBIT 10(d)
AMENDMENT AND RESTATEMENT
OF
USG CORPORATION SUPPLEMENTAL RETIREMENT PLAN
WHEREAS, USG CORPORATION SUPPLEMENTAL RETIREMENT PLAN (the "Plan") was
established effective January 1, 1976 (and then was named "United States
Gypsum Company Supplemental Retirement Plan"); and
WHEREAS, the Plan, as amended and restated effective as of January 1, 1989,
has subsequently been amended from time to time, and it now is considered
desirable to further amend and restate the Plan in its entirety;
NOW, THEREFORE, pursuant to the amending power reserved to USG Corporation as
the "Company" under Section 7 of the Plan, as amended, the Plan (including
Supplement A thereto) be and hereby is further amended and restated in its
entirety effective as of July 1, 1993 in the form attached hereto as Exhibit
A.
* * *
IN WITNESS WHEREOF, the Company has caused these presents to be signed on its
behalf by an officer thereunto duly authorized this 30th day of November,
1993.
USG CORPORATION
By____________________________________________
Senior Vice President and
Chief Administrative Officer
<PAGE>
Exhibit A
USG CORPORATION SUPPLEMENTAL RETIREMENT PLAN
(As Amended and Restated Effective as of July 1, 1993)
McDermott, Will & Emery
Chicago, Illinois
<PAGE>
TABLE OF CONTENTS
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SECTION 1 1
Introduction 1
The Plan, the Company 1
Employers 1
Purpose 1
Plan Administration 3
Preservation of Benefits 3
SECTION 2 4
Eligibility for Participation 4
Covered Employee 4
Eligibility 4
Period of Participation 4
SECTION 3 5
Part A Supplemental Benefits 5
Intent 5
Limited Benefits, Unlimited Benefits, Part A
Supplemental Benefits and Part A Supplemental
Death Benefits 5
Participant Contribution Requirement 6
Compensation Deferral Elections 6
Amount of Part A Supplemental Benefits 7
Payment of Part A Supplemental Benefits 8
Amount and Payment of Part A Supplemental Death Benefits 9
SECTION 4 12
Part B Supplemental Benefits 12
Intent 12
Part B Supplemental Benefits and Part B Supplemental Death
Benefits 12
Elective Participant Contributions 12
Additional Elective Participant Contributions 13
Employer Matching Contributions 13
Separate Accounts, Subaccounts, Deemed Investments 14
Withdrawals 14
Vesting of Accounts 15
Distribution of Accounts 15
SECTION 5 17
Spouses, Beneficiaries, Funding 17
Eligible Spouse 17
Supplemental Plan Beneficiary 17
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Funding 17
SECTION 6 18
General Provisions 18
Statement of Accounts 18
Employment Rights 18
Interests Not Transferable 18
Controlling Law 18
Gender and Number 18
Action by the Company 18
Successor to the Company or Any Other Employer 18
Facility of Payment 19
SECTION 7 20
Amendment and Termination 20
SUPPLEMENT A
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USG CORPORATION SUPPLEMENTAL RETIREMENT PLAN
SECTION 1
INTRODUCTION
1.1. THE PLAN, THE COMPANY. Effective January 1, 1976 UNITED STATES GYPSUM
COMPANY established UNITED STATES GYPSUM COMPANY SUPPLEMENTAL RETIREMENT PLAN
(the "Plan"). On January 1, 1985 UNITED STATES GYPSUM COMPANY became a
wholly-owned subsidiary of USG CORPORATION and effective as of that date USG
CORPORATION was substituted for UNITED STATES GYPSUM COMPANY as the "Company"
under the Plan and the name of the Plan was changed to USG CORPORATION
SUPPLEMENTAL RETIREMENT PLAN. The term "Company" as used in the Plan means
UNITED STATES GYPSUM COMPANY up to January 1, 1985 and USG CORPORATION (and
any successor thereto) on and after that date. The provisions of this
subsection and the following provisions of the Plan constitute an amendment
and restatement of the Plan, as previously amended, effective as of July 1,
1993 (the "New Effective Date"), subject to any subsequent amendments.
1.2. EMPLOYERS. Each subsidiary of the Company that is an employer under
USG Corporation Retirement Plan (the "Retirement Plan") or under USG
Corporation Investment Plan (the "Investment Plan") shall be an "Employer"
under this Plan unless specified to the contrary by the Company by writing
filed with the Committee described in subsection 1.4.
1.3. PURPOSE. The Company and certain of its subsidiaries maintain and are
employers under the Retirement Plan and the Investment Plan, each of which plans
is intended to meet the requirements of a "qualified plan" under Section 401(a)
of the Internal Revenue Code. The purpose of this Plan, a nonqualified plan, is
to provide for eligible employees benefits that could have been earned and paid
under the Retirement and Investment Plans and under any other qualified defined
benefit and defined contribution plans maintained by the controlled group of
corporations of which the Company is a member ("other USG Defined Benefit and
Defined Contribution Plans") but for the following limitations:
(a) Section 401(a)(4) of the Internal Revenue Code requires that
contributions or benefits provided under a qualified plan must not
discriminate in favor of highly compensated employees and there-
<PAGE>
fore amounts deferred by employees, if any, under the Company's
management incentive compensation programs until their retirement
or other termination of employment may not be considered as a part
of their employment compensation in determining the amount of their
contributions, benefits provided with respect to their
contributions, and employer provided benefits under the Retirement
and Investment Plans and other USG Defined Benefit and Defined
Contribution Plans.
(b) Sections 401(a)(17) and 404(l) of the Internal Revenue Code limit
the amount of employees' annual compensation that may be taken
into account in determining the benefits that may be paid to them
from the Retirement and Investment Plans and other USG Defined
Benefit and Defined Contribution Plans and the deductible Employer
contributions that may be made to those plans to provide such
benefits.
(c) Sections 401(k) and 401(m) of the Internal Revenue Code require
that employees' before-tax contributions and Employer matching
contributions under USG Defined Contribution Plans be tested to
prevent discrimination in favor of highly compensated employees
and as a result of such tests employees' before-tax contributions
and shares of Employer matching contributions under such plans may
be limited.
(d) Sections 401(a)(4) and 401(l) of the Internal Revenue Code limit
the extent to which disparate benefits may be provided under
qualified retirement plans and as a result benefits accrued under
the Retirement Plan (and other USG Defined Benefit Plans) may be
limited.
(e) Section 402(g) of the Internal Revenue Code limits the amount of
before-tax contributions that an employee may make under the
Investment Plan and other USG Defined Contribution Plans.
(f) Section 415 of the Internal Revenue Code places limitations on the
amount of benefits that may be paid from and contributions that
may be made to the Retirement Plan and the Investment Plan and
other USG Defined Benefit and Defined Contribution Plans.
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Effective October 1, 1993, the Plan will also allow Participants to elect to
make before-tax contributions to the Plan in excess of the amount of
contributions permitted under the terms of the Investment Plan. In no event
shall any benefits be payable under this Plan that would duplicate benefits
that become payable under any other qualified or nonqualified plan maintained
by the Company, any other Employer or any other member of the controlled group
of corporations of which the Company is a member.
1.4. PLAN ADMINISTRATION. The Plan is administered by the committee (the
"Committee") that is responsible for administration of the Retirement Plan.
To the extent appropriate, the Committee has, concerning Part A Supplemental
Benefits and Part A Supplemental Death Benefits described in Section 3, the
same powers, rights, duties and obligations it has as to the Retirement Plan
and, concerning Part B Supplemental Benefits and Part B Supplemental Death
Benefits described in Section 4, the same powers, rights, duties and
obligations as are vested in the committee responsible for administration of
the Investment Plan, including the right to require the completion of such
forms or applications with respect to benefit payments as it deems
appropriate.
1.5. PRESERVATION OF BENEFITS. Benefits shall be provided under the Plan
on and after the New Effective Date to, or with respect to, former employees
of the Company who became entitled to such benefits before that date in
accordance with the terms of the Plan as in effect at the time of their
retirement or other termination of employment. If an employee of an Employer
was participating in the Plan immediately prior to the New Effective Date and
continues to participate in the Plan on and after that date, benefits payable
under this Plan to, or with respect to, such employee shall not be less than
what they would have been if the Plan as in effect immediately prior to the
New Effective Date continued in effect on and after that date without change,
but only taking into account for this purpose benefits accrued by the employee
under the Retirement Plan and all other USG Defined Benefit Plans prior to the
New Effective Date.
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<PAGE>
SECTION 2
ELIGIBILITY FOR PARTICIPATION
2.1. COVERED EMPLOYEE. A "Covered Employee" means an employee of an
Employer under the Plan who is a highly compensated employee as defined in
Section 414(q) of the Internal Revenue Code, unless the Committee specifies
that such employee shall not be considered as a Covered Employee for any
purpose of the Plan by writing filed with the Secretary of the Company prior
to, or within 30 days after, the date the employee otherwise would become
eligible for participation in the Plan.
2.2. ELIGIBILITY. Subject to the conditions and limitations of the Plan,
each employee of an Employer who was a "Participant" in the Plan on June 30,
1993 shall continue as a Participant in the Plan after that date. Subject to
the conditions and limitations of the Plan, each other employee of an Employer
shall become eligible to enroll in this Plan and become a "Participant" on the
first date occurring on or after the New Effective Date on which:
(a) he is a Covered Employee; and
(b) the benefits he accrues, or the contributions he is required to
make or could elect to make, or his share of employer derived
contributions under one or more of the Retirement Plan, the
Investment Plan, and other USG Defined Benefit and Defined
Contribution Plans, are less than what they would have been (or,
as to elected contributions, could have been) as a result of the
limitations described in subsection 1.3.
Each employee will be notified of the date he is eligible to enroll in the
Plan and become a Participant and will be furnished with an enrollment form
pursuant to appropriate enrollment procedures established by the Committee.
2.3. PERIOD OF PARTICIPATION. An employee of an Employer who becomes a
Participant in this Plan will continue as a Participant in the Plan in
accordance with its provisions until all benefits to which he is entitled
under the Plan have been distributed to him.
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<PAGE>
SECTION 3
PART A SUPPLEMENTAL BENEFITS
3.1. INTENT. The Employers intend that benefits be provided pursuant to
the provisions of this Section 3 that are actuarially equivalent to the
benefits that would have been provided under the Retirement Plan and other USG
Defined Benefit Plans if the limitations described in subsection 1.3 did not
exist, if before-tax contributions the Participant makes pursuant to
subsection 3.3 had been made under the Retirement Plan and any other
applicable USG Defined Benefit Plan on an after-tax basis, and if amounts
deferred under the Company's 1989 and subsequent management incentive
compensation programs or deferred under subsections 4.3 and 4.4 of the Plan
had not been deferred but instead paid at the proper time and included in
employment compensation for purposes of the Plans, provided that the
contribution requirement described in subsection 3.3 is met.
3.2. LIMITED BENEFITS, UNLIMITED BENEFITS, PART A SUPPLEMENTAL BENEFITS AND
PART A SUPPLEMENTAL DEATH BENEFITS. For purposes of this Section 3, the term
"Limited Benefits" means the benefits that become payable to or with respect
to a Participant under the Retirement Plan and all other USG Defined Benefit
Plans. The term "Unlimited Benefits" means the benefits that would have
become payable to or with respect to a Participant under such Plans if the
limitations described in subsection 1.3 did not exist, if before-tax
contributions the Participant makes pursuant to subsection 3.3 had been made
under the Retirement Plan and any other applicable USG Defined Benefit Plan on
an after-tax basis, and if amounts deferred by the Participant under the
Company's 1989 and subsequent management incentive compensation programs or
deferred under subsections 4.3 and 4.4 of the Plan had not been deferred but
instead paid to the Participant at the proper time during employment and then
included in the Participant's employment compensation for purposes of those
Plans. Benefits that become payable under this Section 3 to a Participant are
referred to as "Part A Supplemental Benefits". Benefits that become payable
under this Section 3 to any person as a result of the death of a Participant
are referred to as "Part A Supplemental Death Benefits".
3.3. PARTICIPANT CONTRIBUTION REQUIREMENT. A Participant's entitlement to
Part A Supplemental Benefits and Part A Supplemental Death Benefits described
in subsections 3.5 and 3.7 is
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<PAGE>
subject to the Participant making before-tax contributions under this Plan.
Such contributions must equal the after-tax contributions the Participant
would have been required to make under the Retirement Plan and all other USG
Defined Benefit Plans:
(a) if amounts contributed on a before-tax basis under this Plan,
deferred by the Participant under the Company's management
incentive compensation programs, or deferred under subsections 4.3
and 4.4 of the Plan had not been so contributed or deferred but
paid to the Participant at the proper time during employment and
then included in the Participant's employment compensation for
purposes of those plans;
(b) if the annual compensation limitation imposed by Section 401(a)(17)
of the Internal Revenue Code (as described in subparagraph 1.3(b))
did not apply to the Participant; and
(c) if the limitations imposed under Section 415 of the Internal
Revenue Code (as described in subparagraph 1.3(f)) did not apply
to the Participant.
Notwithstanding the foregoing, a participant who elects to continue making
after-tax contributions under the Retirement Plan or another USG Defined
Benefit Plan even though the limitations imposed under Section 415 of the
Internal Revenue Code prevent him from accruing benefits under such plans,
will accrue benefits under this Plan based on such after-tax contributions as
if they had been made under this Plan on a before-tax basis. The Committee
shall maintain a bookkeeping account in the name of each Participant who makes
before-tax contributions under this subsection to reflect such contributions
and, where required, interest on such contributions. The term "interest" as
used in this Plan with respect to Participants' before-tax contributions made
under this subsection shall mean "interest" as defined in the Retirement Plan
with respect to participant contributions under that plan but shall not
include a higher rate of interest required to be applied under the Retirement
Plan for certain purposes pursuant to Section 411(c)(2) of the Internal
Revenue Code.
3.4. COMPENSATION DEFERRAL ELECTIONS. A Participant's before-tax
contributions under this Section 3 shall be made pursuant to a compensation
deferral election filed with his Employer prior to the calendar year such
contributions are to begin or, in the case of a Participant who first becomes
eligible to make
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<PAGE>
such contributions during but after the beginning of a calendar year, filed
with his Employer not more than 30 days after so becoming eligible, subject to
the following:
(a) The Participant's election shall apply to employment compensation
otherwise payable after the later to occur of the date the
Participant becomes eligible to make before-tax contributions and
the date the election is filed with his Employer.
(b) Such election shall be automatically revoked if the Participant
ceases to be a Covered Employee and such revocation shall be
effective as to employment compensation the Participant is
entitled to receive during the period he ceases to be a Covered
Employee.
(c) Such election may be voluntarily revoked by the Participant before
the beginning of any subsequent calendar year. A voluntary
revocation shall be effective as to employment compensation the
Participant is entitled to receive during that and subsequent
calendar years unless prior to the commencement of any subsequent
calendar year the Participant makes another compensation deferral
election. Such later election shall apply as to employment
compensation otherwise payable during calendar years beginning
after the election is made.
Any period during which a Participant does not make contributions under the
Plan (and, where applicable, also does not elect to make after-tax
contributions under the Retirement Plan or another USG Defined Benefit Plan
upon which benefits would accrue under this Plan) shall be disregarded for
purposes of any subsequent calculation of benefit service (as defined in
subsection 4.3 of the Retirement Plan) or compensation (as described in
subsection 3.3 above for purposes of determining contributions under this
Plan) used in determining the Participant's Unlimited Benefits for a
subsequent Plan year.
3.5. AMOUNT OF PART A SUPPLEMENTAL BENEFITS. Subject to the contribution
requirement described in subsection 3.3, Part A Supplemental Benefits shall
become payable under the Plan to a Participant upon the Participant's
retirement or earlier termination of employment with the Company and its
subsidiaries. A Participant's Part A Supplemental Benefits shall be in an
amount that is actuarially equivalent to the amount by which the Participant's
Unlimited Benefits exceed the Participant's
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Limited Benefits. For purposes of this Section 3, actuarially equivalent
benefits shall be calculated on the basis of the actuarial factors,
assumptions and tables applied for that purpose under the Retirement Plan, to
the extent deemed appropriate by the Committee.
3.6. PAYMENT OF PART A SUPPLEMENTAL BENEFITS. Subject to the provisions of
this subsection 3.6, Part A Supplemental Benefits shall be paid in a lump sum
within 30 days after such benefits become payable or, if the entire amount of
such benefits cannot be determined by the Committee within that 30 day period,
payment shall be made in one or more installments as determined by the
Committee but with the last payment due by the 30th day following the date the
Committee determines the total amount of such benefits. The Committee in its
discretion may from time to time establish rules incorporating objective
standards that shall govern the form of payment of Part A Supplemental
Benefits that initially become payable during a subsequent calendar year. A
copy of such rules, certified by the Chairman or Secretary of the Committee,
shall be filed with the Secretary of the Company before the beginning of the
calendar year for which they first become effective. Any such rules in effect
at the start of a calendar year may not be modified or rescinded in that
calendar year or thereafter with respect to the form of payment of Part A
Supplemental Benefits that initially become payable to any person under the
Plan during that calendar year. Notwithstanding the foregoing provisions of
this subsection:
(a) Payment of a Participant's Part A Supplemental Benefits must be
made or commence not later than February 1 of the calendar year
next following the calendar year in which he attains age 65 years
or, if later, his termination of employment with the Company and
its subsidiaries occurs.
(b) If the Committee determines that a Participant whose Part A
Supplemental Benefits are being paid over a period of more than
one year has incurred a severe financial hardship as a result of
the occurrence of an unanticipated event beyond the Participant's
control, the Committee may direct that an advance payment of part
or all of the Covered Participant's Part A Supplemental Benefits
be made, but the amount thereof shall not exceed the amount needed
for such financial hardship.
(c) If a Change in Control as determined in accordance with the
provisions of Section 18 of the
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Retirement Plan as in effect on the New Effective Date should
occur, Part A Supplemental Benefits that initially became payable
to a Participant before the Change in Control but have not been
paid or paid in full shall be distributed in accordance with the
same form of payment as in effect with respect to those benefits
immediately prior to the Change in Control, but any Part A
Supplemental Benefits that initially become payable after the
Change in Control shall be distributed in a lump sum to the person
entitled thereto within 30 days after they become payable.
(d) If a Participant's death occurs while employed by the Company or
any subsidiary of the Company or if a Participant's death occurs
after he had become entitled to Part A Supplemental Benefits but
before payment of such benefits has commenced or has been
completed, Part A Supplemental Death Benefits shall be payable
with respect to the Participant only if and to the extent provided
in subsection 3.7.
(e) Spousal consent rules that apply under the Retirement Plan or any
other USG Defined Benefit Plan with respect to forms of payment of
benefits shall not apply under this Plan.
3.7. AMOUNT AND PAYMENT OF PART A SUPPLEMENTAL DEATH BENEFITS. Part A
Supplemental Death Benefits shall be payable under the Plan as follows:
(a) If a Participant's death occurs while employed by the Company or a
subsidiary of the Company and if he had an Eligible Spouse (as
defined in subsection 5.1) immediately prior to his death, the
Participant's Eligible Spouse shall be entitled to monthly Part A
Supplemental Death Benefits under this Plan equal to the
additional monthly pre-retirement survivor annuity benefits that
would have been payable to the Participant's Eligible Spouse under
the Retirement Plan and all other USG Defined Benefit Plans if the
Participant's Limited Benefits equalled his Unlimited Benefits.
The first payment to a Participant's Eligible Spouse under this
subsection shall be made as of the beginning of the calendar month
next following the calendar month during which the Participant's
death occurs and
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the final payment shall be made as of the beginning of the
calendar month during which the Eligible Spouse's death occurs.
If the Participant did not have an Eligible Spouse at the time of
his death, no Part A Supplemental Death Benefits shall be payable
under the Plan with respect to that Participant other than payment
to the Participant's Supplemental Plan Beneficiary (as defined in
subsection 5.2) of an amount equal to the Participant's before-tax
contributions under the Plan with interest as soon as practicable
after the Participant's death.
(b) If a Participant's death occurs after he had both retired (or
otherwise terminated employment) and become entitled to Part A
Supplemental Benefits but before payment of such benefits had been
made or had commenced, and if he had an Eligible Spouse at the
time of his death, the Participant's Eligible Spouse shall be
entitled to monthly Part A Supplemental Death Benefits equal to 50
percent of the additional monthly amount that would have been
payable to the Participant under the Retirement Plan and all other
USG Defined Benefit Plans in the form of a qualified joint and
survivor annuity if the Participant's Limited Benefits equalled
his Unlimited Benefits and if his benefit commencement date under
such Plans had occurred immediately prior to his death or, if
later, at his normal retirement date. The first payment to a
Participant's Eligible Spouse under this subparagraph shall be
made as of the beginning of the calendar month next following the
calendar month during which the Participant's death occurs or, if
later, the month in which the Participant would have attained age
55 years, and the final payment shall be made as of the beginning
of the calendar month during which the Eligible Spouse's death
occurs. If the Participant did not have an Eligible Spouse at the
time of his death, no Part A Supplemental Death Benefits shall be
payable under the Plan with respect to that Participant other than
payment to the Participant's Supplemental Plan Beneficiary of an
amount equal to the Participant's before-tax contributions under
this Plan with interest as soon as practicable after the
Participant's death.
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(c) If a Participant's death occurs while receiving Part A
Supplemental Benefits, his Supplemental Plan Beneficiary shall be
entitled to Part A Supplemental Death Benefits equal to the death
benefits, if any, payable under the form of payment of his Part A
Supplemental Benefits.
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<PAGE>
SECTION 4
PART B SUPPLEMENTAL BENEFITS
4.1. INTENT. Commencing on the New Effective Date, the provisions of this
Section 4 are intended to allow a Participant to elect to make part or all of
the additional before-tax contributions he could have made under the
Investment Plan and all other USG Defined Contribution Plans, and to earn the
additional matching contributions that would have been made by his Employer
and credited to his accounts under those plans as a result of such additional
before-tax contributions, if the limitations described in subsection 1.3 did
not exist and if amounts contributed on a before-tax basis under this Plan or
deferred by the Participant under the Company's 1989 and subsequent management
incentive compensation programs had not been so contributed or deferred but
instead paid to the Participant at the proper time during employment and then
included in the Participant's employment compensation for purposes of those
plans. Effective October 1, 1993, this Section 4 also permits Participants to
make additional before-tax contributions to the Plan in excess of the amount
permitted under the terms of the Investment Plan.
4.2. PART B SUPPLEMENTAL BENEFITS AND PART B SUPPLEMENTAL DEATH BENEFITS.
Benefits that become payable under this Section 4 to a Participant are
referred to as "Part B Supplemental Benefits". Benefits that become payable
under this Section 4 to any person as a result of the death of a Participant
are referred to as "Part B Supplemental Death Benefits".
4.3. ELECTIVE PARTICIPANT CONTRIBUTIONS. A Participant may elect to make
part or all of the additional before-tax contributions described in subsection
4.1. A Participant's before-tax contributions under this subsection 4.3 shall
be made by a compensation deferral election filed with his Employer prior to
the calendar year such contributions are to begin or, for contributions to be
made in 1993, before the New Effective Date. If a Participant first becomes
eligible to make such contributions during 1993 but after the New Effective
date or during but after the beginning of any subsequent calendar year, such
Participant's deferral election must be filed with his Employer not more than
30 days after so becoming eligible. A Participant's compensation deferral
election under this subsection 4.3 shall apply to employment compensation
otherwise payable after the later to occur of the date the Participant becomes
eligible to make before-tax contributions and the date
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the election is filed with his Employer. A Participant's compensation
deferral election may be revoked by the Participant before the beginning of
any subsequent calendar year. The revocation shall be effective as to
employment compensation the Participant is entitled to receive during that and
subsequent calendar years unless prior to the commencement of any subsequent
calendar year the Participant makes another compensation deferral election.
Such later election shall apply as to employment compensation otherwise
payable during calendar years beginning after such later election is made.
Notwithstanding the foregoing, a Participant's compensation deferral election
automatically shall be revoked for any period he ceases to be a highly
compensated employee as defined in Section 414(q) of the Internal Revenue
Code.
4.4. ADDITIONAL ELECTIVE PARTICIPANT CONTRIBUTIONS. Effective October 1,
1993, a Participant who is making the maximum permitted deferral under
subsection 4.3 may elect to make additional before-tax contributions pursuant
to this subsection 4.4. Such additional contributions shall be a percentage
(ranging from one to eleven percent, in whole number increments) of the
Participant's employment compensation. A Participant's before-tax
contributions under this subsection 4.4 shall be made by a compensation
deferral election filed with his Employer prior to the calendar year such
contributions are to begin or, for contributions to be made in 1993, before
October 1, 1993. If a Participant first becomes eligible to make
contributions under this subsection 4.4 during 1993 but after October 1, 1993
or during but after the beginning of any subsequent calendar year, such
Participant's deferral election must be filed with his Employer not more than
30 days after so becoming eligible. A Participant's compensation deferral
election under this subsection 4.4 shall apply to employment compensation
otherwise payable after the later to occur of the date the Participant becomes
eligible to make before-tax contributions and the date the election is filed
with his Employer. A Participant may revoke or reinstate his deferral
election under this subsection 4.4 in accordance with the rules on revocation
and reinstatement of deferral elections found in subsection 4.3.
4.5. EMPLOYER MATCHING CONTRIBUTIONS. A Participant who makes before-tax
contributions under subsection 4.3 shall be entitled to "Employer Matching
Contributions" under this Plan equal to the additional "corporation matching
contributions" he would have been entitled to receive under the Investment
Plan if such before-tax contributions were permitted to be made under the
Investment Plan. Employer matching contributions will not be made on any
before-tax contributions made pursuant to subsection 4.4. For purposes of
this Section 4, "corporation match-
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ing contributions" means all forms of matching contributions provided for in
Section 4 of the Investment Plan.
4.6. SEPARATE ACCOUNTS, SUBACCOUNTS, DEEMED INVESTMENTS. The Committee
shall maintain a bookkeeping account in the name of each Participant who makes
before-tax contributions under this Section 4 and shall maintain a separate
bookkeeping account in his name to reflect Employer Matching Contributions
attributable to such before-tax contributions. One half of any contributions
made pursuant to subsections 4.3, 4.4 and 4.5, shall be deemed, when made, to
be invested in the "fixed income fund" maintained under the Investment Plan;
the remaining half of any such contributions, when made, shall be deemed to be
invested in the "equity index fund" maintained under the Investment Plan. The
Committee may maintain such subaccounts as it deems necessary to effect the
immediately preceding sentence. Any reference to a Participant's "account"
shall include all subaccounts established on behalf of the Participant by the
Committee in accordance with the preceding sentence. Each participant's
accounts and subaccounts shall be adjusted as of the end of each calendar
quarter (and on any other dates the accounts of participants in the Investment
Plan are adjusted) to reflect the balances that would have been in such
accounts if they had in fact been maintained under the Investment Plan as
described above.
4.7. WITHDRAWALS. No withdrawals may be made under this Plan with respect
to a Participant's accounts prior to the Participant's termination of
employment with the Company and all of its subsidiaries other than hardship
withdrawals described below. Effective as of the close of a calendar quarter,
after Participants' accounts have been adjusted as of the end of that quarter,
a Participant may request a withdrawal from his account which reflects his
before-tax contributions in the same manner and subject to the same conditions
and limitations as are set forth in the Investment Plan for hardship
withdrawals from participants' before-tax accounts. Although such conditions
and limitations do not apply to an employee participating in the Investment
Plan who has attained age 59-1/2 years, such conditions and limitations shall
be deemed to apply to a Participant in this Plan who has attained age 59-1/2
years. However, if a Participant incurs a hardship, he must request a
hardship withdrawal under this Plan to the extent required to satisfy the
immediate and heavy financial need caused by such hardship (subject to the
sufficiency of the before-tax contributions credited to such account of the
Participant under this Plan) before he may request a hardship withdrawal under
the Investment Plan or any other USG Defined Contribution Plan. A withdrawal
requested by a Participant as of the end of a calendar quarter, if approved by
the Committee, shall be made
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from the Plan during the next following calendar quarter. The amount of the
withdrawal shall be charged to the appropriate account of the Participant as
of the end of the calendar quarter in which the withdrawal is actually made
but prior to adjusting such account under subsection 4.6 to reflect
hypothetical investment earnings (or losses) for that quarter.
4.8. VESTING OF ACCOUNTS. Upon a Participant's termination of employment
with the Company and all of its subsidiaries, the Participant (or in the event
of his death, his Supplemental Plan Beneficiary, as defined in subsection 5.2)
shall be entitled to the entire balance in the Participant's account which
reflects his before-tax contributions made under this Section 4 (subject to
quarterly adjustments required of such account until complete distribution
thereof). The Participant or Supplemental Plan Beneficiary, as the case may
be, shall be entitled to that portion of the balance in the Participant's
account which reflects the Participant's share of Employer Matching
Contributions the Participant or Supplemental Plan Beneficiary would have been
entitled to under the Investment Plan if such contributions were "corporation
matching contributions" made under the Investment Plan and such account had
been maintained as a "corporation account" under that Plan (subject to
quarterly adjustments required of such account until complete distribution of
the vested portion thereof).
4.9. DISTRIBUTION OF ACCOUNTS. Subject to the provisions of this
subsection 4.9, Part B Supplemental Benefits shall be paid in a lump sum
within 30 days after the end of the calendar quarter in which such benefits
become payable or, if the entire amount of such benefits cannot be determined
by the Committee within that period, payment shall be made in one or more
installments as determined by the Committee but with the last payment due by
the 30th day following the date the Committee determines the total amount of
such benefits. The Committee in its discretion may from time to time
establish rules incorporating objective standards that shall govern the form
of payment of Part B Supplemental Benefits that initially become payable
during a subsequent calendar year. The distribution options for Part B
Supplemental Benefits established by the Committee under this subsection 4.9
may differ from the distribution options established by the Committee under
subsection 3.6 for the distribution of Part A Supplemental Benefits, but shall
be established in the same manner and subject to the same conditions and
limitations as are set forth in subsection 3.6, except that subparagraph
3.6(d) shall not apply in the event of the death of a Participant. Upon a
Participant's death, whether before or after the Participant's termination of
employment, the Participant's Part B Supplemental Death Benefits (the
remaining balances in the accounts reflecting his
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before-tax contributions made under this Section 4 and Employer Matching
Contributions) shall be distributed to the Participant's Supplemental Plan
Beneficiary in a lump sum as soon as practicable after the Participant's death
unless the Participant had, prior to his death, irrevocably elected another
means of distribution established by the Committee under this subsection 4.9.
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SECTION 5
SPOUSES, BENEFICIARIES, FUNDING
5.1. ELIGIBLE SPOUSE. The spouse of a Participant will be considered as an
"Eligible Spouse" as of any date only if at least six months prior thereto the
Participant and his spouse were lawfully married under the laws of the state
where the marriage was contracted and the marriage remains legally effective.
5.2. SUPPLEMENTAL PLAN BENEFICIARY. A "Supplemental Plan Beneficiary"
means a person who has been designated by a Participant as such by writing
signed by the Participant and filed with the Committee prior to the
Participant's death. If a Participant failed to designate a Supplemental Plan
Beneficiary or if the person he designated predeceases the Participant, the
Participant's Beneficiary under the Retirement Plan shall be his Supplemental
Plan Beneficiary as to Part A Supplemental Death Benefits and his Beneficiary
under the Investment Plan shall be his Supplemental Plan Beneficiary as to
Part B Supplemental Death Benefits.
5.3. FUNDING. Benefits payable under this Plan to a Participant or his
Supplemental Plan Beneficiary shall be paid directly by the Employers from
their general assets in such proportions as the Company shall determine to the
extent such benefits are not paid from a Special Retirement Account
(established pursuant to Supplement A of this Plan) or from a so-called "rabbi
trust", an irrevocable grantor trust the assets of which are subject to the
claims of creditors of the Employers in the event of their insolvency. The
Employers shall not be required to segregate on their books or otherwise any
amount to be used for the payment of benefits under this Plan, except as to
any amounts paid or payable to a Special Retirement Account under Supplement A
of this Plan or to a "rabbi trust".
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SECTION 6
GENERAL PROVISIONS
6.1. STATEMENT OF ACCOUNTS. The Committee shall furnish each Participant
with a statement of his accounts under this Plan as of each December 31.
6.2. EMPLOYMENT RIGHTS. Establishment of the Plan shall not be construed
to give any Participant the right to be retained in the employ of the Company
or any other Employer or to any benefits not specifically provided by this
Plan.
6.3. INTERESTS NOT TRANSFERABLE. Except as to withholding of any tax under
the laws of the United States or any state or municipality, the interests of
Participants and their Supplemental Plan Beneficiaries under the Plan are not
subject to the claims of their creditors and may not be voluntarily or
involuntarily transferred, assigned, alienated or encumbered.
6.4. CONTROLLING LAW. The laws of Illinois shall be controlling in all
matters relating to the Plan.
6.5. GENDER AND NUMBER. Where the context admits, words in the masculine
gender shall include the feminine and neuter genders, the plural shall include
the singular and the singular shall include the plural.
6.6. ACTION BY THE COMPANY. Any action required of or permitted by the
Company under the Plan shall be by resolution of its Board of Directors or by
a duly authorized committee of its Board of Directors, or by a person or
persons authorized by resolution of its Board of Directors or such committee.
6.7. SUCCESSOR TO THE COMPANY OR ANY OTHER EMPLOYER. The term "Company" as
used in the Plan shall include any successor to the Company by reason of
merger, consolidation, the purchase or transfer of all or substantially all of
the Company's assets, or otherwise. The term "Employer" as used in the Plan
with respect to the Company or any subsidiary shall include any successor to
that corporation by reason of merger, consolidation, the purchase or transfer
of all or substantially all of the assets of that corporation, or otherwise.
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6.8. FACILITY OF PAYMENT. Any amounts payable hereunder to any person
under a legal disability or who, in the judgment of the Committee, is unable
to properly manage his affairs may be paid to the legal representative of such
person or may be applied for the benefit of such person in any manner which
the Committee may select. Any payment made in accordance with the next
preceding sentence shall be a full and complete discharge of any liability for
such payment under the Plan.
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SECTION 7
AMENDMENT AND TERMINATION
While the Employers expect to continue the Plan, the Company must necessarily
reserve and reserves the right to amend the Plan from time to time or to
terminate the Plan at any time. However, no amendment of the Plan nor the
termination of the Plan may cause the reduction or cessation of any benefits
that, but for such amendment or termination, are payable under this Plan or
would become payable under this Plan after the date such amendment is made or
the termination of the Plan occurs with respect to benefits accrued under the
Retirement Plan and all other USG Defined Benefit Plans prior to such date,
and with respect to Participants' before-tax contributions made under this
Plan prior to such date and Employer Matching Contributions attributable to
such before-tax contributions.
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SUPPLEMENT A
TO
USG CORPORATION SUPPLEMENTAL RETIREMENT PLAN
A-1. PURPOSE, SPECIAL RETIREMENT ACCOUNT. The purpose of this Supplement A
is to provide for installment payments of part or all of the accrued benefits
under Part A of the Plan of each Eligible Participant to an individual account
(the "Special Retirement Account") the Participant establishes in his name
with a bank or trust company designated by the Company pursuant to an
agreement between the Participant and the Company (the "Special Retirement
Agreement").
A-2. ELIGIBLE PARTICIPANT. The term "Eligible Participant" as used in this
Supplement A means a Participant in Part A of the Plan who had established a
Special Retirement Account on or before May 1, 1993. No Participant may
establish a Special Retirement Account after May 1, 1993.
A-3. ACCRUED BENEFIT AND DEATH BENEFIT VALUES, AFTER-TAX ACCRUED BENEFIT AND
DEATH BENEFIT VALUES. The following terms used in this Supplement A shall
have the following meanings:
(a) "Accrued Benefit Value" as of any date means the present value of
an Eligible Participant's Part A Supplemental Benefits under the
Plan as of that date, as determined by the Committee (calculated
on the bases of the actuarial factors, assumptions and tables then
applied for that purpose under the Retirement Plan and benefit
limitations imposed by the Internal Revenue Code then in effect,
and assuming that no payments have been made to the Eligible
Participant's Special Retirement Account pursuant to Paragraph A-5
and that the Eligible Participant will not have any additional
service or employment compensation).
(b) "After-Tax Accrued Benefit Value" as of any date means an Eligible
Participant's Accrued Benefit Value as of that date less
Applicable Income Taxes.
(c) "Accrued Death Benefit Value" means, in the case of an Eligible
Participant whose death occurs prior to receipt of any portion of
the Participant's Part A Supplemental Benefits, the present
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value as of the date of the Eligible Participant's death, as
determined by the Committee, of the Part A Supplemental Death
Benefits, if any, payable to the Eligible Participant's Eligible
Spouse as of that date (calculated on the basis of the actuarial
factors, assumptions and tables then applied under the Retirement
Plan in determining the present value of accrued death benefits
and benefit limitations imposed by the Internal Revenue Code then
in effect, and assuming that no payments have been made to the
Eligible Participant's Special Retirement Account).
(d) "After-Tax Accrued Death Benefit Value" means, in the case of an
Eligible Participant described in the next preceding sentence, the
Accrued Death Benefit Value as of the date of the Eligible
Participant's death less Applicable Income Taxes.
A-4. APPLICABLE INCOME TAXES. "Applicable Income Taxes" means, with
respect to any amount, federal, state and local income taxes on such amount
(using for this purpose, and subject to such rules as the Committee may
establish, the highest published applicable individual income tax rate in
effect for the calendar year as to which such taxes are being determined),
provided that state and local income taxes shall be considered net of federal
income tax benefits.
A-5. PAYMENTS TO THE SPECIAL RETIREMENT ACCOUNT. Subject to the provisions
of Paragraph A-6, the following payments will be made to the Special
Retirement Account of each Eligible Participant. As of the beginning of each
calendar quarter, the Committee shall determine the Employee's After-Tax
Accrued Benefit Value as well as the amount, if any, by which such value
exceeds the fair market value of all assets of the Special Retirement Account
as of the end of the preceding calendar quarter. If Employee's After-Tax
Accrued Benefit Value exceeds the fair market value of such assets by $100,000
or more, a payment will be made to the Special Retirement Account equal to the
difference between such values. Payments required to be made to the Special
Retirement Account under this Paragraph A-5 shall be made directly by the
Company or from USG Corporation Deferred Benefit Trust, or from both sources,
as soon as practicable after the amounts of the payments have been determined
by the Committee. Pursuant to the terms of the Special Retirement Agreement,
the Company will gross-up the amount of a payment made to the Special
Retirement Account under this Paragraph A-5 so as to provide funds for the
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Applicable Income Taxes payable by the Eligible Participant on such payment
and will make payments to (or with respect to) the Eligible Participant in
order to provide funds for the Applicable Income Taxes payable on investment
income earned by the Special Retirement Account.
A-6. ADJUSTMENT OF PART A SUPPLEMENTAL BENEFITS AND PART A SUPPLEMENTAL
DEATH BENEFITS UPON RETIREMENT OR DEATH. For the purpose of determining the
amount of payments to be made to an Eligible Participant's Special Retirement
Account pursuant to Paragraph A-5, it is assumed that no portion of the Part A
Supplemental Benefits he has accrued has been paid under the Plan. However,
each payment made to an Eligible Participant's Special Retirement Account
shall reduce the obligation of the Plan to provide Part A Supplemental
Benefits and Part A Supplemental Death Benefits to or with respect to that
Eligible Participant and thus benefits otherwise payable under the Plan shall
be reduced to reflect such payments. Upon an Eligible Participant's
retirement or death before retirement, the following shall apply:
(a) No further payments need be made under the Plan to the Eligible
Participant's Special Retirement Account.
(b) The Committee shall determine the amount of Part A Supplemental
Benefits or Part A Supplemental Death Benefits that would be
payable under the Plan as a result of such retirement or death if
no payments had been made to the Eligible Participant's Special
Retirement Account and also shall determine the After-Tax Accrued
Benefit Value or After-Tax Accrued Death Benefit Value, as the
case may be, of those benefits.
(c) The benefits determined under subparagraph (b) next above shall be
reduced so that their After-Tax Accrued Benefit Value or After-Tax
Accrued Death Benefit Value equals the amount by which the
After-Tax Accrued Benefit Value or After-Tax Accrued Death Benefit
Value, determined in accordance with subparagraph (b) next above,
exceeds the fair market value of all assets of the Eligible
Participant's Special Retirement Account as of the date of his
retirement or death, disregarding assets of the Special Retirement
Account, if any, that are required to be paid to the Company.
Subject to the provisions of subparagraph (d) next below, the
resulting benefits shall be the actual Part A Supplemental
Benefits
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<PAGE>
or Part A Supplemental Death Benefits that will be paid under the
Plan to, or with respect to, the Eligible Participant.
(d) Subparagraph 3.7(b) of the Plan provides for the payment of Part A
Supplemental Death Benefits to the Eligible Spouse of an Eligible
Participant who dies after retirement but before payment of any
portion of the Eligible Participant's Part A Supplemental Benefits
had been made or commenced. However, if an Eligible Participant
retires but dies before all assets in the Eligible Participant's
Special Retirement Account not in excess of the Eligible
Participant's After-Tax Accrued Benefit Value have been
distributed to him, the Special Retirement Agreement requires that
the undistributed portion of such assets be distributed as soon as
practicable after the Eligible Participant's death to the Eligible
Participant's Beneficiary under the Special Retirement Agreement.
In this case, Part A Supplemental Death Benefits shall be payable
under subparagraph 3.7(b) of the Plan to the Eligible Spouse of
the Eligible Participant only to the extent, if any, the fair
market value of the assets distributed from the Special Retirement
Account to the Eligible Participant after his retirement and the
assets distributed or to be distributed from the Special
Retirement Account to such Beneficiary is less than the After-Tax
Accrued Death Benefit Value of the Part A Supplemental Death
Benefits otherwise payable to the Eligible Spouse under Part A of
the Plan.
(e) The actual Part A Supplemental Benefits or Part A Supplemental
Death Benefits determined under subparagraphs (c) and (d) next
above shall be paid as provided in subsection 3.6 or 3.7 of the
Plan, whichever applies.
(f) If the fair market value of all assets in the Eligible
Participant's Special Retirement Account as of the date of his
retirement or death exceeds the After-Tax Accrued Benefit Value or
the After-Tax Accrued Death Benefit Value, whichever applies, the
Special Retirement Agreement provides that such excess assets
shall be returned to the Company.
A-4
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A-7. TERMS AND PROVISIONS OF THE PLAN. All the terms and provisions of the
Plan shall apply to this Supplement A and vice versa, except that where and to
the extent the terms and provisions of the Plan and this Supplement A
conflict, the terms and provisions of this Supplement A shall govern.
A-5
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EXHIBIT 10(e)
FIRST AMENDMENT
OF
USG CORPORATION SUPPLEMENTAL RETIREMENT PLAN
(As Amended and Restated Effective as of July 1, 1993)
WHEREAS, USG Corporation maintains the USG Corporation
Supplemental Retirement Plan (the "plan"), which plan was amended and restated
in its entirety effective as of July 1, 1993; and
WHEREAS, it is now considered desirable to amend the plan;
NOW, THEREFORE, pursuant to the amending power reserved to the
Corporation as the "Company" under Section 7 of the plan, as amended, the plan
be and it hereby is further amended, effective as of November 15, 1993, by
substituting the following two paragraphs for subparagraphs 3.7(a) and (b) of
the plan:
"(a) If a Participant's death occurs while employed by the
Company or a subsidiary of the Company and if he had an
Eligible Spouse (as defined in subsection 5.1) immediately
prior to his death, the Participant's Eligible Spouse shall
be entitled to a lump sum Part A Supplemental Death Benefit
under this Plan which is actuarially equivalent to any
additional monthly pre-retirement survivor annuity benefits
that would have been payable to the Participant's Eligible
Spouse under the Retirement Plan and all other USG Defined
Benefit Plans if the Participant's Limited Benefits equalled
his Unlimited Benefits. The Part A Supplemental Death
Benefit under this subparagraph 3.7(a) shall be paid to the
Participant's Eligible Spouse in a lump sum as soon as
practicable after the Participant's Death. If the
Participant did not have an Eligible Spouse at the time of
his death, no Part A Supplemental Death Benefits shall be
payable under the Plan with respect to that Participant
other than payment to the Participant's Supplemental Plan
Beneficiary (as defined in subsection 5.2) of an amount
equal to the Participant's before-tax contributions under
the
<PAGE>
Plan with interest as soon as practicable after the
Participant's death.
(b) If a Participant's death occurs after he had both retired
(or otherwise terminated employment) and become entitled to
Part A Supplemental Benefits but before payment of such
benefits had been made or had commenced, and if he had an
Eligible Spouse at the time of his death, the Participant's
Eligible Spouse shall be entitled to a lump sum Part A
Supplemental Death Benefit which is actuarially equivalent
to any additional monthly pre-retirement survivor annuity
benefits that could have been payable to the Participant's
Eligible Spouse under the Retirement Plan and all other USG
Defined Benefit Plans if the Participant's Limited Benefits
equalled his Unlimited Benefits. The Part A Supplemental
Death Benefit under this subparagraph 3.7(b) shall be paid
to the Participant's Eligible Spouse in a lump sum as soon
as practicable after the Participant's Death. If the
Participant did not have an Eligible Spouse at the time of
his death, no Part A Supplemental Death Benefits shall be
payable under the Plan with respect to that Participant
other than payment to the Participant's Supplemental Plan
Beneficiary of an amount equal to the Participant's
before-tax contributions under this Plan with interest as
soon as practicable after the Participant's death."
IN WITNESS WHEREOF, the company has caused these presents to be
signed on its behalf by an officer thereunto duly authorized this 2nd day of
December, 1993.
USG CORPORATION
By ______________________________
Senior Vice President and
Chief Administrative Officer
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<PAGE>
EXHIBIT 10(ak)
FIFTH AMENDMENT
OF
USG CORPORATION INVESTMENT TRUST
WHEREAS, USG Corporation Investment Trust (the "trust") serves as the funding
vehicle for USG Corporation Investment Plan; and
WHEREAS, the trust has been amended from time to time, and further amendment
of the trust now is considered desirable;
NOW, THEREFORE, pursuant to the amending power reserved to USG Corporation
(the "company") under paragraph XI-1 of the trust, as amended, the trust is
further amended, effective July 1, 1993, in the following particulars:
1. By substituting the following for subparagraph III-2(c) of the trust:
"(c) To direct the trustee from time to time to buy or sell company
shares as described in paragraph VI-1, to transfer assets
specified by the committee to or from any investment fund
described in Article VI, or to transfer assets to a deposit
account or a deposit administration fund maintained by a legal
reserve life insurance company pursuant to an agreement between
the trustee and such insurance company or a group annuity
contract issued by such insurance company to the trustee as
contractholder, and for this purpose to direct the trustee to
execute such agreement or apply for such group annuity contract."
2. By substituting the following for paragraph IV-1 of the trust:
"IV-1. THE TRUST FUND. Unless the context clearly implies or
indicates the contrary, the term 'trust fund' comprises all property of
every kind held or acquired by the trustee under this agreement."
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<PAGE>
3. By substituting the following for subparagraph IV-2(c)(i) of the trust:
"(i) when directed by an investment manager pursuant to paragraph
VI-2, VI-3, VI-4, VI-5, VI-6 or VI-7, the trustee shall acquire,
retain and dispose of such investments as that investment manager
from time to time may direct;"
4. By renumbering subparagraph IV-2(c)(ii) of the trust as subparagraph
IV-2(c)(iii) and inserting the following new subparagraph IV-2(c)(ii):
"(ii) when directed by the committee pursuant to paragraph VI-4, VI-5,
VI-6 or VI-7, the trustee shall acquire, retain or dispose of
units of one or more investment companies registered under the
Investment Company Act of 1940 (an 'investment company') and/or
one or more common, collective or commingled trust funds or
pooled investment funds qualified under Section 401(a) of the
Internal Revenue Code;"
5. By substituting the following for subparagraph IV-2(d) of the trust:
"(d) When directed by the committee pursuant to subparagraph III-2(c),
to buy or sell company shares, to transfer assets specified by
the committee to or from any investment fund described in Article
VI, and when directed by the committee pursuant to subparagraph
III-2(d), to receive and hold any assets transferred from, or to
purchase assets from, or to transfer or sell any assets of this
trust to, the company or a subsidiary of the company, or any
other profit sharing, stock bonus or pension trust maintained by
the company or any subsidiary of the company that meets the
requirements of a 'qualified trust' under Section 401(a) of the
Internal Revenue Code (provided that any such purchase or sale to
another qualified trust or to the company or a subsidiary of the
company satisfies the prohibited transaction exemption
requirements set forth in Section 408(e) of the Employee
Retirement Income Security Act of 1974, as amended)."
2
<PAGE>
6. By substituting the following for subparagraph IV-2(n) of the trust:
"(n) To determine and report to the committee as of the end of each
calendar quarter, and at such other times as may be required
under the plan, the then net worth of the trust fund and the fair
market value of company shares and of each investment fund
described in Article VI, all as determined by the trustee on an
accrual basis pursuant to such evidence, data and information as
it considers pertinent and reliable."
7. By redesignating subparagraph IV-2(p) of the trust as subparagraph IV-2(q)
and by inserting the following new subparagraph IV-2(p):
"(p) When directed by the committee, to transfer an eligible rollover
distribution described in Section 402(c)(4) of the Internal
Revenue Code directly to an eligible retirement plan described in
Section 402(c)(8)(B) of the Internal Revenue Code."
8. By substituting the following for the first sentence of paragraph V-1 of
the trust:
"The committee, at its sole discretion, may appoint a professional
investment counsel other than the trustee as 'investment manager' of any
investment fund (the 'fund') established pursuant to Article VI, but not
with respect to investments in company shares as described in paragraph
VI-1."
9. By substituting the following for paragraph VI-1 of the trust:
"VI-1. COMPANY SHARES. When directed by the committee pursuant to
subparagraph III-2(c), the trustee shall purchase and sell shares of
common stock of the company which constitute qualifying employer
securities, as defined in Section 407(d)(5) of the Employee Retirement
Income Security Act of 1974, as amended ('company shares'). To the
extent not purchased from stock accounts maintained under the plan,
company shares shall be purchased by the trustee on the open market, or
upon the direction of the committee, from the company or a subsidiary of
3
<PAGE>
the company or from any other qualified defined contribution or
qualified defined benefit plan maintained by the company or a subsidiary
of the company (provided that any such purchases from the company or a
subsidiary of the company or from another qualified plan satisfy the
prohibited transaction exemption requirements set forth in Section 408(e)
of the Employee Retirement Income Security Act of 1974, as amended). In
order to fully invest contributions paid to stock accounts under the
plan, the trustee may borrow from any source permitted by law funds
needed to purchase a whole number of shares. If for any reason the
trustee is unable to invest contributions in company shares when such
contributions are received by the trustee, then, in the interim, the
trustee may invest such contributions in one or more common, collective
or commingled trust funds that are maintained by the bank or trust
company acting as trustee and that have been determined to meet the
requirements of Section 401(a) of the Internal Revenue Code.
Notwithstanding the foregoing provisions of this paragraph and any other
provisions of this agreement to the contrary, during the 'suspension
period' which began January 1, 1992 and ended June 30, 1993, the trustee
was not permitted to purchase company shares from any source. Beginning
July 1, 1993, the trustee again may purchase company shares with
participants' contributions, pursuant to their elections made under the
plan. Effective with the calendar quarter beginning October 1, 1993,
the trustee may purchase company shares with amounts transferred,
pursuant to participants' elections made under the plan, from any of the
investment funds."
10. By substituting the following sentence for the first sentence of
paragraph VI-2 of the trust:
"The trustee maintains an investment fund known as the 'fixed income
fund.'"
11. By substituting the following sentence for the first sentence of
paragraph VI-3 of the trust:
"The trustee maintains an investment fund known as the 'government
investment fund.'"
4
<PAGE>
12. By substituting the following new paragraphs VI-4, VI-5, VI-6, and VI-7
for paragraphs VI-4, VI-5, and VI-6 of the trust:
"VI-4. BALANCED FUND. The trustee maintains a separate fund known as
the 'balanced fund.' Assets of the balanced fund may be invested in (i)
several broadly diversified asset classes, which may include, but are
not limited to, domestic common stocks, preferred stocks, bonds and
cash, and also may include foreign common stocks and bonds and (ii)
units of one or more investment companies and/or one or more common,
collective or commingled trust funds or pooled investment funds that are
qualified under Section 401(a) of the Internal Revenue Code, provided
such investment companies or funds are invested in several broadly
diversified asset classes, including, but not limited to, those
described in (i) next above. Participants' contributions shall be
invested by the trustee in the balanced fund as soon as practicable
after they are received by the trustee but in the interim may be
invested by the trustee in one or more common, commingled or collective
trust funds that are maintained by the bank or trust company acting as
trustee and that have been determined to meet the requirements of
Section 401(a) of the Internal Revenue Code. The committee may
designate an investment manager for the balanced fund pursuant to
paragraph V-1, except that, at the committee's discretion, such
designation may apply only to a portion of the assets of the balanced
fund so that such investment manager shall have investment
responsibility only as to that portion of the balanced fund for which it
is acting as investment manager. The trustee shall have investment
responsibility as to all assets of the balanced fund for which an
investment manager does not have investment responsibility or which are
not invested at the direction of the committee pursuant to paragraph
IV-2(c)(ii) in units of an investment company, a common, collective or
commingled trust fund, or a pooled investment fund. Earnings of the
balanced fund shall be retained in that fund and reinvested as a part
thereof.
VI-5. EQUITY INDEX FUND. The trustee maintains an investment fund
known as the 'equity index fund.' The equity index fund is invested so
as to provide a broadly diversified equity portfolio, the performance of
which will closely track the return of the Standard & Poor's Composite
500 Index. Accordingly, assets of the equity index fund may be invested
in,
5
<PAGE>
but are not limited to, common or capital stocks, stock index future
contracts traded on a regulated exchange, bonds, debentures or preferred
stocks that are convertible into common stock, and units of one or more
investment companies and/or one or more common, commingled or collective
trust funds or pooled investment funds that are qualified under Section
401(a) of the Internal Revenue Code, provided such investment companies
or funds are invested so as to closely track the return of the Standard
& Poor's Composite 500 Index. Participants' contributions shall be
invested by the trustee in the equity index fund as soon as practicable
after they are received by the trustee but in the interim may be
invested by the trustee in one or more common, commingled or collective
trust funds that are maintained by the bank or trust company acting as
trustee and that have been determined to meet the requirements of
Section 401(a) of the Internal Revenue Code. The committee may
designate an investment manager for the equity index fund pursuant to
paragraph V-1, except that, at the committee's discretion, such
designation may apply only to a portion of the assets of the equity
index fund so that such investment manager shall have investment
responsibility only as to that portion of the equity index fund for
which it is acting as investment manager. The trustee shall have
investment responsibility as to all assets of the equity index fund for
which an investment manager does not have investment responsibility or
which are not invested at the direction of the committee pursuant to
paragraph IV-2(c)(ii) in units of an investment company, a common,
collective or commingled trust fund, or a pooled investment fund.
Earnings of the equity index fund shall be retained in that fund and
reinvested as a part thereof.
VI-6. GROWTH FUND. The trustee maintains a separate fund known as
the 'growth fund.' Assets of the growth fund are invested (i) primarily
in equity securities of large market capitalization companies with
earnings that are expected to grow at an above-average rate, but may be
further diversified by investment of a small variable portion of the
assets in domestic bonds, foreign common stocks and bonds, and cash
and/or (ii) in units of one or more investment companies and/or one or
more common, collective or commingled trust funds or pooled investment
funds that are qualified under Section 401(a) of the Internal Revenue
Code, provided such investment companies or funds are invested as
described in (i) next above.
6
<PAGE>
Participants' contributions shall be invested by the trustee in the
growth fund as soon as practicable after they are received by the
trustee but in the interim may be invested by the trustee in one or more
common, commingled or collective trust funds that are maintained by the
bank or trust company acting as trustee and that have been determined to
meet the requirements of Section 401(a) of the Internal Revenue Code.
The committee may designate an investment manager for the growth fund
pursuant to paragraph V-1, except that, at the committee's discretion,
such designation may apply only to a portion of the assets of the growth
fund so that such investment manager shall have investment
responsibility only as to that portion of the growth fund for which it
is acting as investment manager. The trustee shall have investment
responsibility as to all assets of the growth fund for which an
investment manager does not have investment responsibility or which are
not invested at the direction of the committee pursuant to paragraph
IV-2(c)(ii) in units of an investment company, a common, collective or
commingled trust fund, or a pooled investment fund. Earnings with
respect to the growth fund shall be retained in that fund and reinvested
as a part thereof.
VI-7. ADDITIONAL INVESTMENT FUNDS. The committee from time to time
may direct the trustee to establish one or more additional investment
funds or to establish an investment fund to replace an existing
investment fund described in this Article VI (but not to replace
investments in company shares), and the committee may direct the trustee
to transfer assets specified by the committee from another investment
fund to such additional or replacement investment fund. Investment of
the assets held in any such investment fund shall be made pursuant to
investment guidelines formulated by the committee and shall be the
responsibility of the trustee to the extent the committee has not
appointed an investment manager for that fund or has not directed the
investment of that fund in units of one or more investment companies
and/or of one or more common, collective or commingled trust funds or
pooled investment funds that are qualified under Section 401(a) of the
Internal
7
<PAGE>
Revenue Code. Any dividends, interest or other income generated by
investment of any assets of such an investment fund shall be credited to
that fund."
IN WITNESS WHEREOF, the company has caused these presents to be signed by an
officer thereunto duly authorized this 30th day of July, 1993.
USG CORPORATION
By ______________________________
Senior Vice President and
Chief Administrative Officer
The undersigned, as trustee under USG Corporation Investment Trust, hereby
acknowledges receipt of an executed copy of the foregoing amendment of the
trust and hereby consents thereto to the extent it applies to the undersigned
as trustee, this ______ day of _____________, 1993.
THE NORTHERN TRUST COMPANY,
as Trustee as Aforesaid
By ______________________________
Its __________________________
8
<PAGE>
EXHIBIT 10(al)
SIXTH AMENDMENT
OF
USG CORPORATION INVESTMENT PLAN
WHEREAS, USG CORPORATION (the "company") maintains USG Corporation Investment
Plan (the "plan"); and
WHEREAS, the plan has been amended from time to time, including an amendment
and restatement of the plan effective as of January 1, 1989 and five
subsequent amendments, and further amendment of the plan now is considered
desirable;
NOW, THEREFORE, pursuant to the amending power reserved to the company under
subsection 15.1 of the plan, as amended, the plan be and is further amended in
the following particulars:
1. By substituting the parenthetical phrase "(or he would be accruing
benefits but for a minimum age provision set forth in that plan, if any)" for
the parenthetical phrase "(or he would be accruing benefits but for a maximum
or minimum age provision set forth in that plan, if any)" where the latter
appears in subparagraph 2.1(c)(i) of the plan.
2. By substituting the following for the last sentence of subsection 3.2 of
the plan:
"Corporate matching contributions shall be made under the plan for a
plan year beginning after December 31, 1992 with respect to participants
basic contributions during that year to the extent provided by the
corporation matching contribution provisions set forth in subsection
4.2."
3. By substituting the following for subsections 4.2 and 4.3 of the plan:
"4.2. CORPORATION MATCHING CONTRIBUTIONS. Subject to the conditions
and limitations of this Section 4 and Sections 7 and 15, the employers
will make 'corporation matching contributions' with respect to eligible
participants (as defined in subsection 6.4) in the form of 'formula
matching contributions' and
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<PAGE>
'quarterly matching contributions' as determined under subparagraphs (a)
and (b) below:
(a) FORMULA MATCHING CONTRIBUTIONS. For each plan year commencing
after December 31, 1992 the employers will make formula matching
contributions only if at least 80 percent of the Consolidated
Earnings Goal of the USG Companies for that plan year has been
met. The level of formula matching contributions is to be
determined on the basis of the table set forth in Exhibit I to the
plan. The 'Consolidated Earnings Goal' for any plan year is based
upon consolidated earnings of the USG Companies from all domestic
and foreign continuing operations before net interest expense,
asset sales, taxes, and depreciation, depletion, amortization, and
other non-cash charges, with the amount of the Consolidated
Earnings Goal for any plan year determined by the chief financial
officer of the company and filed in writing with the committee by
July 31, 1993 in the case of the 1993 plan year and by the end of
the first calendar quarter in the case of each subsequent plan
year.
(b) QUARTERLY MATCHING CONTRIBUTIONS. For each calendar quarter
commencing after December 31, 1993 the employers will make
quarterly matching contributions in an amount equal to 25 percent
of each eligible participant's basic contributions made during
that calendar quarter not in excess of 4 percent of his earnings
for that calendar quarter.
4.3. INDIVIDUAL EMPLOYER'S SHARE OF CORPORATION MATCHING
CONTRIBUTIONS. Subject to the limitations set forth in subsection 4.4,
each employer's share of the corporation matching contributions to be
made under the plan for any period pursuant to subsection 4.2 shall be
determined as follows:
(a) the amount of the corporation matching contributions under the
plan determined in accordance with subsection 4.2 shall be reduced
by 'remainders' that have arisen under the plan to the extent such
remainders have not been otherwise applied pursuant to subsection
10.9; and
(b) the employer's share shall be that proportion of the net amount
determined under subparagraph (a)
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<PAGE>
above which the corporation matching contributions (determined in
accordance with subsection 4.2) to be allocated to participants
employed by the employer bear to the total corporation matching
contributions (determined in accordance with subsection 4.2) to be
allocated to all participants.
Each employer's share of the formula matching contributions to be made
under the plan for any plan year pursuant to subparagraph 4.2(a) shall
be paid to the trustee, without interest, not later than the time
required for the filing of the company's federal income tax return for
its taxable year beginning within that plan year, including any
extensions of time thereof. Each employer's share of the quarterly
matching contributions to be made under the plan for any quarter
pursuant to subparagraph 4.2(b) shall be paid to the trustee, without
interest, as soon as practicable after the amount of such share is
determined."
4. By substituting the following for subsection 5.3 of the plan:
"5.3. PRIMARY INVESTMENT OF PARTICIPANT BASIC CONTRIBUTIONS. The
basic contributions made by a participant under the plan after June 30,
1993 shall be invested by the trustee pursuant to the participant's
election on a form provided for that purpose by the committee in one or
more of the following forms of investment, in 5 percent increments:
(a) Common stock of the company ('company shares') described in
subsection 5.6.
(b) The fixed income fund described in subsection 5.7.
(c) The government investment fund described in subsection 5.8.
(d) The balanced fund described in subsection 5.9.
(e) The equity index fund described in subsection 5.10.
(f) The growth fund described in subsection 5.11.
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<PAGE>
(g) Any other investment fund described in subsection 5.12.
Investments under any of the funds ('investment funds') described in
subparagraphs (b) through (g) above may, to the extent permitted under
the trust agreement, be made in the form of units in one or more
investment companies registered under the Investment Company Act of 1940
or common, collective or commingled trust funds or pooled investment
funds qualified under Section 401(a) of the Internal Revenue Code."
5. By substituting the following for subparagraphs (a), (b) and (c) of
subsection 5.4 of the plan:
"(a) In the case of a participant in the plan on June 30, 1993, his
basic contributions made after June 30, 1993 and his participant
accounts on that date shall continue to be invested in the same
manner as during the calendar quarter ended June 30, 1993 until
the participant makes an investment change election under
subparagraph (b) or (c) of this subsection 5.4 which is effective
for the calendar quarter beginning July 1, 1993 or in a subsequent
calendar quarter.
(b) At least fifteen days (or such lesser number of days specified by
the committee) before the end of any calendar quarter a
participant may elect to change his investment election as to any
contributions he makes under the plan after the end of that
calendar quarter so that they may be invested in 5 percent
increments in one or more of the forms of investment described in
subsection 5.3.
(c) At least fifteen days before the end of any calendar quarter a
participant may elect that 100 percent of the assets in all of his
participant accounts be converted to cash and invested in 5
percent increments in one or more of the forms of investments
described in subsection 5.3. Notwithstanding the foregoing to the
contrary, a participant's elections under this subparagraph (c)
for the calendar quarter beginning on July 1, 1993 must be in
increments of 25% of the assets in all of his participant
accounts, and elections to invest part or all of
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<PAGE>
his existing accounts in the balanced fund, growth fund or in
company shares shall not be effective before the calendar quarter
beginning October 1, 1993."
6. By substituting the following for the second sentence of subsection 5.5 of
the plan:
"As of the end of each calendar quarter the trustee shall separately
determine the earnings resulting from short-term investments during the
calendar quarter with respect to participant contributions required to
be invested in company shares, and participant contributions required to
be invested in any other investment fund, respectively, as provided in
the trust agreement, and such earnings shall be reflected in participant
accounts as provided in subsection 5.13."
7. By substituting the following for the last two sentences of subsection 5.6
of the plan:
"Notwithstanding the foregoing provisions of this subsection and any
other provisions of the plan to the contrary, during the 'suspension
period' which began January 1, 1992 and ended June 30, 1993, the trustee
was not permitted to purchase company shares from any source for
participants' accounts. Beginning July 1, 1993, participants again may
make elections under subsection 5.3 and subparagraph 5.4(b) to have
their future basic contributions invested in company shares in
accordance with the provisions of this subsection 5.6, but elections
under subsection 5.4(c) and subsection 6.2 to have proceeds from any
part or all of their existing participant and corporation accounts
invested in company shares shall not be effective before the calendar
quarter beginning October 1, 1993."
8. By renumbering subsection 5.9 of the plan as subsection 5.10 and inserting
the following new subsection 5.9:
"5.9. BALANCED FUND. The trustee maintains a separate fund known as
the 'balanced fund.' This fund is invested in several broadly
diversified asset classes, which may include, but are not limited to,
domestic common stocks, preferred stocks, bonds and cash, and also may
include foreign common stocks and bonds. New investments shall be made
by the trustee
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<PAGE>
in the balanced fund with participants' contributions as soon as
practicable after they are received by the trustee, but in the interim
may be invested by the trustee as provided in subsection 5.5. Earnings
with respect to the balanced fund shall be retained in that fund and
reinvested as a part thereof."
9. By renumbering subsection 5.10 of the plan as subsection 5.12 and
inserting the following new subsection 5.11:
"5.11. GROWTH FUND. The trustee maintains a separate fund known as
the 'growth fund.' This fund is invested primarily in equity securities
of large market capitalization companies with earnings that are expected
to grow at an above-average rate, but may be further diversified by
investment of a small variable portion of the assets in domestic bonds,
foreign common stocks and bonds, and cash. New investments shall be
made by the trustee in the growth fund with participants' contributions
as soon as practicable after they are received by the trustee, but in
the interim may be invested by the trustee as provided in subsection
5.5. Earnings with respect to the growth fund shall be retained in that
fund and reinvested as a part thereof."
10. By deleting subsection 5.14 and by renumbering subsections 5.11, 5.12
and 5.13 as subsections 5.13, 5.14 and 5.15, respectively.
11. By substituting the following for subsection 6.1 of the plan:
"6.1. CORPORATION ACCOUNTS. In addition to the accounts described in
subsection 5.1, the committee will maintain one or more accounts in the
name of each participant to reflect the participant's share of
corporation matching contributions pursuant to subsection 4.2 and
income, losses, appreciation and depreciation attributable thereto, and
corresponding subaccounts to reflect the participant's interest in the
fixed income fund or other investment funds pursuant to the
participant's investment election under subsection 6.2, including a
'corporation cash account' and a 'corporation stock account,' as
appropriate. All such accounts are referred to as 'corporation
accounts.'"
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<PAGE>
12. By substituting the following for subsection 6.2 of the plan:
"6.2. INVESTMENT OF CORPORATION MATCHING CONTRIBUTIONS. Corporation
matching contributions shall be invested as follows:
(a) Corporation matching contributions received by the trustee during
a calendar quarter shall be invested by the trustee in the fixed
income fund as soon as practicable after they are received by the
trustee, but beginning with the calendar quarter next following
the calendar quarter in which such contributions are received by
the trustee and invested in the fixed income fund, a participant's
share of such contributions and any earnings thereon resulting
from the investment of such contributions in the fixed income fund
shall be subject to investment change elections made by the
participant in accordance with subparagraph (b) below.
(b) Investment change elections may be made by a participant with
respect to his corporation accounts in the same manner as provided
under subparagraph 5.4(c) for participant accounts. A
participant's investment elections with respect to his corporation
accounts need not be the same as his investment elections with
respect to his participant accounts.
If corporation matching contributions have been made in the form of
company shares in lieu of cash pursuant to subsection 4.7, such shares
shall be converted to cash."
13. By substituting the following for subsection 6.4 of the plan:
"6.4. ALLOCATION AND CREDITING OF CORPORATION MATCHING CONTRIBUTIONS.
Corporation matching contributions shall be allocated to the corporation
accounts of eligible participants in accordance with the following:
(a) Formula matching contributions under subparagraph 4.2(a) will be
allocated as of the end of each plan year, pro rata, according to
the basic contributions made by participants, respectively, during
that plan year.
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<PAGE>
(b) Quarterly matching contributions under subparagraph 4.2(b) will be
allocated as of the end of each calendar quarter, effective with
the calendar quarter beginning January 1, 1994, pro rata,
according to basic contributions made by participants,
respectively, during that calendar quarter which are not in excess
of 4 percent of their earnings for that calendar quarter.
The amount to be allocated under this subsection 6.4 for any period
shall include the total of the individual employer shares of the
corporation matching contributions made under the plan for that period,
as determined in accordance with subsection 4.3, and the total
remainders that have arisen under the plan during that period to the
extent such remainders have not been otherwise applied pursuant to
subsection 10.9. The term 'eligible participants' means participants
who made basic contributions under the plan during that year in the case
of formula matching contributions or during that calendar quarter in the
case of quarterly matching contributions, exclusive of participants
whose settlement dates occurred (during that year in the case of formula
matching contributions or during that calendar quarter in the case of
quarterly matching contributions) under subparagraph 10.1(e) because of
resignation or dismissal before they qualified for retirement under the
plan."
14. By deleting the parenthetical phrase "(including his July 31, 1988
employer accounts, if any)" where it appears in subsections 6.7, 10.2 and 10.3
of the plan.
15. By deleting subparagraph 7.5(c) from the plan.
16. By deleting the last sentence of subparagraph 8.2(b) of the plan.
17. By substituting the following for subparagraph 8.3(c)(i) of the plan:
"(i) medical expenses incurred by (or necessary for the
medical care of) the participant, the participant's
spouse or any dependents of the participant;"
-8-
<PAGE>
18. By substituting the following for subparagraph 8.3(c)(iii) of the plan:
"(iii) payment of tuition for the next twelve months of
post-secondary education for the participant or the
participant's spouse, children, or dependents; and"
19. By substituting the phrase "by a nontaxable loan available under the plan
or other distributions or nontaxable loans available from any other plans
maintained by the USG Companies" for the phrase "by other distributions or
nontaxable loans available from any other plans maintained by the USG
Companies," where the latter appears in subparagraph 8.3(d) of the plan.
20. By substituting the following for subparagraphs 8.5(b) and (c) of the
plan:
"(b) Interests in the government investment fund, the fixed income
fund, the balanced fund, the equity index fund, the growth fund
and any other fund established pursuant to subsection 5.10 shall
be converted to cash as of the first day of a calendar quarter
based upon the adjusted balances in all accounts in that
investment fund as of the close of the immediately preceding
calendar quarter.
(c) A participant's interests in the government investment fund, fixed
income fund, balanced fund, equity index fund, growth fund and
company shares shall be converted to cash in that order to the
extent necessary to make a withdrawal payment to that
participant."
21. By adding the following new subsection 8.7, immediately after subsection
8.6 of the plan:
"8.7. LOANS TO PARTICIPANTS. While it is the primary purpose of the
plan to accumulate funds for the participants when they retire, it is
recognized that under some circumstances it is in the best interests of
participants to permit loans to be made to them while they continue in
the active service of the employers. Accordingly, the committee,
pursuant to such rules as it may from time to time establish,
-9-
<PAGE>
and upon written application by a participant supported by such evidence
as the committee requests, may direct the trustee to make a loan from
the trust fund to a participant subject to the following:
(a) The principal amount of any loan made to a participant shall not
exceed the lesser of:
(i) $50,000, reduced by the amount of the highest outstanding
loan balance during the one-year period ending immediately
preceding the date of the loan; or
(ii) one-half of the participant's vested account balances under
the plan.
(b) Each loan must be evidenced by a written note in a form approved
by the committee, shall bear interest at a reasonable rate, and
shall require substantially level amortization (with payments at
least quarterly) over the term of the loan.
(c) Each loan shall specify a repayment period that shall not extend
beyond five years. Repayment of a loan will be made by payroll
deduction or in accordance with rules established by the
committee.
Any loan made under the plan shall be subject to the foregoing
limitations of this subsection 8.7. If on a participant's settlement
date, any loan or portion of a loan made to him under the plan, together
with the accrued interest thereon, remains unpaid, an amount equal to
such loan or any part thereof, together with the accrued interest
thereon, shall be charged to the participant's accounts after all other
adjustments required under the plan, but before any distribution
pursuant to subsection 10.6."
22. By substituting the following for subparagraph 9.2(b) of the plan:
"(b) If any company shares credited to the participant accounts or
corporation accounts of any participant are required to be
converted to cash because of a withdrawal or loan pursuant to
Section 8, the committee shall direct the trustee to purchase such
company shares with participant basic contributions and investment
change proceeds available for that purpose as
-10-
<PAGE>
soon as practicable after the effective date of the withdrawal or
loan."
23. By substituting the following for subparagraph 9.2(f)(ii) of the plan:
"(ii) NEXT, company shares required to be converted to cash
so that the trustee may make a withdrawal payment or loan
under Section 8 shall be purchased by the trustee in the
order in which the withdrawal or loan elections or
requests became effective; and"
24. By adding the following new subparagraph (g) at the end of subsection
10.7 of the plan:
"(g) DIRECT TRANSFER OF ELIGIBLE ROLLOVER DISTRIBUTIONS. If a
participant's distribution constitutes an eligible rollover
distribution under Section 402(c)(4) of the Internal Revenue Code,
then the participant may elect to have such distribution paid
directly to an eligible retirement plan described in Section
402(c)(8)(B) of the Internal Revenue Code. Each election by a
participant under this subparagraph 10.7(g) shall be made at such
time and in such manner as the committee shall determine, and
shall be effective only in accordance with such rules as shall be
established from time to time by the committee."
25. By adding the following sentence at the end of subsection 12.4 of the
plan:
"Notwithstanding any provisions of the plan to the contrary, the
committee in its discretion and subject to requirements of applicable
law may permit participants to make investment elections or other
elections under the plan by telephone through an automated telephone
system established for this purpose or by any other method authorized by
the committee as acceptable in lieu of written elections."
-11-
<PAGE>
26. By adding the following Exhibit I immediately after Section 16 of the
plan:
"EXHIBIT I
TO
USG CORPORATION INVESTMENT PLAN
<TABLE>
<CAPTION>
Matching Percentage of
Percentage Achievement of Eligible Participants'
Consolidated Earnings Goal Basic Contributions
- -------------------------- ----------------------
<S> <C>
80% 10%
81% 11%
82% 12%
83% 13%
84% 14%
85% 15%
86% 16%
87% 17%
88% 18%
89% 19%
90% 20%
91% 21%
92% 22%
93% 23%
94% 24%
95% 25%
96% 26%
97% 27%
98% 28%
99% 29%
100% 30%
101% 32%
102% 34%
103% 36%
104% 38%
105% 40%
106% 42%
107% 44%
108% 46%
109% 48%
110% 50%
111% 52.5%
112% 55%
113% 57.5%
114% 60%
115% 62.5%
116% 65%
117% 67.5%
</TABLE>
-12-
<PAGE>
<TABLE>
<S> <C>
118% 70%
119% 72.5%
120% 75%
</TABLE>
For each 1% increase in percentage achievement of consolidated earnings
goal in excess of 120%, the matching percentage of eligible
participants' basic contributions shall be increased by 2.5%. Any
fraction of a percent in the percentage achievement of consolidated
earnings goal will be rounded up to the nearest whole percentage if .5%
or more, or rounded down to the nearest whole percentage if under .5%."
* * *
Particulars 1, 2, 3, 15, 24 and 26 of the foregoing shall be effective as of
January 1, 1993, particulars 4 through 14, particulars 16 through 18 and
particular 20 shall be effective July 1, 1993, and particular 19, particulars
21 through 23 and particular 25 shall be effective October 1, 1993.
IN WITNESS WHEREOF, the company has caused these presents to be signed by an
officer thereunto duly authorized this 30th day of July, 1993.
USG CORPORATION
By ______________________________
Senior Vice President and
Chief Administrative Officer
-13-
<PAGE>
EXHIBIT 10(av)
May 6, 1993
Mr. Jack D. Sparks
2704 Highland Court
St. Joseph, MI 49085
Dear Jack:
USG Corporation deeply appreciates your many years of service as a member of
the Board of Directors and as a participant in its various committees. Your
sound judgment and valued counsel as a director and your unique perspective
will not easily be replaced. Accordingly, the Corporation desires to enter
into an understanding with you effective this date by which your wisdom,
counsel and advice will continue to be available to it. The understanding
would be pursuant to the Corporation's policy regarding retired non-employee
directors as set forth in resolutions approved by the Board of Directors.
We propose that you be available to render advice and counsel to the
Corporation to the extent and at times that are mutually agreeable. During
the period in which this arrangement is in force, you will refrain from any
activity in conflict or competitive with the best interests of the
Corporation. We would rely upon you to call to our attention any specific
situations which you believe might fall within such prohibition.
In return for the foregoing, the Corporation would undertake to pay you an
annual retainer of twenty-four thousand dollars ($24,000) for a period of five
(5) years. One quarter of such sum, or a pro rata portion thereof, would be
payable no later than the 25th day of the last month in each calendar quarter
during which this arrangement remains in effect. It is understood and agreed,
however, that payment for the current calendar quarter up to and including the
date of this letter shall be computed pro rata and covered by your regular fee
arrangment as a director. Payment for the balance of such quarter shall be
computed pro rata and covered by the provisions of this letter.
The Chief Executive Officer of the Corporation or persons designated by him
shall be the only persons authorized to request your advice, counsel, or
approve your travel expenses, and arrange any conferences between you and
Corporation executives. Any properly authorized expenses incurred by you in
the interests of the Corporation would, of course, be reimbursed.
<PAGE>
-2-
Under this arrangement, as you would be an independent adviser and not an
employee of the Corporation, the Corporation would make no tax withholding or
other deductions from the retainer payment. You, in turn, would have no
authority to obligate the Corporation contractually and would make no
representations to the contrary.
As you know, under our policy regarding retired non-employee directors, the
Board, in its sole discretion, may discontinue, change or modify this policy
at any time and in any way. Accordingly, either of us would have the right to
terminate the proposed arrangement at any time and effective immediately upon
written notice to the other.
If you are in agreement with the foregoing, please sign in the space indicated
below and return one fully executed counterpart original to us.
Continued best wishes, and we look forward to hearing from you.
Very truly yours,
USG CORPORATION
Chairman of the Board
AGREED:
________________________________
Jack D. Sparks
<PAGE>
EXHIBIT 10(aw)
August 11, 1993
Mr. James W. Cozad
205 North Michigan Avenue
Suite 4310
Chicago, IL 60601
Dear Jim:
USG Corporation deeply appreciates your many years of service as a member of
the Board of Directors and as a participant in its various committees. Your
sound judgment and valued counsel as a director and your unique perspective
will not easily be replaced. Accordingly, the Corporation desires to enter
into an understanding with you effective this date by which your wisdom,
counsel and advice will continue to be available to it. The understanding
would be pursuant to the Corporation's policy regarding retired non-employee
directors as set forth in resolutions approved by the Board of Directors.
We propose that you be available to render advice and counsel to the
Corporation to the extent and at times that are mutually agreeable. During
the period in which this arrangement is in force, you will refrain from any
activity in conflict or competitive with the best interests of the
Corporation. We would rely upon you to call to our attention any specific
situations which you believe might fall within such prohibition.
In return for the foregoing, the Corporation would undertake to pay you an
annual retainer of twenty-four thousand dollars ($24,000) for a period of five
(5) years. One quarter of such sum, or a pro rata portion thereof, would be
payable no later than the 25th day of the last month in each calendar quarter
during which this arrangement remains in effect. It is understood and agreed,
however, that payment for the current calendar quarter up to and including the
date of this letter shall be computed pro rata and covered by your regular fee
arrangment as a director. Payment for the balance of such quarter shall be
computed pro rata and covered by the provisions of this letter.
The Chief Executive Officer of the Corporation or persons designated by him
shall be the only persons authorized to request your advice, counsel, or
approve your travel expenses, and arrange any conferences between you and
Corporation executives. Any properly authorized expenses incurred by you in
the interests of the Corporation would, of course, be reimbursed.
<PAGE>
-2-
Under this arrangement, as you would be an independent adviser and not an
employee of the Corporation, the Corporation would make no tax withholding or
other deductions from the retainer payment. You, in turn, would have no
authority to obligate the Corporation contractually and would make no
representations to the contrary.
As you know, under our policy regarding retired non-employee directors, the
Board, in its sole discretion, may discontinue, change or modify this policy
at any time and in any way. Accordingly, either of us would have the right to
terminate the proposed arrangement at any time and effective immediately upon
written notice to the other.
If you are in agreement with the foregoing, please sign in the space indicated
below and return one fully executed counterpart original to us.
Continued best wishes, and we look forward to hearing from you.
Very truly yours,
USG CORPORATION
Chairman of the Board
AGREED:
_____________________________
James W. Cozad
<PAGE>
Exhibit 24(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
registration statement of our reports dated February 9, 1993, except as to the
Subsequent Event note, which is as of March 17, 1993, included herein and to all
references to our Firm included in this registration statement.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Chicago, Illinois,
January 7, 1994
<PAGE>
EXHIBIT 25
POWER OF ATTORNEY
WHEREAS, the Board of Directors of USG Corporation (the "Corporation")
has approved the issuance and sale of shares of the Corporation's Common Stock
in a public offering (the "Equity Offering");
WHEREAS, the Corporation, in connection with the Equity Offering, will
file a Registration Statement on Form S-1 (the "Equity Registration
Statement") under the Securities Act of 1933 (the "Act") with the Securities
and Exchange Commission (the "Commission");
WHEREAS, the Board of Directors of the Corporation has also approved the
issuance and sale of $150 million principal amount of new senior notes due
2001 ("New Senior Notes") for cash and/or in exchange for its 8% Senior Notes
due 1996 and 8% Senior Notes due 1997; and
WHEREAS, the Corporation, in connection with the issuance and sale of
New Senior Notes, will file with the Commission under the Act a registration
statement (the "Debt Registration Statement") covering the sale (or resales)
of New Senior Notes.
NOW, THEREFORE:
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard H. Fleming, John E. Malone and Raymond
T. Belz and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to:
(i) sign the Equity Registration Statement and any or all amendments
thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission; and
(ii) sign the Debt Registration Statement and any or all amendments
thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission;
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
<PAGE>
This power of attorney has been signed on January 4, 1994 by the
following persons:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Eugene B. Connolly Chairman of the Board, Chief
- --------------------------------- Executive Officer, and Director
Eugene B. Connolly
/s/ Anthony J. Falvo, Jr. Vice Chairman and Director
- ---------------------------------
Anthony J. Falvo, Jr.
/s/ Robert L. Barnett Director
- ---------------------------------
Robert L. Barnett
/s/ Keith A. Brown Director
- ---------------------------------
Keith A. Brown
/s/ W.H. Clark Director
- ---------------------------------
W.H. Clark
/s/ James C. Cotting Director
- ---------------------------------
James C. Cotting
/s/ Lawrence M. Crutcher Director
- ---------------------------------
Lawrence M. Crutcher
/s/ Wade Fetzer III Director
- ---------------------------------
Wade Fetzer III
/s/ David W. Fox Director
- ---------------------------------
David W. Fox
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Director
- --------------------------------
Philip C. Jackson, Jr.
/s/ Marvin E. Lesser Director
- --------------------------------
Marvin E. Lesser
/s/ John B. Schwemm Director
- --------------------------------
John B. Schwemm
/s/ Alan G. Turner Director
- --------------------------------
Alan G. Turner
/s/ Barry L. Zubrow Director
- --------------------------------
Barry L. Zubrow
</TABLE>
